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Perion Network Ltd. (NASDAQ:PERI)

Q3 2011 Earnings Conference Call

14 November 2011, 10:00 AM EST

Executives

Josef Mandelbaum - CEO

Yacov Kaufman - CFO

Rob Fink - IR, KCSA Strategic Communications

Analysts

Nick Halen – Sidoti & Company

Christopher L. Ferris – Noble Financial Group, Inc.

Aram Fuchs – Fertilemind Capital

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Perion Third Quarter 2011 Results 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, we have Josef Mandelbaum, CEO, Yacov Kaufman, CFO, and Rob Fink from KCSA Strategic Communications. I will now hand the call over to - Rob, please begin...

Rob Fink

Thank you all for joining us today for the first earnings conference call following last week’s announcement that the company has changed its name to Perion Network as a part of a rebranding effort to better reflect its portfolio strategy. On today’s call, management will be reviewing the financial results and business highlights of the third quarter 2011. The press release detailing Q3 results is available on the company’s new website perion.com. Also posted on the website is the live webcast that contains a slide presentation that will be used on this call and which will be archived.

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.

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

Josef Mandelbaum

Thank you Rob and welcome everyone to our third quarter 2011 earnings call. Today I would like to focus my comments on three items: first, a progress update on our strategy, specifically our recent rebranding to Perion; second, a top line summary of our financial results; and third, an update on the Smilebox acquisition and other operational highlights of the past quarter.

After my prepared remarks I will turn the call over to Yacov who will review the Q3 financials in detail and provide updated guidance for 2011. We’ll then open up the call for questions.

These are exciting times for our company as the strategy we outlined comes to life through the execution of our plan. In the past 14 months we have methodically and successfully, executed the initial phases of our strategy. We have made investments in our infrastructure to allow us to scale, reduced headcount in some areas to invest in adding and investing in new skills sets and people, established a labs group and corporate development team to grow our product portfolio through organic and non-organic means, all to help transform our business from a single product company overly dependent on one revenue stream, to a multi product company with multiple revenue sources.

The rebranding and renaming of our company to Perion Network is the next phase of this effort. Our new name signifies a big step forward, towards advancing a vision that I have discussed since joining the company as CEO over a year ago. While this may seem trivial, it is an essential part of how both internally and externally the company behaves and is perceived.

Perion, which was derived from the English translation of the Hebrew word for “productivity, embodies our corporate vision -- to make the everyday digital life of our users simpler and more enjoyable through a portfolio of quality productivity based products and services customized and targeted to second wave adopters.

While IncrediMail continues to be one of our primary brands, following the acquisition of Smilebox we have really expanded beyond a one-product company, and as we continue to build out our portfolio of easy-to-use productivity tools, we want consumers to recognize our brands under the Perion umbrella, which over time offers us the perfect branding platform to grow the business, establish an emotional bond with our consumer’s, earn their trust and in so doing increase their loyalty and life time value.

Now I would like to discuss our year-to-date and third quarter performance.

In the first 9 months of 2011 top line revenues increased by 19% to $25.7 million. This is a result of strong search revenues and an increase in advertising and premium product revenues; the latter is largely driven by the addition of Smilebox.

The $900,000 decrease in net profit, from $7.6 million to $6.7 million seen in the first 9 months of 2011 is primarily a result of increased customer acquisition costs and expenses resulting from investments into the infrastructure necessary for accelerated growth. These investments are part of our strategy to accelerate top line growth and maintain a robust bottom line.

While we see a positive return on investment as we ramp up our customer acquisition efforts, the expense precedes revenues and year to date this has impacted our short term profits, particularly in the second half of the year, as we have been anticipating.

In the third quarter our revenues were $9 million, a 20% increase over the third quarter of last year, while our net income was $1 million lower than the third quarter of last year at $1.8 million, primarily as a result of a $2.2 million increase in customer acquisition costs. As you can see we have maintained a very healthy profit margin even as we invest in future growth. Although only one month of consolidated activity is included in the results -- the positive impact that the Smilebox acquisition has had on our top line growth and revenue mix can already be seen.

