Perion Network Ltd.'s (PERI) CEO Doron Gerstel on Q4 2021 Results - Earnings Call Transcript

Feb. 09, 2022 1:41 PM ETPerion Network Ltd. (PERI)
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Perion Network Ltd. (NASDAQ:PERI) Q4 2021 Earnings Conference Call February 9, 2022 8:30 AM ET

Company Participants

Doron Gerstel - Chief Executive Officer

Maoz Sigron - Chief Financial Officer

Conference Call Participants

Jason Helfstein - Oppenheimer

Andrew Marok - Raymond James

Laura Martin - Needham and Co.

Eric Martinuzzi - Lake Street Capital Markets

Jeff Martin - Roth Capital Partners

Operator

Welcome to the Perion Network Fourth Quarter and Full Year 2021 Conference Call. Today's call is being recorded. A press release containing the transaction details is available on the Company's website at perion.com.

Before we begin, I would like to read the following Safe Harbor statement. Today's discussion includes 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 and 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 and any future results, performance or achievements anticipated or implied by these forward-looking statements. The company does not undertake to update any forward-looking statements to reflect future events or circumstances.

As in prior quarters, the result reported today will be analyzed both on a GAAP and non-GAAP basis. While mentioning EBITDA we will be referring to adjusted EBITDA. We have provided a detailed reconciliation of non-GAAP measures to their comparable GAAP measures on Form 6-K which has been filed and is available on our website as well.

Hosting the call today are Doron Gerstel, Perion's Chief Executive Officer; Maoz Sigron, Perion's Chief Financial Officer.

I would now like to turn the call over to Doron Gerstel. Please go ahead.

Doron Gerstel

Yes, hi everyone. Thanks for joining our fourth quarter and annual 2021 earnings call. Together with me on this call is Maoz Sigron. He is our CFO. And let's get started. So definitely the Q4 momentum continues and we are delivering record revenue growth in the fourth quarter and we actually doubled our net income, and there are few points or few factors, tailwinds factor that I would like to mention on this call and I definitely will dive in on some of them.

First and foremost, I think that has to do for diversification strategy and product that fits different advertising channels, high impact units, the pendulum is shifting from standard units to high impact units and it's all about engaging with new consumers. I'll show you few examples of great campaigns that we're doing the taking the concept of high impact if it is CTV or video to a different level.

We are very proud of our iHub, the intelligent hub. It's AI driven technology that 2022 is going to be the first year which is full in operation. We have an estimate what is – what it's going to generatge financially for our bottom line and that's definitely something that I'll share with you when I talk more about 2022 guidance. But we are very happy with what we're able to deliver.

There is a strategic focus on video and CTV with the acquisition of Vidazoo, that happened at the beginning of October, the beginning of the quarter. Actually this is the -- Q4 is the first quarter that there are with us and I want to share with you some of their great results in this quarter and how it fits really well with our focus strategy on video and CTV.

Last but not least, with very successful two follow-ons that we did in 2021, and a great net cash from operations, we reached a point where we have more than $320 million in cash with no debt. We intend to continue with our, I consider as a unique acquisition framework and strategy. It's definitely proven itself over time and now with more cash, we're definitely looking ahead and there are some great opportunities in the market.

So let's dive in into the fourth quarter. So as I mentioned, the fourth quarter was our record revenue with 34% year-over-year growth between the fourth quarter 2021 with $158 million versus $118 million last year. Very much thanks to 311% growth in CTV, $46 million versus $11 million. In other two KPIs which we are very much keep attention to, is the average deal size. I will look about what is the cause for increasing the average deal size by 29% and very much has to do with the cross-screen synchronization, very, very interesting concept that we bring to market, average of $139,000. And as you all know, the whole advantage about increasing average deal size is that the effort, the sales effort for $139,000 is the same as 108,000 and it can generate a very, very healthy net income.

Growth in customer retention is the other KPI that we keep attention to, and we improved this from 86% in last year to 91% this quarter. So, profitability was not behind and when we actually doubled, doubled…

Maoz Sigron

Pardon me Doron, I need you to please share your screen to show the slides, thank you.

Doron Gerstel

Oh, so you didn’t see it? Okay, my fault. So that's the revenue slide that I talked about and now let's move to the profitability slide, where we doubled actually our revenue from the fourth quarter of 2020 to the fourth quarter of 2021 and we reached $29 million. Pay attention into these numbers, which is the ratio between the EBITDA that we generate in the fourth quarter to the revenue Ex-TAC and we reached a very significant number of 45%.

What are the main, the cause for this high profitability? I mentioned the hub and spoke model and it has a huge potential of saving resources. The second thing is that our investment that we did in the previous year on automation and on technology is really paying off. And as you can see it while we are scaling our business, we're able to leverage our expenses. One of the major effort that we did, we establish offshore operations on some of the repeat tasks that we have in India, and that's definitely helping us from a cost structure standpoint.

