☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of Each Class | Name of Each Exchange on which Registered |
Ordinary shares, par value NIS 0.01 per share | NASDAQ Global Select Market |
Large accelerated filer ☐ | Accelerated filer ☒ | Non-accelerated filer ☐ | |
Emerging growth company ☐ |
U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
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Not applicable. Not applicable. A. SELECTED FINANCIAL DATA We derived the selected operations data below for the years ended December 31,
B. CAPITALIZATION AND INDEBTEDNESS Not applicable. C. REASONS FOR OFFER AND USE OF PROCEEDS Not applicable. D. RISK FACTORS We are subject to various risks and uncertainties relating to or arising out of the nature of our business and general business, economic, financial, legal and other factors or conditions that may affect us. We believe that the occurrence of any one or some combination of the following factors could have a material adverse effect on our business, financial condition, cash flows and results of operations. Risks Related to our Business and Industry Our advertising customers may reduce or terminate their business relationship with us at any time. If customers representing a significant portion of our revenue reduce or terminate their relationship with us, it could have a material adverse effect on our business, results of operations and financial condition. We generally do not enter into long-term contracts with our advertising customers, and such customers do business with us on a non-exclusive basis, with no minimum spending guarantees. In most cases, our customers may terminate or reduce the scope of their agreements with little or no penalty or notice. Accordingly, our business is highly vulnerable to adverse economic conditions, market evolution and development of new or more compelling offerings by our competitors, which could either lead to reduced advertising expenditures generally or motivate our current or potential customers to migrate to our competitors. Any reduction in spending by, or loss of, existing or potential advertisers would negatively impact our revenue and operating results. Furthermore, the discretionary, non-exclusive nature of our relationships with advertising customers subjects us to increased pricing pressure. Although we believe our rates are competitive, our competitors may be able to offer more favorable pricing or other advantageous terms. As a result, we may be compelled to reduce our rates or offer rebates or other incentives in order to maintain our current customers and attract new customers. If a significant number of customers are able to compel us to charge lower fees or provide fee concessions or refunds, there is no assurance that we would be able to compensate for such price reductions or conserve our profit margins. Large and established internet and technology companies, such as Google and Facebook, play a substantial role in the digital advertising market and may significantly impair our ability to operate in this industry. Google as an advertising publisher accounted for most U.S. online search-generated revenues, and Microsoft and Yahoo accounted for substantially all of the rest of These companies, along with other large and established Internet and technology companies, may also leverage their power to make changes to their web browsers, operating systems, platforms, networks or other products or services in a way that impacts the entire digital advertising marketplace. Google has announced that starting as of February 15, 2018, the Google Chrome internet browser will support the “Better Ads Standards” implemented by the Coalition for Better Ads, an industry body formed by leading international trade associations and companies involved in online media, and remove all ads from certain sites that violate this standard. This, together with other advertisement-blocking technologies incorporated in or compatible with leading internet browsers, could impact on Undertone’s ad units (as well as those of Undertone’s competitors). These changes could materially impact the way we do business, and if we or our advertising partners are unable to quickly and effectively adjust to those changes, there could be an adverse effect on our revenues and performance. The consolidation among participants within the digital advertising market could have a material adverse impact on our business and results of operations. The digital advertising industry has experienced substantial evolution and consolidation in recent years and we expect this trend to continue, increasing the capabilities and competitive posture of larger companies, particularly those that are already dominant in various ways, and enabling new or stronger competitors to emerge. This consolidation could adversely affect our business in a number of ways, including:
While we work with a wide variety of advertising buyers and sellers, many buyers and sellers are part of larger organizations. For example, our primary advertising customers are advertising agencies, and many of those agencies are owned, affiliated with or controlled by a small number of large holding companies. If any of these large consolidated enterprises decided to reduce or terminate their business relationship with us for any reason, it may lead to a material adverse impact on our revenue and profitability. Further, the growing trend of consolidation of digital advertising networks, exchanges, web portals, search engines and web publishers, could harm our business. For example, we are currently able to serve, track and manage advertisements for our customers on a variety of networks and websites. These enterprises could substantially impair our ability to operate if they decide not to permit us to serve, track or manage advertisements on their websites, if they develop ad placement systems that are incompatible with our ad serving systems or if they use their market power to force their customers to use certain vendors on their networks or websites. If the demand for digital advertising does not continue to grow or customers do not embrace our solutions, this could have a material adverse effect on our business and financial condition. A substantial portion of our revenues is derived from the sale of our digital advertising solutions. We have made significant investments in our ability to deliver high impact advertising which is compatible on multiple devices and channels through internal development efforts and acquisitions. While the digital advertising market has grown in past years, it is possible it will not continue to grow, or that the demand for advertising in a specific medium or channel (such as mobile advertising) does not grow. Additionally, even if the general market for digital advertising continues to grow, customers might not embrace our solutions. If there is a reduction in general demand for digital advertising, decreases in spending for specific channels or solutions, or the demand for our specific solutions and offerings does not develop, revenues could decline or otherwise adversely affect our business. Due to our evolving business model and rapid changes in the Internet and the nature of services, it is difficult to accurately predict our future performance and may be difficult to increase revenue or profitability. We do not have an extensive history of ongoing operations in digital advertising from which to predict our future performance, and making such predictions, particularly with regard to the effect of our efforts to aggressively increase the distribution and profitability is very complex and challenging. If we are unable to continuously improve our systems and processes, this could have a negative effect on our competitiveness and ability to service and attract customers. If we are unsuccessful in doing so in a timely fashion, we may not be able to achieve revenue growth or increase our profitability. We depend on publishers to supply us with advertising inventory in order for us to deliver advertising campaigns in a cost-effective manner. We rely on a diverse set of publishers or digital media properties, including direct publishers, advertising exchange platforms and other platforms that aggregate advertising inventory, to provide us with high-quality digital advertising inventory on which we deliver ads, collectively referred to as “supply sources”. The future growth of our advertising business will depend, in part, on our ability to enter into and maintain successful business relationships with these supply sources. If we are unsuccessful in establishing or maintaining our relationships with supply sources on commercially reasonable terms, or if these relationships are not profitable for us and competitive in the marketplace, our ability to compete in the marketplace or to grow our revenues from our advertising business could be impaired. Our supply sources typically supply their advertising inventory to us on a non-exclusive basis and are not required to provide any minimum amounts of advertising inventory to us or to provide us with a consistent supply of advertising inventory, at any predetermined price. Supply sources often maintain relationships with various sources of demand that compete with us, and it is easy for supply sources to quickly shift their advertising inventory among these demand sources, or to shift inventory to new demand sources, without notice or accountability. Supply sources may also seek to change the terms at which they offer inventory to us, or they may allocate their advertising inventory to our competitors who offer more favorable economic terms or whose offerings are considered more beneficial. Supply sources may also elect to sell all, or a portion, of their advertising inventory directly to advertisers and agencies, or they may develop their own competitive offerings, which could diminish the demand for our solutions. In addition, significant supply sources within the industry may enter into exclusivity arrangements with our competitors, which could limit our access to a meaningful supply of inventory. As a result of all of these factors, our supply sources may not supply us with sufficient amounts of quality advertising inventory in order for us to fulfill the demands of our advertising customers. Additionally, our ability to access advertising inventory in a cost-effective manner may be constrained or affected as a result of a number of other factors, including, but not limited to:
In summary, if our supply sources terminate or reduce our access to their advertising inventory, increase the price of inventory or place significant restrictions on the sale of their advertising inventory, or if platforms or exchanges terminate our access to them, we may not be able to replace this with inventory from other supply sources that satisfy our requirements in a timely and cost-effective manner. If any of this happens, our revenue could decline or our cost of acquiring inventory could increase, lowering our operating margins. Our advertising business depends on a strong brand reputation, and if we are not able to maintain and enhance our brand, our business and results of operations could be materially adversely affected. Maintaining and enhancing our Undertone brand is an important aspect of our efforts to attract and expand our agency, advertiser, and publisher base. We have spent, and expect to continue spending considerable sums and other resources on the establishment, building and maintenance of our Undertone brand, as well as on enhancing market awareness of it. Our Undertone brand, however, may be negatively impacted by a number of factors, including but not limited to, fraudulent, inappropriate or misleading content on publisher sites on which we serve ads, service outages, product malfunctions, data protection and security issues, and exploitation of our trademarks by others without our permission. If we are unable to maintain or enhance our Undertone brand in a cost-effective manner, our business and operating results could be materially adversely affected. We may be unable to deliver advertising in a brand-safe environment, which could harm our reputation and cause our business to suffer. It is important to advertisers that their advertisements are not placed in or near content that is unlawful or would be deemed offensive or inappropriate by their customers, or near other advertisements for competing brands or products. Unlike advertising in other mediums, we cannot guarantee that all online advertisements will appear in a brand-safe environment. If we are not successful in delivering ads in such an environment, our reputation could suffer and our ability to attract potential advertisers and retain and expand business with existing advertisers could be harmed, or our customers may seek to avoid payment or demand refunds, any of which could harm our business and operating results. The advertising industry is highly competitive. If we cannot compete effectively in this market, our revenues are likely to decline. We face intense competition in the marketplace. We operate in a dynamic market that is subject to rapid development and introduction of new technologies, products and solutions, changing branding objectives and evolving customer demands, all of which affect our ability to remain competitive. There are a large number of digital media companies and advertising technology companies that offer services similar to ours and that compete with us for finite advertising budgets and for limited inventory from publishers. There are also a large number of niche companies that are competitive with us, as they provide a subset of the services that we provide. Some of our existing and potential competitors are better established, benefit from greater name recognition, may offer solutions and technologies that we do not offer or that are more evolved than ours, and have significantly more financial, technical, sales and marketing resources than we do. In addition, some competitors, particularly those with a larger and more diversified revenue base and a broader offering, may have greater flexibility than we do to compete aggressively on the basis of price and other contract terms. Additionally, companies that do not currently compete with us in this space may change their services to be competitive if there is a revenue opportunity, and new or stronger competitors may emerge through consolidations or acquisitions. Given that the barriers to entering the digital advertising market are relatively low, the number of competitors may increase even further. If our digital advertising platform and solutions are not perceived as competitively differentiated or we fail to develop adequately to meet market evolution, we could lose customers and market share or be compelled to reduce our prices and harm our operational results. 9 Our digital advertising business is susceptible to seasonality, unexpected changes in campaign size and prolonged cycle time, which could affect our business, results of operations and ability to repay indebtedness when due. The revenue of our digital advertising business is affected by a number of factors, including:
As a result, our profit from these operations is seasonal, with the fourth quarter accounting for as much as almost half our annual profits and the first quarter possibly resulting in a loss. Moreover, due to the long receivable cycle and shorter payable cycle, this seasonality puts strains on our cash flow through the first and second quarter of every year. These factors could adversely impact our cash flow and our ability to meet our financial debt covenants. If our campaigns are not able to reach certain performance goals or we are unable to measure certain metrics proving achievement of those goals, this could have a material adverse effect on our business. Our advertising clients expect and often demand that our advertising campaigns achieve certain performance levels based on metrics such as user engagement, clicks or conversions, to validate Increased availability of advertisement-blocking technologies could limit or block the delivery or display of advertisements by our solutions, which could undermine the viability of our business. Advertisement-blocking technologies, such as mobile apps or browser extensions that limit or block the delivery or display of advertisements, are currently available for desktop and mobile users. Further, new browsers and operating systems, or updates to current browsers or operating systems, offer native advertisement-blocking technologies to their users, such as the Our advertising business depends on our ability to collect and use data, and any limitation on the collection and use of this data could significantly diminish the value of our solutions and cause us to lose customers and revenue. In most cases, when we deliver an ad, we are often able to collect certain information about the content and placement of the ad and the interaction of the user with the ad, such as whether the user clicked on the ad or watched a video. We may also be able to collect information about the user's location. As we collect and aggregate this data provided by billions of ad impressions, we analyze the data in order to optimize the placement and scheduling of ads across all of our advertising inventory and to measure performance. Our ability to access and utilize such data is crucial. Our publishers or advertisers might decide not to allow us to collect some or all of this data or might limit our use of this data. Our ability to either collect or use data could be restricted by new laws or regulations, including, the General Data Protection Regulation in the European Union which will go into effect in May 2018, which will broaden the definition of personal data to include location data and online identifiers, which are commonly used and collected parameters in digital advertising, and impose more stringent user consent requirements, changes in technology, operating system restrictions, requests to discontinue using certain data, restrictions imposed by advertisers and publishers, industry standards or consumer choice. Interruptions, failures or defects in our data collection, analysis and storage systems could also limit our ability to aggregate and analyze data from our advertisers' advertising campaigns. If this happens, we may not be able to optimize ad placement for the benefit of our advertisers, which could render our solutions less valuable and potentially result in loss of clients and a decline in revenues. Additional details are provided below under If we do not continue to innovate and provide high-quality advertising solutions and services, we may not remain competitive, and our business and results of operations could be materially adversely affected. Our success depends on our ability to provide customers with innovative, high-quality advertising solutions and services that foster consumer engagement. We face intense competition in the marketplace and are confronted by rapidly changing technology, evolving industry standards and consumer needs, and the frequent introduction of new products and solutions by competitors, as well as publishers themselves, that we must adapt and respond to in order to remain competitive. Therefore, our continued success depends in part upon our ability to develop new solutions and technologies, enhance our existing solutions and expand the scope of our offerings to meet the evolving needs of the industry. As a result, we must continue to invest significant resources in research and development in order to enhance our technology and our existing solutions and services, and introduce new high-quality solutions and services. Our operating results will also suffer if our innovations are not responsive to the needs of our customers, are not appropriately timed with market opportunity or are not effectively brought to market. If we are unable to accurately forecast market demands or industry changes, if we are unable to develop or introduce our solutions and services in a timely manner, or if we fail to provide quality solutions and services that run without complication or service interruptions, we may damage our brand and our ability to retain new and existing customers or attract new customers. As online advertising technologies continue to develop, our competitors may be able to offer solutions that are, or that are perceived to be, substantially similar or better than those offered by us. Customers will not continue to do business with us if our solutions do not deliver advertisements in an appropriate and effective manner or if the advertising we deliver does not generate the desired results. If we are unable to meet these challenges, our business and results of operations could be materially adversely affected. Commoditization in digital advertising could have a material adverse effect on our business. There has been commoditization of services provided in digital advertising, resulting in margin pressure. If such commoditization occurs in areas such as high impact, this could have a material adverse effect on our business. Sales efforts with advertising and ad agency customers, and with advertisers of mobile applications, require significant time and expense and may ultimately be unsuccessful. Contracting with new advertising and ad agency customers requires substantial time and expense, and we may not be successful in establishing new relationships or in maintaining current relationships. It is often difficult to identify, engage, and market to potential advertising customers who are unfamiliar with our brand or services, and we may spend substantial time and resources educating customers about our unique offerings, including providing demonstrations and comparisons against other available solutions, without ultimately achieving the desired results. Furthermore, many of our advertising clients’ purchasing and design decisions generally require input from multiple internal and external parties of these clients, requiring that we identify those involved in the purchasing decision and devote a sufficient amount of time to presenting our services to each of those decision-making individuals. We may not be able to reduce our sales and marketing expenses to correspond proportionately to periods of reduced revenues. We may not be able to reduce our sales and marketing expenses to correspond proportionately to periods of reduced revenues. If we are not successful in streamlining our sales processes with potential clients in a cost effective manner, or if our efforts are unsuccessful, our ability to grow our business may be adversely affected. 11 Our growth depends in part on the success of our relationships with advertising agencies. While we work with some brand advertisers directly, our primary advertising customers are advertising agencies, who are paid by their brand customers to develop their media plans. The agencies, in turn, contract with third parties, like us, to execute and fulfill their brands’ advertising campaigns. As a result, our future growth will depend, in part, on our ability to enter into and maintain successful business relationships with advertising agencies. Identifying agencies, engaging in sales efforts, and negotiating and documenting our agreements with agencies requires significant time and resources. These relationships may not result in additional brand customers or campaigns for our business, and may not ultimately enable us to generate significant revenues. Our contracts with advertising agencies are typically non-exclusive and the agencies often work with our competitors or offer competing services. When working with agencies to deliver campaigns on behalf of their brand customers, we generally bill the agency for our products and services, and in most cases, the brand has no direct contractual commitment to us to make any payments. Furthermore, some agencies contractually limit their payment obligations to us through sequential liability provisions, whereby the agency is liable for payment if, and only to the extent, that the agency collects a corresponding payment from the brand on whose behalf our services were rendered. These circumstances may result in longer collections periods, increased costs associated with pursuing brands directly for payments, or our inability to collect payments. In summary, if we are unsuccessful in establishing or maintaining our relationships with these agencies on commercially reasonable terms, or if these relationships are not profitable for us, our ability to compete in the marketplace or to grow our revenues could be impaired and our operating results would suffer. If the demand for social advertising does not grow as expected, or if our solution for advertising through those channels is not competitive, the revenues related to our We leverage the capabilities of Our search We are highly dependent on our search services agreement with Microsoft Online Inc. 12 If our Our search revenue business is highly reliant upon a small number of publishers, who account for the substantial majority of pay-outs to publishers and generate most of our revenues. If we were to lose all or a significant portion of those publishers as customers, our revenues and results of operations would be materially adversely affected. In The generation of revenues from search activity through large publishers is subject to competition. If we cannot compete effectively in this market, our revenues are likely to decline. We obtain a significant portion of our revenues through designating the Company as the default search provider during the download and installation of our publishers’ products and the use of our search services and the subsequent searches performed by the users thereof. We therefore are constantly looking for more ways to distribute our search services through various means and collaborations. To achieve these goals, we rely heavily on third-party publishers to distribute our search syndication services as a value-added component of their own offerings. There are other companies that generate revenue from searches, some of them with a more significant presence than ours and with greater capability to offer substantially more content. The large search engine companies, including Google, Microsoft and others, have become increasingly aggressive in their own search service offerings. In addition, we need to continually maintain the technological advantage of our platform, products and other services in order to attract partners to our offering. If the search engine companies engage more direct relationships with publishers or we are unable to maintain the technological advantage to service our partners, we may lose both existing and potential new partner publishers and our ability to generate revenues will be negatively impacted. In order to receive advertisement-generated revenues from our search partners, we depend, in part, on factors outside of our control. The amount of revenue we receive from each of our search partners depends upon a number of factors outside of our control, including the amount these search providers charge for advertisements, the efficiency of the search provider’s system in attracting advertisers and syndicating paid listings in response to search queries and parameters established by it regarding the number and placement of paid listings displayed in response to search queries. In addition, each of the search partners makes judgments about the relative attractiveness (to the advertiser) of clicks on paid listings from searches performed on or through our search assets, and these judgments factor into the amount of revenue we receive. Changes in the efficiency of a search partner’s paid listings network, in its judgment about the relative attractiveness of clicks on paid listings or in the parameters applicable to the display of paid listings could have an adverse effect on our business, financial condition and our results of operations. Such changes could come about for a number of reasons, including general market conditions, competition or policy and operating decisions made by Microsoft or Google or our other search partners. We have experienced a decline in our search For a prolonged period of time, we have experienced a decline in revenues and an increasingly negative market bias regarding a major source of revenues - our search-generated revenues. The combination of these factors presents challenges in:
If we cannot maintain the commitment of our employees, recruit new employees and make the acquisitions required to enhance our organic activity, we may not be able to stem the decline in this business and our financial results will suffer. Our reputation has been and may continue to be negatively impacted by a number of factors, including the negative reputation associated with search assets, search setting take-over, toolbars, product and service quality concerns, complaints by publishers or end users or actions brought by them or by governmental or regulatory authorities and related media coverage and data protection and security breaches. Moreover, the inability to develop and introduce monetization products and services that resonate with consumers and/or the inability to adapt quickly enough (and/or in a cost effective manner) to evolving changes to the Internet and related technologies, applications and devices, could adversely impact our reputation, and, in turn, our business, financial condition and our results of operations. We rely heavily on the ability to offer our search Our search distribution agreements with Microsoft and other search partners require that we comply with certain guidelines promulgated by them for the use of their brands and services, including the manner in which their paid listings are displayed within search results, and that we establish guidelines to govern certain activities of third parties to whom we syndicate the search services, including the manner in which those parties drive search traffic to their websites and display paid listings. Subject to certain limitations, our search partners may unilaterally update their policies and guidelines, which could, in turn, require modifications to, or prohibit and/or render obsolete certain of our products, services and practices, which could be costly to address or otherwise have an adverse effect on our business, our financial condition and results of operations. Noncompliance with our search partners' guidelines, particularly Microsoft’s, by us or by third parties to which we syndicate paid listings or by the publishers through whom we secure distribution arrangements for our products could, if not cured, result in such companies' suspension of some or all of their services to us, or to the websites of our third party publishers, or the reimbursement of funds paid to us by our search partners, or the imposition of additional restrictions on our ability to syndicate paid listings or distribute our products or the termination of the search distribution agreement by our search partners. These guidelines, with respect to method of distribution, homepage resets and default search resets to search engine services, were changed by both Microsoft and Google numerous times in the past, having negative revenue implications. Since then, both companies have continued instituting other changes to the policies governing their relationship with search partners. As a result, fewer and fewer substantial publishing partners are compliant with these requirements, resulting in the termination of our business relationship with them and increasing the concentration of revenues generated through each of our remaining partners. Should any of our large partnerships be deemed non-compliant, blocked or partner with another provider, it could be difficult to replace the revenues generated by that partnership and we would experience a material reduction in our revenues and, in turn, our business, financial condition and results of operations would be adversely affected. Should the providers of the underlying platforms, particularly browsers, further block, constrain or limit our ability to offer or change search properties, or materially change their guidelines, technology or the way they operate, our ability to generate revenues from our users' search activity could be significantly reduced. As we provide our services through the Internet, we are reliant on our ability to work with the different Internet browsers. The Internet browser market is extremely concentrated with Google’s Chrome, Microsoft’s Internet Explorer, Microsoft Edge and Mozilla’s Firefox, accounting for over Currently most individuals are using mobile devices to access the Internet, while substantially all of our search revenue generation and services are currently not usable on mobile platforms. Also, web-based software and similar solutions are impacting the attractiveness of downloadable software products. The market related to Web (or Our software or provision of search services or advertising is occasionally blocked by software or utilities designed to protect Some of our products and offerings are viewed by some third parties, such as anti-virus software providers, as promoting or constituting Risks related to our Financial and Corporate Structure If we fail to comply with the terms or covenants of our debt obligations, our financial position may be adversely affected. As of December 31, In addition, if Undertone fails to comply with the terms and/or covenants There is no assurance The terms of our credit facilities contain restrictive covenants that limit our business, financing and investing activities. The terms of our credit facilities include customary covenants that impose restrictions on our business, financing and investing activities, subject to certain exceptions or the consent of our lenders including, among other things, limits on our ability to incur additional debt, create liens, enter into merger, acquisition and divestiture transactions, pay dividends and engage in transactions with affiliates. The credit facilities also contain certain customary affirmative covenants and events of default. Our ability to comply with the covenants may be adversely affected by events beyond our control, including but not limited to, economic, financial and industry conditions. A breach of any credit facility covenant that is not cured or waived may result in an event of default. This may allow our lenders to terminate the commitments under the credit facilities, declare all amounts outstanding under the credit facilities, together with accrued interest, to be immediately due and payable, and to exercise other rights and remedies. If this occurs, we may not be able to refinance the accelerated indebtedness on acceptable terms, or at all, or otherwise repay the accelerated indebtedness, which could have a material adverse effect on us. In addition, certain covenants also limit our flexibility in planning for, or reacting to, changes in our business and our industry. Complying with these covenants limits our tax planning abilities, our ability to pay dividends and may impair our ability to finance our future operations, acquisitions or capital needs or to engage in other favorable business activities. A loss of the services of our senior management and other key personnel could adversely affect execution of our business strategy. We depend on the capabilities and experience, and the continued services, of our senior management. The loss of the services of members of our senior management could create a gap in management and could result in the loss of expertise necessary for us to execute our business strategy and thereby adversely affect our business. We do not currently have Further, our ability to execute our business strategy also depends on our ability to continue to attract, retain and motivate qualified and skilled technical and creative personnel and skilled management, marketing and sales personnel, as well as third party technology vendors. Competition for well-qualified employees in our industry is intense and our continued ability to compete effectively depends, in part, upon our ability to retain existing key employees and to attract new skilled employees as well. If we cannot attract and retain additional key employees or if we lose one or more of our current key employees, our ability to develop or market our products and attract or acquire new users could be adversely affected. Although we have established programs to attract new employees and provide incentives to retain existing employees, particularly senior management, we cannot be assured that we will be able to retain the services of senior management or other key employees as we continue to integrate We have acquired and may continue to acquire other businesses. These acquisitions divert a substantial part of our resources and management attention and have in the past and could in the future, cause further dilution to our shareholders and adversely affect our financial results. We acquired Smilebox in August 2011, SweetIM in November 2012, ClientConnect in January 2014, Grow Mobile in July 2014, Make Me Reach in February 2015, and Undertone in November 2015, and we may continue to acquire complementary products, technologies or businesses. Seeking and negotiating potential acquisitions to a certain extent diverts our management’s attention from other business concerns and is expensive and time-consuming. Acquisitions expose us and our business to unforeseen liabilities or risks associated with the business or assets acquired or with entering new markets. In addition, we lost and might continue to lose key employees and vendors while integrating new organizations and may not effectively integrate the acquired products, technologies or businesses or achieve the anticipated revenues or cost benefits, and we might harm our relationships with our future or current technology suppliers. Future acquisitions could result in customer dissatisfaction or vendor dissatisfaction or performance problems with an acquired product, technology or company. Paying the purchase price for acquisitions in the form of cash, debt or equity securities may weaken our cash position, increase our leverage or dilute our existing shareholders, as applicable. Furthermore, a substantial portion of the price paid for these acquisitions is typically for intangible assets. We may incur contingent liabilities, amortization expenses related to intangible assets or possible impairment charges related to goodwill or other intangible assets (which has occurred in the past) or become subject to litigation or other unanticipated events or circumstances relating to the acquisitions, and we may not have, or may not be able to enforce, adequate remedies in order to protect our Company. Moreover, acquisitions may end up in losses, unwanted results and waste of valuable resources, time and money. 16 We have recognized impairments in the carrying value of We continue to have a substantial amount of goodwill and purchased intangible assets on our consolidated balance sheet as a result of historical acquisitions. The carrying value of goodwill represents the fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of intangible assets with identifiable useful lives represents the fair value of relationships, content, domain names and acquired technology, among other things, as of the acquisition date, and are amortized based on their economic lives. Goodwill that is expected to contribute indefinitely to our cash flows is not amortized but must be evaluated for impairment at least annually. If the carrying value exceeds current fair value as determined based on the discounted future cash flows of the related business, the goodwill or intangible asset is considered impaired and is reduced to fair value via a non-cash charge to earnings. Events and conditions that could result in impairment include adverse changes in the regulatory environment, a reduced market capitalization or other factors leading to reduction in expected long-term growth or profitability. Goodwill impairment analysis and measurement is a process that requires significant judgment. Our stock price and any control premium are factors affecting the assessment of the fair value of our underlying reporting units for purposes of performing any goodwill impairment assessment. In Several shareholders may be able to control us. As a result of the ClientConnect Acquisition, several shareholders of Conduit became significant shareholders of Perion, including three shareholders that each beneficially own more than Our share price has fluctuated significantly and could continue to fluctuate significantly. The market price for our ordinary shares, as well as the prices of shares of other Internet companies, has been volatile. Between January
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In addition, share prices of many technology companies in general and ad-tech companies in particular fluctuate significantly for reasons that may be unrelated or disproportionate to operating results. The factors discussed above may depress or cause volatility to our share price, regardless of our actual operating results. Class action litigation due to share price volatility or other factors could cause us to incur substantial costs and divert our management’s attention and resources. Historically, public companies that experience periods of volatility in the market price of their securities and/or engage in substantial transactions are sometimes the target of class action litigation. Companies in the Internet and software industry, such as ours, are particularly vulnerable to this kind of litigation as a result of the volatility of their stock prices and their regular involvement in transactional activities. In the past, we were named as a defendant in this type of litigation in connection with our acquisition of ClientConnect, and although this lawsuit was dismissed, in the future litigation of this sort could result in considerable costs and a diversion of management’s attention and resources. Future sales of our ordinary shares could reduce our stock price. As of March Sales by shareholders of substantial amounts of our ordinary shares, or the perception that these sales may occur in the future, could materially and adversely affect the market price of our ordinary shares. Furthermore, the market price of our ordinary shares could drop significantly if our executive officers, directors, or certain large shareholders sell their shares, or are perceived by the market as intending to sell them. Exchange rate fluctuations may harm our earnings and asset base if we are not able to hedge our currency exchange risks effectively. A significant portion of our costs, primarily personnel expenses, are incurred in We do not intend to pay cash dividends. Although we have paid cash dividends in the past, our current policy is to retain future earnings, if any, for funding growth and reducing our debt. If we do not pay dividends, long term holders of our shares will generate a return on their investment only if the market price of our shares appreciates between the date of purchase and the date of sale of our shares. See 18 We are subject to ongoing costs and risks associated with complying with extensive corporate governance and disclosure requirements. As an Israeli public company, traded on NASDAQ, we incur significant legal, accounting and other expenses. We incur costs associated with our public company reporting requirements as well as costs associated with corporate governance and public disclosure requirements, including requirements under the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Listing Rules of the NASDAQ Stock Market, regulations of the SEC, the provisions of the Israeli Securities Law that apply to dual listed companies (companies that are listed on the Tel Aviv Stock Exchange If we lose our foreign private issuer status under U.S. federal securities laws, we would incur additional expenses associated with compliance with the U.S. securities laws applicable to U.S. domestic issuers. We are a foreign private issuer, as such term is defined under U.S. federal securities laws, and, therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements applicable to U.S. domestic issuers. If we lost our foreign private issuer status, we would be required to comply with the reporting and other requirements applicable to U.S. domestic issuers, which are more extensive than the requirements for foreign private issuers and more expensive to comply with. Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of our securities. In recent years, certain Israeli issuers listed on United States exchanges, as well as our Company, have been faced with governance-related demands from activist shareholders, as well as unsolicited tender offers and proxy contests. Although as a foreign private issuer we are not subject to U.S. proxy rules, responding to these types of actions by activist shareholders could be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees. Such activities could interfere with our ability to execute our strategic plan. In addition, a proxy contest for the election of directors at our annual meeting would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and our board of directors. The perceived uncertainties due to these potential actions of activist shareholders also could affect the market price and volatility of our securities. The rights and responsibilities of our shareholders are governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law. We are incorporated under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our memorandum of association, articles of association and by Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters. Israeli law provides that these duties are applicable in shareholder votes at the general meeting with respect to, among other things, amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and actions and transactions involving interests of officers, directors or other interested parties which require shareholders’ approval. There is little case law available to assist in understanding the implications of these provisions that govern shareholder behavior. 19 As a foreign private issuer, whose shares are listed on NASDAQ, we follow certain home country corporate governance practices instead of certain NASDAQ requirements. As a foreign private issuer, whose shares are listed on NASDAQ, we are permitted to follow certain home country corporate governance practices instead of certain requirements contained in the NASDAQ listing rules. We follow the requirements of the Companies Law in Israel, rather than comply with the NASDAQ requirements, in certain matters, including with respect to the quorum for shareholder meetings, sending annual reports to shareholders, and shareholder approval with respect to certain issuances of securities. See Provisions of our articles of association and Israeli law may delay, prevent or make an acquisition of our Company difficult, which could prevent a change of control and, therefore, depress the price of our shares. Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. In addition, our articles of association contain provisions that may make it more difficult to acquire our Company, such as provisions establishing a staggered board. Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to some of our shareholders. See These provisions of Israeli law may delay, prevent or make difficult an acquisition of our Company, which could prevent a change of control and therefore depress the price of our shares. If we do not satisfy the NASDAQ requirements for continued listing, our ordinary shares could be delisted from NASDAQ. Our listing on the NASDAQ Stock Market is contingent on our compliance with the Our ordinary shares are traded on more than one market and this may result in price variations. Our ordinary shares are traded on the NASDAQ Global Select Market and on 20 Risks related to our Technological Environment Our financial performance may be materially adversely affected by information technology, insufficient cyber security and other business disruptions. Our business is constantly challenged and may be impacted by disruptions, including information technology attacks or failures. Cybersecurity attacks, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and corruption of data and overloading our servers and systems with communications and data. Unidentified groups have hacked numerous Internet websites and servers, including our own, for various reasons, political, commercial and other. Given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to substantial system downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks, financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation, any of which could have a material adverse effect on our cash flows, competitive position, financial condition and results of operations. Although these attacks cause certain difficulties, they have not had a material effect on our business, financial condition or results of operations. However, there can be no assurance that such attacks can be prevented or that any such incidents will not have a material adverse effect on us in the future. If we fail to detect or prevent suspicious traffic or other invalid traffic or engagement with our ads, or otherwise prevent against malware intrusions, we could lose the confidence of our advertisers, damage our reputation and be responsible to make-good or refund demands, which would cause our business to suffer. Our business relies on delivering positive results to our advertisers and their consumers. We are exposed to the risk of fraudulent or suspicious impressions, clicks or conversions that advertisers may perceive as undesirable. Such fraudulent activities may occur when a software program, known as a bot, spider or crawler, intentionally simulates user activity causing impressions, ad engagements or clicks to be counted as real users. Such malicious software programs can run on single machines or on tens of thousands of machines, making them difficult to detect and filter. If fraudulent or other malicious activity is perpetrated by others, and we are unable to detect and prevent it, the affected advertisers may experience or perceive a reduced return on their investment. High levels of invalid or fraudulent activity could lead to dissatisfaction with our advertising services, refusals to pay, refund or make-good demands, or withdrawal of future business. Any of these occurrences could damage our brand and lead to a loss of our revenue. A loss of the services of our technology vendors could adversely affect execution of our business strategy. Should some of our technology vendors terminate their relationship with us, our ability to continue the development of some of our products could be adversely affected, until such time that we find adequate replacement for these vendors, or until such time that we can continue the development on our own. We may not be able to enhance our platform to keep pace with technological and market developments in our evolving industry. To keep pace with technological developments, satisfy increasing developer requirements, maintain the attractiveness and competitiveness of our advertising solutions and ensure compatibility with evolving industry standards, we will need to regularly enhance our platform and develop and introduce new services on a timely basis. We also must update our software to reflect changes in advertising Our products operate in a variety of computer and device configurations and could contain undetected errors or defects that could result in product failures, lost revenues and loss of market share. Our software and advertising products may contain undetected errors, failures or defects, especially when the products are first introduced or when new versions are released. Our customers’ computer and other device environments are often characterized by a wide variety of standard and non-standard configurations that make pre-release testing for programming or compatibility errors very difficult and time-consuming. As a result, there could be errors or failures in our products. In addition, despite testing by us and beta testing by some of our users, errors, failures or bugs may not be found in new products or releases until after commencement of commercial sales. In the past, we have discovered software errors, failures and defects in certain of our product offerings after their full introduction and have experienced delayed or lost revenues during the period required to correct these errors. Errors, failures or defects in products released by us could result in negative publicity, product returns, make-goods, refunds, loss of or delay in market acceptance of our products, loss of competitive position or claims by customers. Alleviating any of these problems could require significant expense and resources and could cause interruptions to our products. 21 We depend on third party Internet and telecommunication providers to operate our websites and web-based services. Temporary failure of these services, including catastrophic or technological interruptions, would materially reduce our revenues and damage our reputation, and securing alternate sources for these services could significantly increase our expenses and be difficult to obtain. Our third-party Internet and telecommunication providers may experience disruptions, which would reduce our revenues and increase our costs. We also rent the services of approximately 400 servers located around the world, mainly through Amazon Web Services. While we believe that there are many alternative providers of hosting and other communication services available to us, the costs associated with any transition to a new service provider could be substantial. Furthermore, although we maintain back-up systems for most aspects of our operations, we could still experience deterioration in performance or interruption in our systems, delays, and loss of critical data and registered users and revenues. Our backup systems are also not fully redundant and our disaster recovery planning may not be sufficient for all eventualities. In addition, we may have inadequate insurance coverage to compensate us for losses from a major interruption. Furthermore, interruptions in our website could materially impede our ability to attract new companies to advertise on our website and to maintain relationships with current advertisers. Difficulties of this kind could damage our reputation, be expensive to remedy and curtail our growth. The introduction of new browsers and other popular software products may materially adversely affect user engagement with our search services. Users typically install new software and update their existing software as new or updated software is introduced online by third-party developers. In addition, when a user purchases a new computing device or installs a new Internet browser, it generally uses the Internet search services that are typically pre-installed on the new device or Internet browser. Our products are distributed online and are usually not pre-installed on computing devices. Further, as many software vendors that distribute their solutions online also offer search services alongside their primary software product, users often replace our search services with those provided by these vendors in the course of installing new software or updating existing software. After users have installed search solutions offered by us, any event that results in a significant number of our users changing or upgrading their Internet browsers could result in the failure to generate the revenues that we anticipate from our users and result in a decline in our user base. Finally, although we constantly monitor the compatibility of our Internet search services and related solutions with such new versions and upgrades, we may not be able to make the required adjustments to ensure constant availability and compatibility of such solutions. Risks related to Regulatory Changes Regulatory, legislative, or self-regulatory developments relating to e-commerce, Internet advertising, privacy and data collection and protection, and uncertainties regarding the application or interpretation of existing laws and regulations, could harm our business. Our business is conducted through the Internet and therefore, among other things, we are subject to the laws and regulations that apply to e-commerce and online businesses around the world. These laws and regulations are becoming more prevalent in the United States, Europe, Israel, Canada and elsewhere and may impede the growth of the Internet and consequently our services. These regulations and laws may cover user privacy, data collection and protection, location of data storage and processing, content, use of Many areas of the law affecting the Internet remain largely unsettled, even in areas where there has been some legislative action. This uncertainty can be compounded when services hosted in one jurisdiction are directed at users in another jurisdiction. For instance, European data protection rules may apply to companies which are not established in the European Union. The 22 Due to rapid changes in technology and the inconsistent interpretations of privacy and data protection laws, we may be required to materially change the way we do business. For example, we may be required to implement physical, administrative and technological security measures that differ from those we have now, such as different data access controls or encryption technology. In addition, we use cloud-based computing, which is not without substantial risk, particularly at a time when businesses of almost every kind are finding themselves subject to an ever- expanding range of state and federal data security and privacy laws, document retention requirements, and other standards of accountability. Compliance with such existing and proposed laws and regulations can be costly and can delay, or impede the development of new products, result in negative publicity, increase our operating costs, require significant management time and attention and subject us to inquiries or investigations, claims or other remedies, including fines or demands that we modify or cease existing business practices. In addition to compliance with government regulations, Undertone voluntarily participates in several trade associations and industry self-regulatory groups that promulgate best practices or codes of conduct relating to digital advertising, including the Internet Advertising Bureau, the Network Advertising Initiative and the Digital Advertising Alliance. We could be adversely affected by new or altered self-regulatory guidelines that are inconsistent with our current practices or in