With that as a backdrop, I’d like to provide an update on the integration of Smilebox and review some operational highlights of the third quarter.

Orchestrating and successfully completing the acquisition of Smilebox in Q3 was the major development and key highlight for us, but as I said on our last call, it’s been my experience that the biggest challenge in acquisitions is the execution and actual merger of two companies, cultures and teams.

To that end, I am happy to report that everything is going according to plan and in the 75 days since we closed the acquisition, we have been focused on execution and making real progress with leveraging synergies. Thanks to this progress, we believe that on a non-GAAP basis, Smilebox will be breakeven in Q4 of this year, and are confident that it will be profitable in the first quarter of 2012. We feel comfortable making these projections because of the execution of two main synergies that were identified before the acquisition.

The first relates to search. If you recall from our last call, Smilebox has been growing the top line by more than 35% each year for the past few years mainly through its strong user base and subscriber growth. Our ability to introduce and leverage our search monetization expertise to the Smilebox freemium model was an area of opportunity for us, and this effort is progressing as we had hoped. Maintaining the Smilebox brand is critical to our effort, and as such we are taking a slower, more careful approach to rolling this out to all users but so far, the initial indications are very encouraging.

The second relates to costs. There were some expense synergies and cost reductions that were quickly identified following closing. One such area is content licensing. My previous experience at American Greetings gives me confidence that we can and will realize significant savings without impacting the quality of our product, by paying market rates so to either; own the content outright, or through reduced royalty rates more in line with industry standards.

Both of these examples, once fully implemented, have the ability to enhance the top line and bottom line results going forward.

Operationally, the third quarter was highlighted by a number of developments.

We launched a beta version of webmail for IncrediMail. This was not done to compete with the many well established webmail providers in the space, but rather in response to feedback we received from our consumer research that identified the lack of portability of IncrediMail as a major concern for our consumers.

I am happy to report, that the addition of Facebook to our IncrediMail client in Q2, recently passed 1 million active users who are posting photos and messaging on Facebook from IncrediMail. We are still monitoring the metrics, but it would seem that retention among these users is higher than the regular base which was the main objective of the project.

In addition to IncrediMail we also integrated Facebook into PhotoJoy. Now you can automatically get your Facebook photos onto your desktop in addition to your personal photos from your desktop.

We also launched our first mobile app with Smilebox mobile on the iPhone and in its first 60 days we already have more than 160,000 active users who have accessed the app more than 800,000 times. Social and Mobile are two critical areas we will continue to invest in and believe it to be critical to our long term success.

Lastly, we expanded the Perion Portfolio into a new category, Safety & Security, with the beta launch of our new brand Fixie late in the quarter. Fixie helps users optimize the speed and performance of their personal computers by locating errors and fixing them in a click. Fixie includes backup and scheduling features, making PC optimization easy and convenient. Fixie will monetize primarily as a premium product, but like other brands in the portfolio there will be a Freemium version that uses search to monetize the use of the product by some of the users.

I would now like to turn the call over to Yacov for more details on the financial results for this quarter. Yacov….

Yacov Kaufman

Thank you Josef.

Before reviewing the financial results I would like discuss the financial measure we will report in going forward. As we further implement our M&A strategy, following the completion of the Smilebox acquisition, we have decided to focus on Non-GAAP results.

While we will continue to offer a detailed reconciliation of GAAP results in the financial tables in the earnings press release, the decision to focus on non-GAAP was made to better convey the operational state of the business.

In general, the differences between the two bases of presentation are acquisition associated expenses, accounting treatment of deferred revenues and other non-cash or non-recurring expenses that we believe do not present fairly the operational aspects of the company.

With that said, I will now go on to analyze our performance in the third quarter.