Display Advertising, our revenue is being structured in two buckets. One is display advertising, the other one is the search advertising. When it comes to display advertising, 46% year-over-year growth, $100 million dollars in the fourth quarter, $68 million was in the previous year, very much thanks to the CTV. I mentioned the CTV and video growth, but here you basically can see that CTV able to get 31 new customers and more importantly, 20% of our customers, the active customers, 412 of them, so actually 92 customers using CTV, it's a 20% it's actually double from last year.

The number of customers that are using CTV, I will show you a few examples of it. High performance drive differentiation and more importantly, we are very happy with our ability to share formats that drive consumers all the way from awareness to performance. Cross-screen synchronization was the main factor behind every -- increase in average deal size.

I will share with you the Vidazoo platform, which is completely changed the way we are working with publishers and allows us to drive direct demand into their platform. And most of all, we are really happy with the progress that we're doing on the vertical of retailers, that is all has to do with personalization. That's generated around $4.6 million in the quarter working with retailers and it's all just the beginning.

[Technical Difficulty]

Okay, so this is an example that I want to show you, was $800,000 campaign that we did with Advil. And their brief was very interesting and they described it as the awareness to performance and the idea was to what extent we are able to synchronize few screens, the mobile screen, the desktop screen and in the end the big screen which is the TV screen with here, they go to action. And the goal to action is needed to be translated into an actual buy, by the way it's a live campaign. So if you have your smartphone with you, you can scan the QR code here and add to this very significant number of 73,000 products that we added to Advil due to this campaign. So let me run it here.

[Commercial]

So we should get Advil and one of the things, when you scan the QR code, the beauty here, that you drive it all the way from here, from here to the checkout. And here, you basically type the amount, the quantity and you there we're saving on clicks, which is everything that has to do with the consumer funnel. And if you're asking what's next? This is next. The next big thing is that we are in case this retailer is out of stock, we are getting an online indication, if this is the case, and suggesting all kinds of lookalike and alternative products, that can be a great substitute based on inventory level.

And why it's so important? Because if advertiser pays so much to be at this point, so much to be at this point where this, this and happen and at the end, there is no inventory, can you imagine the loss? So we are adding this capability, which advertisers see it as a huge, huge, huge value for them and no doubt, they're increasing their amount of strength to 29% and that's a very, very neat technology that that we developed.

The next example. This is the next example, it's the live CTV example. The whole idea is very much keep the viewer engaged and not to look at it as an ad break. It works really well.

[Commercial]

Oh just a second, that's the next one, sorry. Okay, so viewers get to enjoy sports content as it stay live, they never go to commercial break, never goes to commercial break, that’s the whole idea. And that was very much the brief that we got from DraftKings, which they very much would love to get more and you see the quote here is how they view it. It's one of their main driver behind the CTV growth that we've seen, and very much a focus area for us.

The next one that I want to show you here, it's the interactive CTV. Here is another example that we did with HBO. And I think that the most important part is this part, the win-win. It's the win-win for the viewers and the advertiser and everything has to do with engagement rate. This is the interesting part, the 32% more memorable advertising, and is as a result, interactivity drives 47 more time spent with ads. That's very much the idea. You're able to see the interactivity here.

[Commercial]

Oh, sorry, no but here is a nice, that's the interactive part. I hope you can see my circle. So if you really engage with what they have to show next, you click on it. And then you are – you are very much going deep into the advertising because this is what you want as the viewers, instead of us bombarding with another minute and another minutes that make it really annoying. So that's the iCTV angle here, 40% lift in engagement rate, again a very important factor to increase the spend. It all has to do with return on ad spent and how it's being translated into this very important factor.

Another very important innovation that we're bringing to the market is a platform that Vidazoo call it all in one video monetization platform. I have here a very interesting slide that we're showing and we're trying to compare it to other companies and what they are known for. I think that the most important thing is that Vidazoo is able to incorporate out stream the video player, ad servers, syndication, monetization, and pre-roll monetization into one platform. 50 publishers, which is around a third of their installed base is already using this platform.

And the interesting part, it's really a line with what publisher would like and minimize the number of vendors and have one, very much one console, one platform that covers all. We are very, very proud of what they're doing. It's creating, that's what I mean, and I call, meant when I called it in previous call a moat. This is a moat. It's a technology moat. It's very much protecting our customer from others, because it's holistic and it covers all parts of what publisher is looking on their video monetization platform.

Search. Search is still growing. We increased the number of publishers to 114 from 79. Search advertising is the second source of revenue for the company. I think you need to pay attention into this more than anything else. I think this is -- these are the most important KPIs when it comes because it's a direct impact of the geo expansion that I mentioned on previous calls. And of course, the fact that we added more publishers, I put here a slide that compared the number of monetized searches, monetized searches is only searches that we are getting a rev share on, and I tried to compare it between 2019, 2020 and 2021.

Just to show you first of all, it's very much has to do with COVID. I think that people spend more time on screen, but more time doing e-commerce, more time searching, and has to do with commercial transaction. If you're asking me what happened after COVID, I don't think it will go back to where it was before. I think that we definitely understand the advantage of searching before buying, no matter if this will be done on online or not online. Keep in mind that we are getting rev share on searches, not on the actual purchase itself. So monetized searches will never go back, it's just going to increase. And we are very happy to see it because it has a direct impact on the fact that we're able to grow our search business by 16% on year-over-year.

One of the most complicated however, the most important slide in my presentation that has to do with the hub. And for those who will first time see it, I will just give you kind of an insight. This side is the demand side. This side is the supply side which every advertising technology has. Most of our -- most of companies are taking position either on the demand side or on the supply side.

Perion diversification strategy is very much calling from the ability to drive revenue from both sides of the open web, but more importantly, of this side is our ability to connect all our assets, either from the demand side or from the supply side into this intelligent hub. This is the AI that we invest the most of our engineering budget and it's starting definitely to pay off and you're able to see the EBITDA contribution when I will talk about the 2022 guidance.

When it comes to the value of the hub, we're talking about reduced operational costs to reduce stack here on the millions of dollars that it will generate, but the one that we're proud the most is this one, how are we able to increase our customer value through the fact that we are analyzing so much data and I here give you kind of an indication about the huge amount of data that we are crunching on a daily basis every day. That's the amount of data from 17 million searches to huge spend on social to 5 billion daily aid opportunities, where this all data crunching is going.

And one of the things that we are proud so much is sword which is our SORT, our cookieless technology. We launched SORT beginning of October, not more than three months away. I mentioned it on our previous call. But now I'm so happy that I'm able to share with you that we have already more than 40 customers that are using SORT. But more impressive, guys, this is more impressive that we are able to show that the CTR, the click through rate is 2x higher than cookie based targeting. That's a drama.

And you have some of the campaigns that is running, some of them are already -- some are already started and some already are live as we speak, but the most important thing here, that it's not require any integration with the publisher, nor with the user, really very, very advanced AI technology that drives more and more customer. And I would like to share with you that what we did here, by the way you have here, how it's demonstrate and how it looks in life.

But what I want to share with you is this very, very interesting concept, which is how effectively SORT can be a flywheel for our business. So we start with the fact that 74% of the consumers that are engaged with this ad wants visible protection seal. This is the visible protection seal that we have on any SORT, any ad that is using SORT. So they feel safe and thanks to that, they click. So they have more clicks.

And then what's happened, because they click more, the clicks rate is increasing. So that's why we have to 2x higher click rate. And then what's to happen is that there is a lot of, we translate it into return on ad spend to our advertiser, they are looking to spend more and looking to have it they spend more with us. I mentioned that we have already 42 advertisers that are using SORT, some of them looking at it as a standard and that's why we are able to get more users that are doing it, currently 208 million reachable users and counting.

There is another very interesting thing, let's not forget that it's all AI based. So more clicks, more data, more data, it's all about the AI and more on the machine learning that we have and we are able to improve the model. You improve the model and able to get higher performance, which is the great definition of SORT flywheel. We are analyzing the impact of the SORT for 2022 and I will share it when I will talk about the guidance.

With that, I would like to turn the call to Maoz that will share with you some financial results of Q4 and 2021. Thank you.

Maoz Sigron

Thank you, Doron. Good morning, everybody. 2021 was indeed a year when Perion separated itself from the pack with accelerated financial performance and new records of revenue and the EBITDA. The widespread disruption brought on by the pandemic is challenging, but is also creating remarkable opportunity for Perion and we are very proud of our achievements.

Turning now to the quarter results. Revenue for the fourth quarter was $158 million, an increase of 34% and 20% growth on a pro forma basis. We achieved all time record level of quarterly revenue. Display advertising revenue was a record of $100.2 million during the fourth quarter of 2021, but 46% and up 23% on a pro forma basis.

Search advertising revenue was $57.8 million during the fourth quarter of 2021, an increase of 60% year-over-year. In terms of revenue mix, display advertising revenue of $100.2 million represented 63% of the 2021 fourth quarter revenue compared to 58% in 2020, with search advertising of $57.8 million represented 37% of the 2021 fourth quarter revenue compared to 42% in 2020. This change in revenue mix is aligned with our diversification strategy.