As Josef already mentioned, this has been a very busy quarter. Revenues this quarter were $9.0 million, bringing revenue to a total of $25.7 million for the first three quarters of 2011, reflecting 19% growth year-over-year.

This quarter’s revenues included $6 million in search generated revenues, which despite a slight dip in overall queries, continued to grow year over year. Product revenues were $2 million, which included $900 thousand generated by our Smilebox product in the single month consolidated this quarter, generating 56% year over year growth in product sales; and finally $1.0 million in other income, which grew three fold compared to the third quarter of 2010. All in all, as a result of the accelerated product growth and growth in other revenues, we have a much more diversified base, with search generated revenues accounting for only 66% of total revenues in the third quarter of 2011, as compared to 78% in the same quarter last year.

As we consolidate increasing sales from Smilebox and grow our other revenue streams, we can expect this trend of decreasing dependence on search generated revenues to continue.

The difference between GAAP and non-GAAP revenues during the periods covered was $561 thousand in deferred revenues deducted in the GAAP presentation.

Gross profits also continued to grow from $7.1 million in the third quarter of 2010 to $8.4 million this past quarter. The gross profit margin was high at 92%, although lower than previous periods, as Smilebox’s product includes content costs and other costs included in the cost of goods sold. Going forward, we can expect to continue and have a very high gross profit margin, although lower than those recorded prior to the acquisition of Smilebox. The $561 thousand difference between GAAP and non-GAAP revenues had the same effect on gross profits.

Research and Development expenses for the third quarter were $1.7 million, similar to those in the third quarter of last year, and were 20% as a percentage of sales, compared to 23% in the third quarter last year. We expect R&D expenses to remain at this level as a percentage of sales in coming quarters. There was no material difference between GAAP and non-GAAP R&D numbers.

Sales and Marketing expenses, other than customer acquisition costs, for the third quarter of 2011 were $700 thousand, same as in the third quarter of 2010.

Customer acquisition costs went up significantly to $2.6 million in the third quarter of 2011, compared to $400 thousand in the same period last year. This increase is in line with our strategy to invest in accelerating growth, generating revenues later this year and in 2012. In addition, these investments now include those required to acquire Smilebox users.

Our media buying program has been ramping up, and we have invested great effort in creating the systems required to track the success of these investments, ensuring they are RoI positive beyond the testing stage. Our efforts are indeed showing a positive return on investment and therefore we can expect these expenses to further increase in the fourth quarter. A large amount of the return on these investments will come in 2012, as we have previously indicated, increasing revenues and contributing to profitability.

General and Administrative expenses were $1.6 million in the third quarter of 2011, compared to $1.4 million in the third quarter of 2010. This increase, for the most part, stems from the enhanced management structure put into place in the fourth quarter of 2010 and the first quarter of this year, as well as some costs brought on with the consolidation of Smilebox.

Smilebox acquisition costs of $800 thousand in the third quarter, for a total of $1 million in the first nine months of 2011, as well as $150 thousand of intangible assets amortization, in both periods, were deducted from the non-GAAP numbers. In addition share based compensation was adjusted for in the non-GAAP numbers for all periods reported.

While in the first two quarters this year we benefited from non-recurring tax credits of $1.4 million, there were no such credits this quarter. These non-recurring tax credits were deducted from net income in the non-GAAP numbers.

The effective tax rate was higher this quarter primarily due to the combination of GAAP and non-GAAP losses in Smilebox for which we did not record a tax credit. We expect this effect to continue until Smilebox establishes significant profitability on a GAAP basis. The effective tax rate on the Israeli operations is expected to be approximately 20%.

Net income in the third quarter of 2011, after all the investments mentioned above, was a robust $1.8 million, or $0.19 per diluted share, compared to $2.4 million, or $0.23 per diluted share in 2010. In the first nine months of 2011 net income was 26% of revenues, reaching $6.7 million, or $0.63 per diluted share in the first nine months of 2011, compared to $7.1 million and $0.73 per diluted share in the first nine months of 2010.