Revenue excluding tax was $64.6 million or 41% of revenue compared to $43.4 million or 37% of revenue in the fourth quarter of 2020. The increase of 4% was primarily due to product mix, our continuous higher efforts to sell direct [ph] demand and supply in a closed loop that is generating superior efficiency and performance, and incremental revenue with low variable cost.

OpEx and growth expenses were 25% of revenue in the fourth quarter of 2021, compared to 26% of revenue in the fourth quarter of 2020. The main reason for this reduction is due to our efforts to enhance process automation. The [indiscernible] is a shared infrastructure resource and offshoring our operations.

Net income was $17.7 million or $0.44 per diluted share, an increase of 97% compared to $9 million or $0.30 per diluted share in the fourth quarter of 2020. Non-GAAP net income was $25.3 million or $0.62 per diluted share, up 83% compared to $13.8 million or $0.45 per diluted share in the fourth quarter of 2020.

Adjusted EBITDA increased to $28.9 million in the fourth quarter of 2021, representing 18% of revenue compared to $15.3 million, representing 30% of revenue in the fourth quarter of 2020. Adjusted EBITDA of revenue excluding tax was 45% during the fourth quarter of 2021, compared to 35% in the fourth quarter of 2020. Our efforts to keep the media margin levels stable and to generate incremental revenue, with low variable costs have improved Perion’s efficiency and profitability.

Net cash provided by operating activities was $28 million in the fourth quarter of 2021, compared to $12.9 million in the fourth quarter of 2020, reflecting 123% year-over-year growth. As of December 31, 2021, we had cash, cash equivalents and short term bank deposit of $322 million compared to $60 million as of December 31, 2020.

Turning now to the yearly results. This year Perion continued to deliver exceptional growth, increased profitability and significant cash flow generation, sticking to the diversity of our revenue streams and differentiation of our IR platform, [ph] while delivering well ahead of guidance.

Let me share with you some of the top financial achievements for 2021. Revenue for was 478.5 million, an increase of 46%, the highest revenue ever. EBITDA for 2021 was $70 million, an increase of 112%, the highest EBITDA growth ever. EBITDA to revenue was 15% versus 10% during 2020. EBITDA to revenue excluding tax was 37% versus 25% during 2020. Net cash from operating activities was $71 million, an increase of 221%.

We also continued to bolster pure financial strength as evidenced by two successful capital market transactions during the year, which added in the aggregate more than $230 million to our balance sheet. This enabled us to continue the execution of our strategic plan of organic and inorganic growth. With a scalable operating model and [indiscernible] balance sheet, we are well positioned to continue to deliver profitable growth and expect 2022 to be the third consecutive year of more than 25% revenue growth. We have built a durable, sustainable platform for profitable growth with clear earnings power.

This concludes my financial overview for the fourth quarter and the full year 2021. I will now turn the call back to Doron for closing statements.

Doron Gerstel

Thank you, Maoz. Just let me share my screen. Can you see it? Thanks. So, closing remarks, so the title is the 20 -- the momentum continues to 2022. And what I would like to share, okay -- what I would like to share with you is where this sustainability and predictability is coming from. And it all has to do with the three dimensions of our diversification.

I will start and say that, one of the most important things which set us apart from other network and ad companies is the fact that we are operating across the three main pillars of digital advertising; the search advertising, social advertising, and display advertising. And connecting everything into our hub allows us first to generate revenue from both sides of the open web, as I mentioned, it's the demand and the supply.

Last but not least, is the fact that we're able to connect all as a hub and spoke model and ability to not just to connect but also to drive operational saving, we are estimating that due to the fact that we're are able to concentrate in our resources and basically, as Maoz mentioned, work with shared resources, we're able to save $6 million on operational costs as well as on tax savings during 2022.

The other thing which is important, we are estimating that the SORT and the flywheel that I mentioned before capable to generate an additional $15 million on advertising budget from our customer. So, with that we feel comfortable of improving our or modifying our guidance. I put the new guidance here which is midpoint of $620 million in revenue and $90 million of EBITDA.

I put a thing in the context of what we're able to achieve in ’20 to ’21 to ’22, in order to emphasize one point, is the sustainability and the predictability of our business model, which is in my opinion is one of our major, major strengths, allow us to look at the growth and also keep the organization very, very profitable and in all very proud of ability to guide for 36% EBITDA to revenue Ex-TAC in the 2022.

With that, I very much would like to thank you for participating, but one last word. With COVID around the world it was a very, very challenging year for all of us. The 486 employees of Perion that are in, we count 11 countries, so I would like to thank all of them. Without their endless dedication and contribution, we would not be able to achieve this great year.

With that we'll open the lines for Q&A. Thanks so much.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question today is coming from Jason Helfstein [Oppenheimer]. Your line is now live.

Jason Helfstein

Thanks guys. How are you?