In the first nine months of 2011, cash generated from operations totaled $5.4 million as compared to $7.3 million for the first nine months of 2010. The decrease in cash flow from operations reflects an increase in trade accounts receivables of $1.7 million, which was received shortly after the end of the quarter, as well as the aforementioned lower net income which was due primarily to investments in CAC which had increased by $3.6 million.

As of September 30, 2011, we had cash, cash equivalents and investments of approximately $9.5 million. In addition to our cash-flow being generated from operations, we have secured a $20 million long term bank credit facility which remains unutilized.

Before returning the call to Josef, allow me to highlight some of the metrics driving our business.

Total downloads this quarter were approximately 4 million, compared to 2.9 million in the third quarter of 2010. A significant portion of that growth was driven by our newly acquired Smilebox product and we believe this product will continue to drive product diversification and future product sales.

Our install base has grown by 31% since last September and reached 9.6 million during Q3. This increase as well reflects the broadening of our install base with the acquisition of Smilebox.

We had approximately 276 million search queries this quarter, decreasing 6% compared to the third quarter of 2010. This decrease was due to the previously mentioned terms of service changes instituted by Google to all their partners in June of 2011, as well as some technical difficulties experienced by one of our partners which directly impacted the number of queries in the quarter.

And finally the acquisition of Smilebox has dramatically increased the number of premium subscribers to 370,000, increasing 125% compared to the third quarter of 2010. We expect the number of premium subscribers to continue and grow in the coming quarters.

With the addition of Smilebox, we are updating our guidance for 2011 and projecting non-GAAP revenue of $37 million for this year. Expected full year non-GAAP net income is expected to be approximately $8 million.

We expect to issue guidance for 2012 in January, well before we report Q4 and 2011 year-end results.

With that said, I would now like to turn the call back over to Josef for closing remarks before opening the call to questions.

Josef Mandelbaum

Thank you Yacov.

With a new brand to reflect our strategy and future aspirations, strong financial results, continued progress in our improving our operations, products and customer acquisition efforts as well as the successful integration of Smilebox, we are very excited about our current and future position.

Thank you very much for your time. We will now open up the line for questions.

Operator…

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question is from Nick Halen of Sidoti & Company. Please go ahead.

Nick Halen – Sidoti & Company

Hi, guys thanks for taking my questions.

Josef Mandelbaum

Hey, Nick. How are you doing?

Nick Halen – Sidoti & Company

Good, good. So, the first question I had is, I know it’s only been about a month or so, did you mentioned I apologize if I missed it, how much revenue you guys did from Smilebox in the quarter?

Josef Mandelbaum

Yacov did mention it; in the month it’s about $900,000.

Nick Halen – Sidoti & Company

$900,000 okay. Okay. Just in terms of the media buying it seems like you guys are pretty happy with the ROI that you’re seeing on that. But do you guys kind of have somewhat of a timeline as so when you expect to may be scale back a little bit of that spending or is it as long as its ROI positive we can expect to continue seeing higher expenses on that end?

Josef Mandelbaum

I think from our standpoint, as long as the ROI meet certain thresholds obviously have to exceed our weighted average cost of capital as to bigger return. We expect to continue however these things have a natural ceiling and they usually, at some point in time you get to a place were your return isn’t worth it and you level it out and then you start optimizing. And you will not see increases so significantly. I don’t think we’re there yet, but as we even see from the chart that I think, Yacov showed during his presentation, part of the testing process we did had ups and downs, as we mentioned in our previous phone calls. And is really finding, where to get the best return, trying to frankly put the pedal to the metal and see how far we can push that and ultimately, what happens when you do that is, you reach the ceiling and you got to keep on looking in expanding it horizontally. I think there’s still a lot of opportunity there and the ROI is positive. So we’re excited about that, and we think it can continue to fuel growth hopefully for many, many more quarters to come.

Nick Halen – Sidoti & Company

Okay. And just lastly, I know there was a pretty significant jump in accrued expenses on the balance sheet this quarter, did that have anything to do with the acquisition, and I guess, in working we could expect that to be by the end of the year?

Yacov Kaufman

Yes. You hit on the note, that expense is accrual of the coming payment that we’re expecting to pay for the most part in March of 2012 for the acquisition of Smilebox, and we’re expecting that number to be in the neighborhood of $6 million to $7 million.

Nick Halen – Sidoti & Company

$6 million to $7 million. Okay, all right. Great, thank you guys.

Operator

The next question is from Christopher Ferris of Noble Financial. Please go ahead.

Christopher L. Ferris – Noble Financial Group, Inc.

Hi guys. Thank you for taking the question. You touched a little bit on the lower search in the quarter, and I was wondering is that kind of a number we should expect to see going forward over the next couple of quarters down mid single digits number or is that a one-time item in the quarter? And then, I think next question you kind of touch on this, but I was just curious about the customer acquisition cost and if you could drill down a little bit more there and is that sort of the run rate we should expect going forward for the next couple of quarters?

Josef Mandelbaum

Sure. Nice to have you on the phone call, Chris.

Christopher L. Ferris – Noble Financial Group, Inc.

Yeah. Thank you.

Josef Mandelbaum

I’ll answer the first one in order. So, the answer is that as we looked at the business of the searches to date, we believe it was a one-time issue as we adjusted it to a) Google’s changes. I think if you look at a lot of comps out there, there are a lot of companies that had a little bit of a dip as you have to kind of readjust to the new terms of service. We’re already seeing, we’re in the middle of Q4, so we are already seeing the uptick. So we don’t expect, we expect Q4 to be much stronger than Q3. We think it’s one-time, and the bug from one of our partners, it happens sometimes. There was bug in one of our partners we had and now it caused us some issues and we think we had passed it. So we think going forward, we shouldn't see a decrease in our single-digits on a going forward basis, that’s number one.

Number two, with regarding to customer acquisition, I guess I'm not sure what you're looking for more clarity, but I will say the following; we’re looking and I think we’ve mentioned this. In the first six to nine months of the year, we’re pretty consistent in saying, we’re doing a lot of testing, we are building our infrastructure, and we are testing in multiple countries, multiple campaigns, multiple channels, from affiliates to PPC to display advertising. And as long as the return, we think is double-digits and higher for us as we look at how we spend our money given where we can make money today using our cash. It's a pretty good return on investment for us. It also helps us in the long-term by building up our base, which ultimately leads to more vital acquisitions as well both for IncrediMail and for Smilebox.

So, I think the run rate you’re seeing today, I can't guarantee it but I’d say we look more like the run rate today than we look in the first half of the year on a going forward basis. That will be our best guess today as the run rate you see in Q3 and Q4 will likely be the run rate we will start seeing in 2012, which is what we predicted at the beginning of the year if you recall.

Christopher L. Ferris – Noble Financial Group, Inc.

Okay, thank you very much.

Josef Mandelbaum

Welcome.

Operator

The next question is from Aram Fuchs of Fertilemind Capital. Please go ahead.

Aram Fuchs – Fertilemind Capital

How does the interruption of this one partner and the change in the Google SERP impact the accuracy of your ROI calculations on this media spend, because your media spend has gone up dramatically and search queries have gone down, just from a public and analysis of your public filings, it’s difficult to see how you can be getting a positive ROI?

Josef Mandelbaum

First of all, nice to have you on the phone, Aram. Thanks for the question. If you notice the slide again that Yacov had you saw a dip in July as an example, where we had to re-calibrate after the Google changes and some of the issues we had with a partner. We had to re-calibrate and make sure then in fact we weren’t losing our shirts on the ROI. We did re-calibrate in July and we really took the media spend down significantly, but what we did in the month of July as well as we optimized for the revenue per click that we get and how we get more money from our partnership with Google frankly working with them and just doing a lot of work ourselves to increase to lifetime value.