Doron Gerstel

Great, hi Jason.

Jason Helfstein

Doron, maybe to start, so that was an interesting you gave with Advil owned by Pfizer. So, one question that we get from clients is, what are you doing that Pfizer’s agency of record, right. Pfizer’s a huge company, probably have a master agency. What are you doing that their agency of record can't do? Or is it because campaigns are so regional, you have certain capabilities that may not work in certain, et cetera, but so, like what were you doing that a company, the size Pfizer needs you do for Advil? That's question one and then I've got two follow ups for Maoz.

Doron Gerstel

Right, so I must say that we were a bit, how to use word, chutzpah when we met with them, because the Holy Grail in this industry is ability to connect awareness to performance. And when we showed them the concept that their awareness dollars which is, they consider always as a top funnel, it has can be, with that campaign a direct impact and be translated to actual buy. I mean there is no kind of estimation or modelling or what have you.

We are taking upon ourselves to drive sales, that's it, that was the concept. For them, it was always this concept that there is a gap between the awareness dollars and the performance dollars. And once we came and said, guys we’re able to bridge those two parts of the funnel in a very nice way, we’re up to the challenge and they very much said okay, you know what we'll give you that chance and there is only one KPI that they shared with us from the get go. He said, you know what, if you're up to the challenge, we want to see how many boxes we’re able to sell, that's very much it. And I must tell you that we are working with them closely on what we said Connected Cart 2.0, which is the ability to connect the inventory part.

That is going to be a killer feature, because think about, Jason, the amount of dollars that advertisers are wasting on performance advertisement that at the end of it you find yourself that you don't have the right size of your jeans or you’re not having the right colour of your shoes. That’s a few ways and the ability on the fly to offer substitute product, I think that can be a very, very interesting.

So, in a way there was another interesting level for you maybe to discuss later on, is the verge between the Ad tech and the Mar tech, which is a very interesting subject that we discuss internally because if you see that we're taking into the advertising, logistics aspects, like inventory, it's beyond off, the traditional I think advertisement or Ad tech framework that we were kind of thinking and they’re thrilled about this technology.

Jason Helfstein

So Maoz, just two for you. Can you talk about the impact of Vidazoo on gross margins in the quarter? And how you're thinking about kind of the benefit to that in next year or this year 2022? And then just on acquisitions, obviously you’re using a lot of cash, given the decline in public market assets and presumably that the impact, there has been a decline as well in private market values, is it taking longer to kind of close the next acquisition or round of acquisitions that you're looking at? Thanks.

Maoz Sigron

Thank you, Jason. So, based on, this is not a surprise. We did the due diligence before closing the deals, so it's always already embedded in the model and Vidazoo is part of us, they’re earning with margin that is similar to the other business units. So, there is no negative or much positive. I can say that the fact that now we have another asset and we’re able to use their app and to contribute more together and definitely help us to improve the Perion eriod margin as also with the standalone business before getting into Perion, they ran with the same level as us, a bit lower, but together with us and part of the reason that you can see that the quarterly margin is better, it’s definitely the combination of Vidazoo into Perion. We see the same for 2022 and our assumption for the guidance for 2022 is more or less the same level of margin, about 40%. This is about the first question.

We have again the one we can touch about the M&A as well, but there is a list of companies, on the list definitely the fact that the multiple moving down help us to have more opportunities actually and to have maybe others that was not part of the list before. So, I think this is, as we have more than that these unique, we have the cash. We have the something that is also appetite for the target because there is synergy that you can do together. So, what they can do by themselves, they can now do together with us and do better and be able to achieve the goals for the next two or three years together with Perion. So we -- I think that the other way around, there is a lot of opportunity, but this is a process that we're managing, and maybe Doron can also elaborate more on that.

Doron Gerstel

No need.

Jason Helfstein

Right.

Operator

Thank you. Our next question today is coming from Andrew Marok [Raymond James]. Your line is now live.

Andrew Marok

Hey guys, thank you for taking my questions this morning. I had two. So one, I wanted to talk about the uptake of the high impact CTD formats. So yes, you showed the Advil example, which I think was really helpful, but what other kind of broader feedback are you getting from clients using the formats? And what do you think are some of the gating factors to broader adoption?

And then second, on the '22 guidance, so if SORT is providing a $50 million incremental budget, and iHub is driving about $6 million in cost savings, I guess you can help us with any incremental investments that you're thinking of, for why EBITDA margin is maybe flattish to slightly down year-over-year? Thank you.

Doron Gerstel

Yes, so I think it all has to do with one thing and the high impact is all about consumer engagement and there is a huge effort from advertisers to get as maximum engagement, if it's the live, CTV that your -- get their attention, because the game is on. It is the interactive because you're able to gauge their engagement with the unit. And, of course, the fact that there is a go to action, and we talked about it in the example. The way we are -- so this is our focus. The focus is engagement and we know what's the engagement level on standard ads, and we know what's the engagement on the high impact ads.