And what we built internally over the last maybe nine months to a year is we build some pretty sophisticated statistical models that taking to account these variables on a daily basis and literally everyday we go into our systems and we have predictive models that tell us, what we expect the lifetime value to be. And it does that on a campaign basis, on a country basis, on a channel basis, and we have people analysts pointing over this all day long to make sure that if we do find something that isn’t making money, we shut it down. We give it a few days to see if it’s something, which is abnormal, which is not, we shut it down or re-calibrate and something is working, we start spending more.

So, right now, the models are telling us and we have pretty high confidence, where we’re going with the model are accurate based on what we’ve seen so far this past year that we think it’s a pretty accurate number and that so far, we’re very confident that the ROI is there and we’ll be going forward. And as changes will happen, and they always do, we’ll take that into account and we’ll adjust accordingly.

Aram Fuchs – Fertilemind Capital

But, as a most downloadable software, aren’t you getting the majority or a huge portion of the revenue in the first quarter or two and then that would imply that we should start – we should have seen some revenue impact from that this already?

Josef Mandelbaum

First of all, I think, we are showing significant growth, so I think, it excluding even Smilebox, so I think we are starting to see some of the revenue from Q1 and Q2 and in Q3, were we have the big (inaudible) we just start it seeing in Q4 and beyond. I mean, I think in Q4 as you know, most of the revenue is in the first six to nine-months, but I would like to evaluate the amount right now is a year. Well most of them is in the first six, nine-months and you’ll see that in, if we spend money in Q4 you’re primarily seeding in 2012.

Aram Fuchs – Fertilemind Capital

All right, and then on the Smilebox integration, you mentioned that they were growing their top line sales at 35%, but judging from their filings they are also consuming a fair amount of capital during that point, so is there any sense that you can get of what a gross would be like if they were absolutely producing. Well first, self-sustaining and then producing free cash flow for shareholders?

Josef Mandelbaum

Two things. I'm not aware of any filings we did so.

Aram Fuchs – Fertilemind Capital

They are not filing, first they announced they were raising equity, when they were private company.

Josef Mandelbaum

But I’m happy to answer the question anyway. I mean, I think we mentioned during the call, we are hopeful and we expect that they should be break-even already in Q4 and then in Q1, they will be profitable as we go forward based on what we have seen, we knew that we’ve made the acquisition obviously. Although harder for our investors to see, because yielding to due diligence we did, and we expect the growth frankly to continue potentially even more so that once we get a free cash flow on a positive basis Q4 or Q1 of this coming year, we should – I mean, I don’t see a reason why the growth would slowdown, because they get the free cash flow. Their investments, in some of the investments that I actually as I mentioned on the phone in my remarks was in content licensing for example, it made sense what they did, but the reality is there is easy ways of conserving more cash, still getting the same quality product out there and that doesn’t impact your top line. There is also optimizations we can do with media buying and customer acquisitions. They also have a vital organic part of their business, which is doing well. So, I mean, overall, we expect it to continue to grow, just that once we get over a certain threshold as you know from a fixed cost base, your profitability starts increasing and that’s the point is Smilebox is out when we booked them, and that’s what we assumes and so far knock on wood that’s what is happening.

Aram Fuchs – Fertilemind Capital

Great. Thanks for your time.

Josef Mandelbaum

Pleasure.

Operator

(Operator Instructions) Your next question is a follow up question from Aram Fuchs with Fertilemind Capital. Please go ahead, sir.

Aram Fuchs – Fertilemind Capital

Maybe you could you tell us, give us a hint of what is working in the media buying, you can slice and dice it in so many different ways, the PPC, banners, geographies, verticals, keywords, can you extract broad lessons from it already or are you still in the learning phase?

Josef Mandelbaum

I mean, first of all, we are always in a learning phase. Anybody who says you’re not and really buying – I think I don’t think he’s been completely honest, there always be things we do that won't succeed and we learn from it and keep on moving, and frankly we’re not taking risk like that, we’re not pushing [emblem] to see where we can really grow the business.