Yes high impact ads are way more expensive for the advertisers, but is it matter, when you translate it into ROAS and this is the only thing that we're doing. So the way we're looking at it from a customer standpoint, we show them the ROAS calculator that we have, and we said the cost is really doesn't matter. What does really matter is, what is the return. And we are trying to get as much away from the flood of standard advertising.

That's the only way for us to get healthy margin, it's only way for us to increase the average deal size, it's the only way for us to retain these customers and it's definitely require us to invest more and more technology, all those kinds of things is new to the 2021 and there is growing investment that we're doing in 2022 to keep and make the gap on what we capable doing on high impact units better than...

I mentioned one thing and you know what, I wrote -- I took a note for the next call to show you what personalization level we're able to do with customers like Albertsons and others. We are taking it to the level that they're not able to get combining it of course with the inventory factor and so that's the edge. This is what we're thinking. Our niche within this huge universe of advertising and advertising spend and up to this point, it's definitely creating a great brand recognition and drive more and more budget into this business.

As far as your question, I mentioned that we are devoting more and more resources, engineering resources. I must tell you that in order to establish or connecting all units into a central intelligent hub was a huge effort on our side, huge technology effort, we had to establish a whole AI team that is going to do it. The amount of dollars that we're paying to Amazon just to store and analyze and crunch this data is piling every day. But we couldn't be in this situation and I also wants to look more on the SORT, the impact that we bring to the market with the SORT and the flywheel that it will generate, and I'm very happy, it took us a good two years to be in this position, but now as I mentioned, we start to see the fruits. And we are we are just encouraging to invest more and more, and turn it into a really effective moat, technology moat for our company.

Operator

Thank you. Our next question today is coming from Laura Martin [Needham and Co.]. Your line is now live.

Laura Martin

Hi, there. Hi. Hi. So maybe a couple following up on Jason's question, it sounds like you might be taking on physical inventory now, so can you speak to that? And whether what that does to your working capital and cash needs in 2022? Second, can you talk about what percent of your total fourth quarter CTV ad revenue were these high impact ad units? And then third data, you keep sort of harping on data, can we sell that revenue stream? Can we create a revenue stream out of data? Those are my three. Thank you.

Doron Gerstel

Very good. So one correction, by all means, we're not in the inventory business. We're not having this inventory. The only thing that we're having is that we opened a very useful tunnel that allows us on the fly, to understand if there is, for instance, for this Advil, whatever capsule is, is there is an inventory, because you are about as a consumer to click and buy, into this screen, and I will, it's important for me to share it. Hold on for a second. Yes, it took us so much to be in this space. So I want to want to show off, okay? Can you? So this is the Advil theme. You don’t need this sample.

So the point here is, while you are here, and you are doing all as a consumer, you're doing all this journey and finally, finally, you're here. This is the money time. And the question is, that we were very much like looking at is what would happen if you click here? Let's say you use the QR code that is here, and you are okay, you want to buy and there is no inventory. That's very much the point. And what we want is to refresh this ad or actually this SKU, which you have here, with alternative lookalike. So for instance, this is let's say this is the big size and so we'll get, I don't know what.

At the same price you'll get two, because the most precious thing for Advil is to get this consumer to a point that they want to buy. And from that point, they must end it with a transaction. So we're not holding the inventory, we just refresh the ad unit with the most relevant alternative substitute SKU that will end it with a transaction. That's clear?

Laura Martin

Yes. Do you only -- why do you care? Do you only get paid if somebody actually buys the box?

Doron Gerstel

Thanks for the question. So no, we're not, we are not getting paid on the 73,000. But you know why we care? Because I can tell you that $800,000 of Advil campaign is now turning to $1.8 million only because they're happy with the results. And we care a lot because this additional $908,000 [ph] was very much taken from someone else. That's our business. It's a zero sum game. And if we are able to show them that their ROAS is way higher, and we're not putting our hands in their pocket, in other words, we're not asking for any dollars if this will be for the next campaign more than 100,000, we're getting more budget. That's it. That's why we care.

Laura Martin

Perfect. What about selling data as a new revenue stream and what percent...?

Doron Gerstel

We are -- that's great, great question. We are now developing the ROAS 2.0 which is we call it internally SaaS, but not the SaaS that you know, but this is SORT as a service and there is a growing, we're getting tons of leads from publishers that would like to adapt SORT is their privacy technology on their site. So the idea that we have is taking it from internal to external and offer it as a service and this is definitely something that we will talk more about in the upcoming calls.

Laura Martin

Okay and then my last one was high impact CTV units as a percent of total CTV revenue in Q4.

Doron Gerstel

High impact CTV, so for us we are not and I can tell about something which is close to 70%, 75% of high impact CTV. That's the main thing that we're selling.

Operator

Thank you. Our next question is coming from Mark Kelly [ph]. Your line is now live.

Unidentified Analyst

Hey, great. Thank you very much. I appreciate you taking my questions. I'd love to go back to the Advil example. I know we've talked about it a bit, but I'm just curious, how does the Walmart as the preferred retailer in that scenario factor into the conversation that you have with Advil? And then I guess, would it be possible to instead of showing the consumer alternative products, if that goes out of stock, would it be possible to shift to like a Target or something like that and still have you buy the exact products you quote them? And I guess, and this exactly...

Doron Gerstel

It's a great question, and I must tell you that there is -- we know, we not know the details, there is a relationship between Advil and Walmart. So for that point, we are able to do a lot in terms of switching, let's say to target, but we are on this perspective, the advertiser is very much binding us to say what is in Walmart inventory, I believe that they participate on the dollars that has to do with this campaign. But it's -- we're not -- this is behind the scene. We know -- we are interact with that, but we really don't know how their supply chain is working there. So we are capable of doing it. Let me put it this way. But we are presently [ph] doing it in this case, specifically.

Unidentified Analyst

Okay. That's right. And then quickly, just on the on SORT, some of the click through rates that you presented were more interesting and obviously, impressive. I guess, do you think you have to advertise to the consumer to make just people who aren't familiar with ad tech, and don't understand the industry, just the typical consumer, just making sure that that logo resonates with people that they -- that the general public knows that it's cookieless, and privacy safe and all that stuff. And I'm bringing this up, because I saw that Criteo which is not exactly the same thing as what you guys do, but they're, they're supposedly have a Superbowl ad coming up that kind of does the same thing, it just makes the consumer more familiar with Criteo and just their privacy centric approach. I was just curious if you guys have to do something similar do you think?

Doron Gerstel

So you know, at the end of the day, what Criteo is doing from DR standpoint, direct response and retargeting, we're not in this business. The businesses for that sake is an awareness campaign. And with that, I think that we are able to get to great results. Keep in mind, for those who wants to get into the technology a bit, I personally wants to get your attention Mark, and I'm using a third party cookie, and I'm going specifically after you, that's not our business, that's considered to be a DR business. Our business is our ability without using third party cookie to get Mark like people. That's the idea. It's not about following you. You will be a victim because you know, it can be what it's done before in third party cookies might eat you. But the idea is not following specifically a specific consumer. I hope I make it clear.

That's why we're looking SORT is very much, I used these slides in the previous presentation and I will be more than happy to take it offline to see how SORT works, but it's all about smart groups that we develop. Smart groups, and we have dozens, if not hundreds of smart groups. That is very much allowing us to use a smart group where it is appropriate. In other words, people that have the certain traits are likely to hit on this type of ad. That's the technology that we have instead of using third party cookie. I hope it's clear and the difference between us and Criteo.

Unidentified Analyst

Sure, yes, you know what, maybe giving you the Criteo example wasn't the best on my part, and I guess I meant more about like, making the just the general consumer aware, that sort of cookieless privacy centric solution, like do you need to advertise to the general public?

Doron Gerstel

We are -- we plan on doing it, but what we want to get and this discussion that we have with some selected advertisers that looked at consumer privacy is one of their values, and one of the things that they will be associated with. So one of the things that we would like to do is very much use those, some of those names that are there to be associated with this direction, and doing it as a kind of a co-marketing activity, this is definitely something that we're working on.

But you're absolutely right. I think that in order to get an effective flywheel, no wonder I start with the number one, that if 74% wants to be visible on the seal, they need to make sure that this is the seal and it's not part of their hand beer logo. You're absolutely right. We need to get their attention. I don't want to spend our money on the Superbowl, we're not there yet. But I think that there are way more effective ways to use our net margin, let me put it this way.

Unidentified Analyst

That's perfect. Thank you very much.

Doron Gerstel

You're welcome.

Operator

Thank you. Our next question today is coming from Eric Martinuzzi [Lake Street Capital Markets]. Your line is now live.

Eric Martinuzzi

Hey, guys, congratulations on the quarter and the outlook.

Doron Gerstel

Thank you, Eric.

Eric Martinuzzi

It's not lost on me that you had already announced a positive Q4 and raised the 2022 outlook and I think it was December 8. So it's good to see that there's still more in the tank here. My first question has to do with seasonality. Now that we've got this -- the business kind of shifting more to the advertising side, and I know you gave a full year 2022, but you did not give Q1. What is the kind of seasonal step down in revenue? Because we've got some moving parts here. There's the remnants of COVID. There's the acquisition of Vidazoo. We've got more revenue coming from the advertising side. What's the right way to think about Q1 revenue seasonality versus Q4?