But on a broad strokes, I’d say couple things, one, the US market will have clearly the highest lifetime value; it’s also the most competitive market. We’re making an ROI, a positive ROI, but it tougher. You see much better ROI opportunities outside the United States, not necessarily in considerable countries, I’m just saying outside of United States, it could be in France, it could be Germany, could be UK, it could be Canada, could be Brazil; then you have emerging countries, Eastern Europe and like India, that I think there are definitely opportunities as well.

The problem with those is, the lifetime value is very low, but the acquisition cost is even lower. But on a pure margin basis you can make more money, but we’re also looking to get users as well. In terms of, on a geographic basis, we’re still doing you know significant in the US. I don’t know the exact breakdown on top of my head, but the ROIs on a percentage basis are usually higher outside of United States because there is so much competition in the US.

In terms of what channels are working, you know I don’t think it’s a mystery. In PPC works, there are natural ceilings on PPC, which is the biggest problem. In terms of, you know, you can’t buy as much as you like to buy because the higher up you go, the more money end up paying, which then bows your ROI, so we have to really go, we have 50,000 keywords we’re buying, something like that. So it’s a lot of keywords we’re trying to buy and optimize and continually as really as looking by the hour, by the minute, by the day, we can optimize that.

Affiliates are working well for us, they works well for Smilebox and IncrediMail. There are partnerships we do and I think you guys probably know the affiliate business well, that is actually working relatively well for us. And I think the place where we’re seeing some good opportunities is in the display content, display networks, whether it’s Facebook, whether it’s Google Content/Display Network or Yahoo or other places like that, we’re certainly doing some more targeting. The CPMs are a little higher when you target, so we’re still in the testing phase and that more than rolling it out, but the more targetive we can be for our products, given our strategy, we believe over the long-term that will also be a very good channel for us to invest in.

Aram Fuchs – Fertilemind Capital

Okay. And Yacov, given that your stock has been incredibly volatile, how do you get an accurate take on the equity component of your rack, of your weighted average cost of capital?

Yacov Kaufman

We feel that we recently secured a long-term loan from the banks and we did this as a consortium. So we know what’s the price for accessing the markets would be. We have pretty good feeling for that right now. In the meantime, we have to get tap into that. So it’s available to us, and it’s a quite favorable terms right now actually.

Aram Fuchs – Fertilemind Capital

What are the basic terms on that?

Yacov Kaufman

Well, we have this puzzle and the chance that there, a couple of points about the LIBOR, few points about LIBOR and it’s a moving, it’s a floating rate. So it changes at time.

Josef Mandelbaum

(Inaudible)

Yacov Kaufman

Right. I have still to clarify; it’s a floating rate until we take it down. So once we take it down, it will be a fixed rate.

Aram Fuchs – Fertilemind Capital

Great, thanks for your time. Those are last my last questions.

Josef Mandelbaum

Pleasure. Thanks, Aram.

Operator

There are no further questions at this time. Before I ask Mr. Mandelbaum to go ahead with this concluding statements, I’d like to remind participants that a replay of this call will be available in three hours on the company website www.perion.com. Mr. Mandelbaum, would you like to make your concluding statement?

Josef Mandelbaum

Thank you. Thank you everybody for joining us today for our Q3 2011 earnings call. I hope as you listened to our comments and followed us in the presentation, you will notice that we are really being [statical] about executing the strategy we outlined. We have full confidence and believe in the efficacy of our strategy and execution. And as we see over time, we strongly believe that and the shareholders will be rewarded for sticking with us as we come out of this as a stronger company called Perion with multiple products, multiple revenue streams, growth and profitability. Thank you very much. Have a nice day.

Operator

Thank you. This concludes the Perion’s third quarter 2011 results conference call. Thank you for your participations. You may go ahead and disconnect.

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