Doron Gerstel

Maoz, do you want to take it?

Maoz Sigron

Yes, yes of course. So we're looking on the entire year and the business that's acquired are similar to the business we already have. In terms of seasonality, we're expecting the same trend, about 20% in Q1, 24% in Q2 and Q4 and more than 30 32% in Q4, this is more or less in line with our performance for 2021. And, well, they also will be the same also in 2022.

Eric Martinuzzi

Okay, all right. And then my second question has to do with the display. When I think about the -- it's wonderful to get more demand from your advertisers and agency, but I just think about the mechanics of serving display and serving video, CTV, and iCTV there's a huge element of the creative that needs to take place here. Is undertone doing that creative or are the agencies doing the creative here? What's -- how are we getting the raw materials that go into these campaigns?

Doron Gerstel

The raw material is getting very much from the creative agency. If this is the case, because of the iCTV that required to do multiple type of video assets, which is more than if you can imagine one video because that's what we offer for our consumer and that's part of our response to the RFP. So, the way we respond is basically saying okay, we are suggesting, you know, using the iCTV technology, then with that say that's what is required.

First and foremost, we need to prove that this is efficient, because it what is required from the advertiser standpoint is to invest more, more creative, more debt. So they need to buy into the concept that it will be more memorable by the concept that they will spend more time and again it's all as I mentioned is translated into ROAS, but we are not very much part of this production.

Eric Martinuzzi

Understand. Good luck in 2022.

Doron Gerstel

Thank you very much.

Eric Martinuzzi

Thank you.

Operator

Thank you. Our next question today is coming from Jeff Martin [Roth Capital Partners]. Your line is now live.

Jeff Martin

Thanks. Good evening, guys.

Doron Gerstel

Hey, Jeff.

Jeff Martin

Congratulations on a great year.

Doron Gerstel

Thanks, thanks.

Jeff Martin

I wanted to get a glimpse into how customer acquisition strategy may evolve with the enhanced investment that you put into the iHub, and hub and spoke model. Based on Q4 results, looks like customer growth is continuing at a good pace, you've got some really interesting technology capabilities that drive significant improvement in performance. So how has your customer acquisition strategy shifted over the past year? And how do you see that continuing to shift as you have this more robust?

Doron Gerstel

Great, so I will use this engineering slide as we like to call it. So in a way, think about it that in impression, no matter where the impression source, let's say whatever impression is coming into the hub, and at the same time request is coming to the hub, and that's an I&R. And the point here that you have here is what is the match? That's very much the idea. So this is the challenge. And the match here is first of all needs to very much needs to meet all kinds of targeting and everything like this, but let's look about it only from the economic side. And here it is the optimization element into the hub.

In other words, what is the priority, if you met all the other criteria. If all other criteria is being met, the priority always goes to asset that you own. Either you own it, or you operate it because over there you have a higher gross margin. So it's like a waterfall if you think about it, is okay, first match, if everything is okay goes through here, second match goes through here, so on and so forth.

So we are able to drive more and more impression to request that is coming from our SF. Keep in mind that too, if it's a video or CTV, we want that those assets will come through our Vidazoo platform. In other words, that it will play on the Vidazoo player, that it will very much monetize on the Vidazoo zoo platform, because that gives us another edge. Now what is all about here? All about is to really reduce one by one, the number of intermediates that has to do from serving an impression all the way to its destination.

And if you are able to reduce the number of those chains in between, let me put it this way, you're saving money but you provide something else and that's very much the point. The point here that rent an agency are looking about to what extent I am able to deliver for them, the transparency and the control when we are serving their ads. From the moment we received it, all the way where it's being published, everything is being done in a very not just transparent, but from a point of a dashboard reporting whatever you and privacy take any elements that you have no surprises from that point where we analyze the request to the time that we publish it here, no matter if it's your cell phone, your big screen. No matter if it's interactive or not. We are -- that's the end to end element.

Now, if you combine the end to end into their fish and sea of the hub, that able to optimize it, you are able to get a lot of gains. As i mentioned we are translating it into a contribution of $6.5 million into the bottom line.

Operator

Thank you. we've reached the end of our question-and-answer session. I'd like to turn the floor back over to the room for any further or closing comments.

Doron Gerstel

Okay. Guys, thank you. Thank you so much. I apologize about the glitches that we have, but since we're dealing with creative and high impact and all those kinds of things, I think that it's better than to read it from a script. So my apology and thanks so much for your participation. Have a great year. Thank you.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Doron Gerstel

All right, thanks.

Maoz Sigron

Thank you, bye-bye.

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