conflict with applicable laws and regulations in the United States, Europe, Israel and other regions where we do business. If we fail to abide by or are perceived as not operating in accordance with industry best practices or any industry guidelines or codes with regard to privacy or the provision of Internet advertising, our reputation may suffer and we could lose relationships with both buyers and sellers. For more information regarding government regulations to which we are subject, see If we are deemed to be non-compliant with applicable data protection laws, or are even thought to be so, our operating results could be materially affected. We collect, use, and maintain certain data about our customers, partners, employees and consumers. Such collection and maintenance of information is subject to data protection laws and regulations. A failure to comply with applicable regulations could result in class actions, governmental investigations and orders, and criminal and civil liabilities, which could materially affect our operating results. Moreover, concerns about our collection, use, sharing or handling of such data or other privacy related matters, even if unfounded, could harm our reputation and operating results. Although we strive to comply with the applicable laws and regulations and use our best efforts to comply with the evolving global standards regarding privacy and inform our customers of our business practices prior to any installations of our product and use of our services, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data collection, use and preservation practices or that it may be argued that our practices do not comply with other countries' privacy and data protection laws and regulations. In addition to the possibility of fines, such a situation could result in the issuance of an order requiring that we change our data collection or retention practices, which in turn could have a material adverse effect on our business. See If one or more states or countries determine that we are required to collect sales, use, or other taxes on the services that we sell, this may result in liability to pay sales, use, and other taxes (plus interest and penalties) on prior sales and a decrease in our future sales revenue. In general, the digital advertising business has not traditionally paid sales tax. However, a successful assertion by one or more cities, states or countries that digital advertising services should be subject to such taxes or that we are not providing digital advertising services, but other services and should collect sales, use, or other taxes on the sale of our services, or that we have failed to do so where required in the past, could result in a decrease in future sales and/or substantial tax liabilities for past sales. Each state and country has different rules and regulations governing sales, use, and other taxes, and these rules and regulations are subject to varying interpretations that may change over time. Some states are also pursuing legislative expansion of the scope of goods and services that are subject to sales and similar taxes as well as the circumstances in which a vendor of goods and services must collect such taxes. Furthermore, legislative proposals have been introduced in Congress that would provide states with additional authority to impose such taxes. Accordingly, it is possible that either federal or state legislative changes may require us to collect additional sales and similar taxes from our clients in the future which could impact our future sales, and therefore result in a material adverse effect on our revenue. 23 Under current Israeli, U.S., U.K., French and German law, we may not be able to enforce non-competition and non-solicitation covenants and, therefore, we may be unable to prevent our competitors from benefiting from the expertise of some of our former employees and/or vendors, whether current or former. We have entered into non-competition and non-solicitation agreements with many of our employees and vendors. These agreements prohibit our employees and vendors, if they terminate their relationship with us, from competing directly with us, working for our competitors, or soliciting current employees away from us for a limited period. Under current Israeli, U.S., U.K., French and German law, we may be unable to enforce these agreements, in whole or in part, and it may be difficult for us to restrict our competitors from gaining the expertise that our former employees gained while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or its intellectual property. If we cannot demonstrate that harm would be caused to us, we may be unable to prevent our competitors from benefiting from the expertise of our former employees. Risks Related to our Intellectual Property Our proprietary information and intellectual property may not be adequately protected and thus our technology may be unlawfully copied by or disclosed to other third parties. We regard the protection of our proprietary information and technology and other intellectual property as critical to our success. We strive to protect our intellectual property rights by relying on contractual restrictions, trade secret law and other common law rights, as well as federal and international intellectual property registrations and the laws on which these registrations are based. However, the technology we use and incorporate into our offerings may not be adequately protected by these means. We generally enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business, in order to limit access to, and the disclosure and use of, our proprietary information. However, we may not be successful in executing these agreements with every party who has access to our confidential information or contributes to the development of our intellectual property. In addition, those agreements that we do execute may be breached, and we may not have adequate remedies for any such breach. Further, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our intellectual property and/or trade secrets, or deter independent development of similar intellectual property by others. In addition, there is no assurance that any existing or future patents or trademarks will afford adequate protection against competitors and similar technologies. Our intellectual property rights may be challenged, invalidated, or circumvented by others or invalidated through administrative process or litigation. Effective trademark and patent protections are expensive to develop and maintain, as are the costs of defending our rights. Further, we cannot assure you that competitors will not infringe our patents or trademarks, or that we will have adequate resources to enforce our rights. Third party claims of infringement or other claims against us could require us to redesign our products, seek licenses, or engage in costly intellectual property litigation, which could adversely affect our financial position and our ability to execute our business strategy. Given the competitive and technology-driven nature of the digital advertising industry, companies within our industry often design and use similar products and services, which may lead to claims of intellectual property infringement and potentially litigation. We have been, and in the future may be, the subject of claims that our solutions and underlying technology infringe or violate the intellectual property rights of others. Regardless of whether such claims have any merit, these claims are time-consuming and costly to evaluate and defend, and the outcome of any litigation is inherently uncertain. Our business may suffer if we are unable to resolve infringement or misappropriation claims without major financial expenditures or adverse consequences. If it appears necessary or desirable, we may seek to obtain licenses to use intellectual property rights that we are allegedly infringing, may infringe or desire to use. Although holders of these types of intellectual property rights often offer these licenses, we cannot assure you that licenses will be offered or that the terms of any offered licenses will be acceptable to us. Our failure to obtain a license for key intellectual property rights such as these from a third party for technology or content, sound, or graphic used by us could cause us to incur substantial liabilities and to suspend the development and sale of our products. Alternatively, we could be required to expend significant resources to re-design our products or develop non-infringing technology. If we are unable to re-design our products or develop non-infringing technology, our revenues could decrease and we may not be able to execute our business strategy. 24 On December 22, 2015, Adtile Technologies Inc. filed a lawsuit against Perion and Undertone alleging, inter alia, that Undertone’s UMotion advertising format, “hand phone” image, and use of the full tilt library infringes on its intellectual property. On February 3, 2016, Adtile Technologies Inc. filed a motion for preliminary injunction to, inter alia, prevent Undertone from creating or selling motion-activated advertisements. On June 23, 2016, the court denied Adtile’s motion for a preliminary injunction. On June 24, 2016, the court (i) granted Perion’s motion to dismiss and (ii) granted Undertone’s motion to stay the action and compel arbitration. We may also become involved in litigation in connection with the brand name rights associated with our Company name or the names of our products. We do not know whether others will assert that our Company name or any of our brands name infringe(s) their trademark rights. In addition, names we choose for our products may be alleged to infringe names held by others. If we have to change the name of our Company or products, we may experience a loss in goodwill associated with our brand name, customer confusion and a loss of sales. Any lawsuit, regardless of its merit, would likely be time-consuming, expensive to resolve, and require additional management time and attention. We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business. A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee in the course and as a result of or arising from his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his inventions. Recent case law clarifies that the right to receive consideration for “service inventions” can be waived by the employee and that in certain circumstances, such waiver does not necessarily have to be explicit. The Committee will examine, on a case-by-case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Further, the Committee has not yet determined one specific formula for calculating this remuneration (but rather uses the criteria specified in the Patent Law). Although we generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business. We use certain Certain of our products contain open source code and we may use more open source code in the future. In addition, certain third party software that we embed in our products contains open source code. Open source code is code that is covered by a license agreement that permits the user to liberally use, copy, modify and distribute the software without cost, provided that users and modifiers abide by certain licensing requirements. The original developers of the open source code provide no warranties on such code. As a result of the use of open source software, we could be subject to suits by parties claiming ownership of what they believe to be their proprietary code or we may incur expenses in defending claims alleging non-compliance with certain open source code license terms. In addition, third party licensors do not provide intellectual property protection with respect to the open source components of their products, and we may be unable to be indemnified by such third-party licensors in the event that we or our customers are held liable in respect of the open source software contained in such third party software. If we are not successful in defending against any such claims that may arise, we may be subject to injunctions and/or monetary damages or be required to remove the open source code from our products. Such events could disrupt our operations and the sales of our products, which would negatively impact our revenues and cash flow. Moreover, under certain conditions, the use of open source code to create derivative code may obligate us to make the resulting derivative code available to others at no cost. The circumstances under which our use of open source code would compel us to offer derivative code at no cost are subject to varying interpretations. If we are required to publicly disclose the source code for such derivative products or to license our derivative products that use an open source license, our previously proprietary software products may be available to others without charge. If this happens, our customers and our competitors may have access to our products without cost to them which could harm our business. Certain open source licenses require as a condition to use, modification and/or distribution of such open source that proprietary software incorporated into, derived from or distributed with such open source be disclosed or distributed in source code form, be licensed for the purpose of making derivative works, or be redistributable at no charge. The foregoing may under certain conditions be interpreted to apply to our software, depending upon the use of the open source and the interpretation of the applicable open source licenses. We monitor our use of open source code to avoid subjecting our products to conditions we do not intend. The use of open source code, however, may ultimately subject some of our products to unintended conditions so that we are required to take remedial action that may divert resources away from our development efforts. Risks Related to the Geographical Location of our Operations Our business is significantly reliant on the North American market. Any material adverse change in that market could have a material adverse effect on our results of operations. Our revenues have been concentrated within the North American market, accounting for approximately Our business may be materially affected by changes to fiscal and tax policies. Potentially negative or unexpected tax consequences of these policies, or the uncertainty surrounding their potential effects, could adversely affect our results of operations and share price. We operate in a global market and are subject to tax in Israel and other jurisdictions. Our tax expenses may be affected by changes in tax laws, international tax treaties, international tax guidelines (such as the Base Erosion and Profit Shifting project of the OECD (“BEPS”)). More specifically, the U.S. Tax Cuts and Jobs Act of 2017 (“TCJA”) was approved by Congress on December 20, 2017, and signed into law by President Donald J. Trump on December 22, 2017. This legislation makes significant changes to the U.S. Internal Revenue Code of 1986, as amended (the “Code”). Such changes include a reduction in the corporate tax rate, changes in international taxation, and limitations on certain corporate deductions and credits, among other changes. Certain of these changes could have a negative impact on our results of operations and business. The impact of these changes is uncertain, and may not become evident for some period of time. The uncertainty surrounding the effect of the reforms on our financial results and business could also weaken confidence among investors in our financial condition. This could, in turn, have a materially adverse effect on the price of our ordinary shares. Prospective investors are urged to consult their tax advisors regarding the effect of these changes to the U.S. federal tax laws on an investment in our shares. Our international operations involve special risks that could increase our expenses, adversely affect our operating results and require increased time and attention of our management. A large portion of our operations are performed from outside the United States. In addition, we derive and expect to continue to derive a portion of our revenues from users outside the United States. Our international operations and sales are subject to a number of inherent risks, including risks with respect to:
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Political, economic and military instability in the Middle East may impede our ability to operate and harm our financial results. Our principal executive offices are located in Israel. Accordingly, political, economic and military conditions in the Middle East may affect our business directly. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). Recent political uprisings, social unrest and violence in various countries in the Middle East and North Africa, including Israel’s neighbors Egypt and Syria, are affecting the political stability of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and these countries and have raised concerns regarding security in the region and the potential for armed conflict. In addition, Iran has threatened to attack Israel and is believed to be developing nuclear weapons. Iran is also believed to have a strong influence among the Syrian government, Hamas and Hezbollah. These situations may potentially escalate in the future to more violent events which may affect Israel and us. These situations, including conflicts which involved missile strikes against civilian targets in various parts of Israel, such as the Gaza conflict in the summer of 2014, have in the past negatively affected business conditions in Israel. Any hostilities involving Israel could have a material adverse effect on our business, operating results and financial condition. Although such hostilities did not in the past have a material adverse impact on our business, we cannot guarantee that hostilities will not be renewed and have such an effect in the future. Ongoing and revived hostilities and the attempts to resolve the conflict between Israel and its Arab neighbors often results in political instability that affects the Israeli capital markets and can cause volatility in interest rates, exchange rates and stock market quotes. The political and security situation in Israel may result in parties with whom we have contracts claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions. These or other Israeli political or economic factors could harm our operations and product development and cause our sales to decrease. Since our headquarters are located in Israel, we could experience serious disruptions if acts associated with Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli companies based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact our business and results of operations. Investors and our shareholders generally may have difficulties enforcing a U.S. judgment against us, our executive officers or our directors or asserting U.S. securities laws claims in Israel. We are incorporated under the laws of the State of Israel. Service of process on us, our Israeli subsidiaries, our directors and officers and the Israeli experts, if any, named in this annual report, substantially all of whom reside outside of the United States, may be difficult to obtain within the United States. 27 Furthermore, because a significant portion of our assets and investments, and substantially all of our directors, officers and Israeli external experts are located outside the United States, any judgment obtained in the United States against us or any of them may be difficult to collect within the United States. We have been informed by our legal counsel in Israel that it may also be difficult to assert U.S. securities laws claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. There is little binding case law in Israel addressing these matters. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. Subject to specified time limitations and legal procedures, under the rules of private international law currently prevailing in Israel, Israeli courts may enforce a U.S. judgment in a civil matter, including a judgment based upon the civil liability provisions of the U.S. securities laws, as well as a monetary or compensatory judgment in a non-civil matter, provided that the following key conditions are met:
The tax benefits available to us for activities in Israel require us to meet several conditions and may be terminated or reduced in the future, which would increase our costs and taxes. We have benefited and currently benefit from a variety of Israeli government programs and tax benefits with regards to our operations in Israel, that generally carry conditions that we must meet in order to be eligible to obtain any benefit. Our tax expenses and the resulting effective tax rate reflected in our financial statements may increase over time as a result of changes in corporate income tax rates, other changes in the tax laws of the countries in which we operate, non-deductible expenses, loss and timing differences, or changes in the mix of countries, where we generate profit. If we fail to meet the conditions upon which certain favorable tax treatment is based, we would not be able to claim future tax benefits and could be required to refund tax benefits already received. Any of the following could have a material effect on our overall effective tax rate:
Additional details are provided in 28 If we are characterized as a passive foreign investment company, our U.S. shareholders may suffer adverse tax consequences. Non-U.S. corporations generally may be characterized as a passive foreign investment company If we are characterized as a PFIC for any taxable year, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares taxed at ordinary income rates, rather than capital gain rates. Similar rules apply to distributions that are We do not believe that See a discussion of our PFIC status in Item 10.E under A. HISTORY AND DEVELOPMENT OF THE COMPANY Our History We were incorporated in the State of Israel in November 1999 under the name Verticon Ltd., changed our name to IncrediMail Ltd. in November 2000 and in November 2011 changed our name to Perion Network Ltd. We operate under the laws of the State of Israel. Our headquarters are located at 26 HaRokmim Street, Holon 5885849, Israel. Our phone number is 972-73-3981000. Our website address is www.perion.com. The information on our website does not constitute a part of this annual report. Our agent for service in the United States is Intercept Interactive Inc. d/b/a Undertone, which is located at 340 Madison Avenue, 8th Floor, New York, NY 10173-0899. We completed the initial public offering of our ordinary shares in the United States on February 3, 2006. Since November 20, 2007, our ordinary shares are also traded on the Principal Capital Expenditures In B.BUSINESS OVERVIEW General Perion is a global technology company that delivers Overview Our Our proprietary social marketing platform offers a dashboard for marketers that makes media buying more efficient on Facebook, Instagram, Twitter and other social networks and platforms. With our social marketing platform, customers can acquire users from the industry’s top-performing social traffic sources including Facebook, Twitter, Snapchat and Instagram, and can access their performance data and revenue information in one place, enabling them to make better, quicker and more intelligent decisions and helping mobile application advertisers improve user acquisition, maximize their return on investment and ultimately meet their business goals. The platform allows advertisers to control their marketing expenditures, planning and strategy in-house and utilize the technical tool to create better operational marketing efficiencies. We offer our customers the opportunity to easily and efficiently increase their expenditures, reduce churn and improve retention through engagement campaigns. Customers also receive ongoing analysis and optimization of their campaigns for increased return on investment and scaling of their key performance indicator goals. While we focus on the advertising market, we continue to generate significant revenues and profits by providing search-based monetization solutions for our publishers with enhanced analytics capabilities to track and monitor their business performance. From the end user perspective, we enable users to configure their browser settings through the search setting dialogue so they are powered by our search-engine partners. Publishers can choose to implement our solution into or with their products and services (mobile and desktop) and to monetize their users’ search assets. Our search related products enable end users to, among other things, replace their search assets with ours, where users may conduct searches or follow links to advertisements that advertisers may display. They also allow publishers the ability to set up syndicated searches on their individual websites and to monetize their users’ other search assets. In addition, we are still generating a small portion of our revenues through our toolbar platform, which allows publishers to create, implement and distribute web browser toolbars, as well as through our consumer products; Smilebox, a Markets In general, we work with advertising agencies, advertisers, publishers and other inventory suppliers, and search partners. While we work with some advertisers directly, our primary advertising customers are advertising agencies, who are paid by brand advertisers to develop their media plans. We work with these advertisers and agencies to plan, design, deliver, manage, and measure their digital advertising campaigns. We generally do not enter into long term contracts with our advertising customers. We charge customers variable rates based on ad formats, campaign complexity, and creative requirements. We then engage in a consultative sales process to determine the best offering for that customer. Our customers generally purchase our products based on impressions served for each ad type, either using traditional insertion orders, or alternatively, programmatically, with options for managed service or self-service. Programmatic customers 30 In the past, we generated the majority of our revenues from services agreements with our search partners. Search-generated revenues accounted for We are currently one of the largest redistributors of search monetization in the United States and Strategy Our goal through our advertising offering is to be the leader in high-quality advertising solutions that cut through the digital clutter and deliver messages that stand out to consumers, through innovative and engaging ad units. To address all of our customers’ digital advertising needs with a comprehensive solution, we offer “high impact” ad units as well as standard and non-standard ad formats in desktop, mobile (web and app), and social channels. We define “high impact” as advertising that captures the attention of consumers, including video and non-standard rich media features and functionalities. The key components to our advertising solutions are: Creative Ad Units We offer our clients creative ad units that capture consumer attention, as well as functionality that drives consumer engagement. We have an in-house full-service creative team that works with clients to design, build and execute custom ad campaigns. Our formats, each with a suite of interactive features, can be deployed across desktop, mobile and tablet (“cross-screen”) and through web, app and social channels, depending on the specific needs of the customer. Most of these are our proprietary formats. We use HTML5 and responsive design to detect device type and screen size in order to deliver a seamless advertising experience across screens. Other proprietary formats leverage mobile-native functionality such as tap, swipe, shake and tilt in order to deliver an engaging consumer experience. Quality Media In order to be effective, advertisements must be delivered in media environments that reach the right audiences. We hand-pick a broad portfolio of premium media properties that are rigorously vetted using quantitative and qualitative criteria. Qualified publishers are then put through a certification process to ensure proper delivery of our formats. Approved publishers are placed on Undertone’s “Green List” and are subsequently continuously monitored for inappropriate content and suspicious traffic. Proprietary Technology Platform Our proprietary technology platform supports our mission of delivering high-quality digital experiences for our clients. Key features of our platform include:
31 Service and Support We provide our clients with service and support before, during and after the campaign cycle. Our sales, client solutions, and planning teams utilize a consultative, solutions-driven approach in order to develop the appropriate campaign strategy for each individual client. Our campaign management and performance teams oversee all aspects of client campaigns in order to ensure that they meet the clients’ objectives. Finally, our research and insights team provides clients with campaign results, key performance metrics and critical analysis in order to provide useful feedback to clients. Innovation To maintain our edge and innovative offering, we must continue to develop new solutions and services for our clients. To accomplish this, we have an in-house research and development team. This team researches, prototypes and tests emerging technology in order to determine how best to reach and influence consumers. The team also conducts research studies of consumer interactions with ad formats, features and functionalities to determine preferences and usage behavior. Our innovation team focuses on three types of innovations:
With the solutions we provide to our publisher partners, in the turbulent marketplace we currently act in, we differentiate ourselves by providing solutions with three major advantages:
Publishers face increasing challenges monetizing their offerings. This is partly because most consumers find that the free version of a given software product or content adequately meets their needs. Accordingly, most app developers or web content publishers do not earn sufficient revenue to sustain a standalone business. We provide a broad spectrum of solutions for our clients' monetization challenges. We offer clients tailored and engaging advertising solutions for web content publishers, thereby further increasing monetization opportunities. Through our search agreements with the world's leading search providers we enable our clients to monetize their search assets. Publishers and developers may incorporate a search box, generic or tailored to the publisher’s offering that is powered by our search providers, who in turn pay us fees for searches emanating from such search boxes. Depending on the payment model adopted, we pay our clients a fee on a pay-per-search or revenue sharing basis for search activity emanating from the incorporated search boxes. Products under Development Our research and development activities are primarily conducted internally, focusing on the development of new high impact ad formats and platform-based solutions that will offer developers (i) standout brand experience (ii) effective distribution tools, (iii) increased monetization capabilities through content, and (iv) enhanced optimization via powerful, reliable, and easy-to-use analytics. Additionally, we focus our research and development efforts on developing new products and improving existing products through software updates and upgraded features. Our Research & Development department is divided into groups based on scientific disciplines and types of applications and products. 32 Breakdown of Revenues Our search monetization solutions, advertising and other, are distributed and sold throughout the world (mainly in
Intellectual Property Although we have a number of patents, copyrights, trademarks and trade secrets and confidentiality and invention assignment agreements to protect our intellectual property rights, we believe that our competitive advantage depends primarily on our marketing, business development, applications, know-how and ongoing research and development efforts. Accordingly, we believe that the expiration of any of our patents or patent licenses, or the failure of any of our patent applications to result in issued patents, would not be material to our business or financial position. Part of the components of our software products were developed solely by us. We have licensed certain components of our software from third parties. We believe that the components we have licensed are not material to the overall performance of our software and may be replaced without significant difficulty. We enter into licensing arrangements with third parties for the use of software components, graphic, sound and multimedia content integrated into our products. All employees and consultants are required to execute confidentiality covenants in connection with their employment and consulting relationships with us. These agreements (excluding those with our German and U.K. employees) also contain assignment and waiver provisions relating to the employee's or consultant’s rights in respect of inventions. Competition The markets in which we are active are subject to intense competition. We compete with many other companies offering solutions for online publishers and developers, including search services and other software in conjunction with changing a user’s default search settings. The advertising technology industry is highly competitive. There are a large number of digital media companies and advertising technology companies that offer services similar to those of our As a major part of our revenues stem from our offering of search properties, we compete with search engine providers themselves such as Google, Microsoft, Yahoo, Ask and others. We also compete with many other companies offering consumer software, albeit totally different software, utilizing the same strategy, to offer their search properties, such as Interactive Corporation, Many of our current and potential competitors may have significantly greater financial, research and development, back-end analytical systems, manufacturing, and sales and marketing resources than we have. These competitors could potentially use their greater financial resources to acquire other companies to gain even further enhanced name recognition and market share, as well as to develop new technologies, enhanced systems and analytical capabilities, products or features that could effectively compete with our existing solutions, products and search services. Demand for our solutions, products and search services could be diminished by solutions, products, services and technologies offered by competitors, whether or not their solutions, products, services and technologies are equivalent or superior. 33 Finally, our ability to attract developers is largely dependent on our ability to pay higher rates to our publishers and developers, our success in creating strong commercial relationships with developers that have successful software, websites or distribution channels, and our ability to differentiate our distribution, monetization, and optimization tools from those of our competitors. Government Regulation We are subject to a number of U.S. federal and state and foreign laws and regulations that affect companies conducting business on the Internet. The manner in which existing laws and regulations will be applied to the Internet in general, and how they will relate to our business in particular is unclear. Accordingly, we cannot be certain how existing laws will be interpreted or how they will evolve in areas such as user privacy, data protection, content, use of For example, we are subject to U.S. federal and state laws regarding copyright infringement, privacy and protection of user data, many of which are subject to regulation by the Federal Trade Commission. These laws include the Digital Millennium Copyright Act, which aims to reduce the liability of online service providers for listing or linking to third-party websites that include materials that infringe copyrights or the rights of others, and other federal laws that restrict online service providers’ collection of user information on minors as well as distribution of materials deemed harmful to minors. Many U.S. states, such as California, are adopting statutes that require online service providers to report certain security breaches of personal data and to report to consumers when personal data will be disclosed to direct marketers. There are also a number of legislative proposals pending before the U.S. Congress and various state legislative bodies concerning data protection which could affect us. The interpretation of data protection laws, and their application to the Internet, is unclear and in a state of flux. There is a risk that these laws may be interpreted and applied in conflicting ways and in a manner that is not consistent with our current data protection practices. Foreign data protection, privacy and other laws and regulations may affect our business, and such laws can be more restrictive than those in the United States. For example, in Israel, privacy laws require that any request for information for use or retention in a database be accompanied by a notice that indicates: whether a person is legally required to disclose such information or that such disclosure is subject to such person’s consent; the purpose for which the information is requested; and to whom the information is to be delivered. A breach of privacy under such laws is considered a civil wrong and subject to a significant fines and civil damages. Certain violations of the law are considered criminal offences punishable by imprisonment. In the European Union, similar data protection rules exist as well was privacy legislation restricting the use of cookies and similar technologies. Subject to some limited exceptions, the storing of information, or the gaining of access to information already stored, in the terminal equipment of a subscriber or user is only allowed on condition that the subscriber or user concerned has given his or her informed consent. Further, the new General Data Protection Regulation, which is expected to take effect in Because our services are accessible worldwide, certain foreign jurisdictions may claim that we are required to comply with their laws, including in jurisdictions where we have no local entity, employees or infrastructure. These regulations result in significant compliance costs and could result in restricting the growth and profitability of our business. C.ORGANIZATIONAL STRUCTURE ClientConnect Ltd., our wholly owned Israeli subsidiary, owns all of the outstanding shares of common stock of ClientConnect, Inc., a Delaware corporation, and all of the outstanding ordinary shares of ClientConnect B.V., a Netherlands company. 34 IncrediMail, Inc., our wholly-owned Delaware subsidiary, owns all of the outstanding shares of common stock of Smilebox Inc., a Washington corporation, all of the outstanding equity of Grow Mobile LLC., a Delaware corporation and all of the outstanding shares of common stock of IncrediTone Inc., our wholly-owned Delaware subsidiary. IncrediTone Inc. owns all of the outstanding shares of common stock of Interactive Holding Corp., a Delaware corporation, which was acquired, together with its subsidiaries, in November 2015. Make Me Reach SAS, our wholly owned French subsidiary, was acquired in February 2015. D. PROPERTY, PLANTS AND EQUIPMENT Our headquarters are located in Holon, Israel. We lease approximately We lease approximately
In addition, we lease offices in various locations throughout Europe. Our primary locations, and their principal terms, are as follows:
We own approximately None. The following discussion of our financial condition and results of operations should be read in conjunction with our Financial Statements. In addition to historical financial information, the following discussion and analysis contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions, or future strategies that are signified by the words A. OPERATING RESULTS General Perion is a global technology company that delivers high-quality advertising solutions to brands and publishers. Perion is committed to providing outstanding execution, from high-impact ad formats to branded search and a unified social and mobile programmatic platform. Our headquarters and primary research and development facilities are located in Israel, we have our primary sales office in the United States and several other offices located in Europe. Our search monetization product served 35 The search revenues declined The following describes the nature of our principal items of income and expense: Revenues We generate our revenues primarily from two major sources: (i) search-generated and other revenues; and (ii) advertising. The following table shows our revenues by category (in thousands of U.S. dollars):
In 2016, revenues increased by 42% compared to 2015, primarily due to the acquisition of Undertone in the fourth quarter of Cost of Revenues Cost of revenues consists primarily of salaries and related expenses, license fees Customer Acquisition Costs and Media Buy Our customer acquisition costs consist primarily of payments to publishers and developers who distribute our search properties together with their products, as well as the cost of distributing our own products. Customer acquisition costs are primarily based on revenue share agreements with our traffic sources. Media buy costs consist mainly of the costs of advertising inventory incurred to deliver ads. Customer acquisition Research and Development Expenses Our research and development expenses consist primarily of salaries and other personnel-related expenses for employees primarily engaged in research and development activities, allocated facilities costs, subcontractors and consulting fees. Our research and development expenditures in The number of employees in research and development were Selling and Marketing Expenses Our selling and marketing expenses consist primarily of salaries and other personnel-related expenses for employees primarily engaged in marketing activities, allocated facilities costs, as well as other outsourced marketing activity. General and Administrative Expenses Our general and administrative expenses consist primarily of salaries and other personnel-related expenses for executive and administrative personnel, allocated facilities costs, professional fees and other general corporate expenses. G&A expenses are reflective of an independent public company, with all of its requisite costs, managing organic activity as well as being an active acquirer of other businesses. Restructuring Charges In 2015 and 2016, In 2017, there were no restructuring charges. 37 Impairment, net of change in fair value of contingent consideration Goodwill and intangible assets has been recorded as a result of prior acquisitions. Goodwill represents the excess of the consideration over the net fair value of the assets of the businesses acquired, the fair value of intangible assets was based on the market participant approach to valuation, performed by a third-party valuation firm, using estimates and assumptions provided by management. We perform tests for impairment of goodwill and intangible assets at the reporting unit level at least annually, or more frequently if events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. During 2017, we determined that certain indicators of potential impairment existed, which triggered an impairment analysis for these reporting units. These indicators included a decrease in the Company’s share price and a failure to the targeted budget due to lower sales, and higher media buy as a percentage of revenues. We expect traffic acquisition costs (TAC) as a percent of revenues to increase in 2018 and beyond as industry budgets shift toward automated channels. This trend is driven by higher TAC expectations related to increased revenues in programmatic and the effect of header bidding and Chrome ad blocker. Accordingly, we compared the fair value of the Undertone reporting unit to its carrying value and determined that the carrying amount of the reporting unit exceeded its fair value. Judgments and assumptions related to revenue, media buy, operating expenses, future short-term and long-term growth rates, weighted average cost of capital, interest, capital expenditures, cash flows, and market conditions are inherent in developing the discounted cash flow model. The assumptions used were based on expected future cash flows and an estimated terminal value using a terminal year growth rate of 3% based on the growth prospects for the reporting unit. The Company used an applicable discount rate of 15.7%, which reflected the associated specific risks for the reporting unit’s future cash flows. As a result, the Company recorded an impairment charge of $85.7 million in 2017, classified as “Impairment charges” in the consolidated statements of income. Depreciation and amortization Depreciation and amortization consist primarily of depreciation of our property and equipment and the amortization of our intangible assets as a result of our acquisitions. In 2016, this number increased significantly due to the amortization of the acquired intangible assets from the Undertone acquisition in In Income Tax Expense A significant portion of our income is taxed in Israel and, as a result of the Undertone acquisition on November 30, 2015, in the United States. The standard corporate tax rate in Israel was On December 22, 2017, the TCJA was signed into law making significant changes to the Code. These changes include, but are not limited to:
We have calculated our best estimate of the impact of the TCJA in our year end income tax provision in accordance with our understanding of the TCJA and guidance available as of the date of this filing. As a result: While we are able to make reasonable estimates of the impact of the reduction in corporate rate and the deemed repatriation transition tax, the final impact of the TCJA may differ from these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by the IRS, and actions we may take. We are continuing to gather additional information to determine the final impact of the TCJA. Due to the aggregated accumulated deficits of our foreign subsidiaries, we should not be subject to any transition tax under this provision of the TCJA. Because of the complexity of the new GILTI tax rules, we have not yet completed our analysis of the GILTI tax rules and are not yet able to reasonably estimate the effect of this provision of the TCJA or make an accounting policy election for the ASC 740 treatment of the GILTI tax. We should not be subject to BEAT during 2018 due to the gross domestic sales threshold. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operation are based on our financial statements, which have been prepared in conformity with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates on an on-going basis. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Under U.S. GAAP, when more than one accounting method or policy or its application is generally accepted, our management selects the accounting method or policy that it believes to be most appropriate in the specific circumstances. Our management considers some of these accounting policies to be critical. A critical accounting policy is an accounting policy that management believes is both most important to the portrayal of our financial condition and results and requires management’s most difficult subjective or complex judgment, often as a result of the need to make accounting estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are discussed in Note 2 of the Financial Statements, we believe the following accounting policies to be critical: Stock-Based Compensation We account for share-based payment awards made to employees and directors in accordance with ASC 718, We account for changes in award terms as a modification in accordance with ASC 718. A modification to the terms of an award should be treated as an exchange of the original award for a new award with total compensation cost equal to the grant-date fair value of the original award plus the incremental value measured at the same date. Under ASC 718, the calculation of the incremental value is based on the excess of the fair value of the new (modified) award based on current circumstances over the fair value of the original award measured immediately before its terms are modified based on current circumstances. 39 In order to keep our competitive hiring position in the industry, following the Board approval in December 2017, we effected in 2018 an option repricing plan. Under the repricing plan, among others, options granted to all of our employees, with certain limited exceptions and other than our directors, were adjusted to have an exercise price per share equal to $1.08, which was the weighted average price of our ordinary shares on Nasdaq in the last 90 days prior to the date of approval of the plan by our board of directors as well as have a new vesting schedule. The total incremental fair value of these repriced options amounted to $1.5 million, and was determined based on the binomial pricing options model. Total stock-based compensation expense recorded during As of December 31, We estimate the fair value of standard stock options granted using the Binomial method option-pricing model. The option-pricing model requires a number of assumptions, of which the most significant is expected stock price volatility. Expected volatility was calculated based upon actual historical stock price movements of our stock. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. The fair value of RSUs is based on the market value of the underlying shares at the date of grant. Taxes on Income We are subject to income taxes primarily in Israel and the United States. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Based on the guidance in ASC 740 Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, the refinement of an estimate or changes in tax laws. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. Interest is recorded within finance income, net. Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties. We also assess our ability to utilize tax attributes, including those in the form of carry forwards for which the benefits have already been reflected in the financial statements. We record valuation allowances for deferred tax assets that we believe are not more likely than not to be realized in future periods. While we believe the resulting tax balances as of December 31, Business Combinations We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and acquired patents and developed technology; and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. 40 Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed, as more fully discussed in Note 3 of the Financial Statements. Goodwill Goodwill is allocated to reporting units expected to benefit from a business combination. We perform tests for impairment of goodwill at the reporting unit level at least annually, or more frequently if events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. Goodwill impairment tests require judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. During Impairment of Long-Lived Assets We are required to assess the impairment of tangible and intangible long-lived assets subject to amortization, under ASC 360 Upon determination that the carrying value of a long-lived asset may not be recoverable based upon a comparison of aggregate undiscounted projected future cash flows from the use of the asset or asset group to the carrying amount of the asset, an impairment charge is recorded for the excess of carrying amount over the fair value. We measure fair value using discounted projected future cash flows. We base our fair value estimates on assumptions we believe to be reasonable, but these estimates are unpredictable and inherently uncertain. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for our tangible and intangible long-lived assets subject to amortization. In 2015, we incurred impairment charges of $8.5 million related to intangible assets associated with our reporting units (out of which $3.4 million related to our Growmobile reporting unit, which are included as a loss from discontinued operations). In In addition, in connection with the restructuring plans in 2014 and 2015, we recorded an impairment of $0.6 million and $0.1 million, respectively, of property and equipment, respectively. Derivative and Hedge Accounting During fiscal Establishing and accounting for foreign exchange contracts involve judgments, such as determining the fair value of the contracts, determining the nature of the exposure, assessing its amount and timing, and evaluating the effectiveness of the hedging arrangement. Although we believe that our estimates are accurate and meet the requirement of hedge accounting, if actual results differ from these estimates, such difference could cause fluctuation of our recorded revenue and expenses. Recent Accounting Standards In May 2014, the
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· | In April 2016, by 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, that clarified two aspects of ASC 606, identifying performance obligations and the licensing implementation guidance, while retaining the related principles of those areas. |
· | In May 2016, by ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU 2016-12 |
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Cost of revenues | $ | 10,950 | $ | 7,877 | $ | 16,515 | ||||||
Customer acquisition costs and media buy | 174,575 | 91,194 | 140,210 | |||||||||
Research and development | 37,427 | 21,692 | 26,528 | |||||||||
Selling and marketing | 20,792 | 22,886 | 58,572 | |||||||||
General and administrative | 36,730 | 31,064 | 32,916 | |||||||||
Depreciation and amortization | 21,321 | 11,422 | 25,977 | |||||||||
Restructuring costs | 3,981 | 1,052 | 728 | |||||||||
Impairment, net of change in fair value of contingent consideration | 19,941 | 72,785 | - | |||||||||
Total Costs and Expenses | $ | 325,717 | $ | 259,972 | $ | 301,446 |
Year ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Cost of revenues* | $ | 7,877 | $ | 25,924 | $ | 24,659 | ||||||
Customer acquisition costs and media buy | 91,194 | 140,210 | 130,885 | |||||||||
Research and development* | 21,692 | 25,221 | 17,189 | |||||||||
Selling and marketing* | 22,886 | 54,559 | 52,742 | |||||||||
General and administrative | 31,064 | 28,827 | 21,911 | |||||||||
Depreciation and amortization | 11,422 | 25,977 | 16,591 | |||||||||
Restructuring costs | 1,052 | 728 | - | |||||||||
Impairment, net of change in fair value of contingent consideration | 72,785 | - | 85,667 | |||||||||
Total Costs and Expenses | $ | 259,972 | $ | 301,446 | $ | 349,644 |
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2015 | 2016 | 2017 | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Search and other | 88 | % | 85 | % | 55 | % | 85 | % | 55 | % | 51 | % | ||||||||||||
Advertising | 12 | 15 | 45 | 15 | 45 | 49 | ||||||||||||||||||
Total revenues | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Cost of revenues | 3 | % | 4 | % | 5 | % | 4 | % | 8 | % | 9 | % | ||||||||||||
Customer acquisition costs and media buy | 45 | 41 | 45 | 41 | 45 | 48 | ||||||||||||||||||
Research and development | 10 | 10 | 8 | 10 | 8 | 6 | ||||||||||||||||||
Selling and marketing | 5 | 10 | 19 | 10 | 17 | 19 | ||||||||||||||||||
General and administrative | 9 | 14 | 11 | 14 | 9 | 8 | ||||||||||||||||||
Depreciation and amortization | 5 | 5 | 8 | 5 | 8 | 6 | ||||||||||||||||||
Restructuring charges | 1 | -(* | ) | -(* | ) | (* | ) | (* | ) | (* | ) | |||||||||||||
Impairment, net of change in fair value of contingent consideration | 5 | 33 | - | 33 | - | 31 | ||||||||||||||||||
Total costs and expenses | 84 | 118 | 96 | 118 | 96 | 127 | ||||||||||||||||||
Operating income (loss) | 16 | (18 | ) | 4 | (18 | ) | 4 | (27 | ) | |||||||||||||||
Financial expenses, net | 1 | 1 | 3 | 1 | 3 | 2 | ||||||||||||||||||
Income (loss) before taxes on income | 15 | (19 | ) | 1 | (19 | ) | 1 | (29 | ) | |||||||||||||||
Income tax expense | 3 | -(* | ) | -(* | ) | |||||||||||||||||||
Income (loss) from continuing operations | 13 | (19 | ) | (1 | ) | |||||||||||||||||||
Income tax expense (benefit) | (* | ) | (* | ) | (3 | ) | ||||||||||||||||||
Loss from continuing operations | (19 | ) | (1 | ) | (26 | ) | ||||||||||||||||||
Loss from discontinuing operations, net | 2 | 12 | 1 | 12 | 1 | - | ||||||||||||||||||
Net income | 11 | % | (31 | )% | -(* | )% | ||||||||||||||||||
Net loss | (31 | )% | (* | )% | (26 | )% |
Year ended December 31 | Year ended December 31 | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2015 | 2016 | 2017 | |||||||||||||||||||
Net cash provided by continuing operating activities | $ | 77,058 | $ | 23,772 | $ | 33,784 | $ | 23,772 | $ | 33,784 | $ | 36,013 | ||||||||||||
Net cash used in discontinued operating activities | (5,016 | ) | (6,203 | ) | (3,329 | ) | (6,203 | ) | (3,329 | ) | - | |||||||||||||
Net cash provided (used in) investing activities | (6,984 | ) | (120,446 | ) | 28,731 | (120,446 | ) | 28,731 | (4,851 | ) | ||||||||||||||
Net cash provided by (used in) financing activities | 35,176 | 19,199 | (52,607 | ) | 19,199 | (52,607 | ) | (23,840 | ) | |||||||||||||||
$ | 100,234 | $ | (83,678 | ) | $ | 6,579 | $ | (83,678 | ) | $ | 6,579 | $ | 7,322 |
· | minimum total leverage ratio ranging from |
· | fixed coverage ratio ranging between 1.2 to 2.0 during the course of the credit facility. |
· | minimum total leverage ratio ranging from 2.75 to 1.75 during the course of the credit facility; and |
· | fixed coverage ratio of ranging between |
· | shareholders' equity of at least $120 million at the end of each quarter; |
· | ratio of net financial indebtedness to twelve-month EBITDA of not more than 2.5 at the end of each quarter; |
· | twelve-month EBITDA at the end of each quarter of not less than 40% of original aggregate principal amount of the bonds; and |
· | cash and cash equivalents of at least $10 million (and, six months prior to each principal payment date, a sufficient amount to repay the principal and interest then due). |
1. | The digital advertising environment is very crowded and consumers suffer from over exposure to advertising promotions. This in turn has brought on a certain level of blindness to advertising, decreasing their effectiveness and value to advertisers. We are therefore concentrating on unique stand-out quality ad formats with great creative execution that grabs the attention of consumers, increasing the effectiveness of the ad and ultimately the value to advertisers. |
2. | The digital advertising environment is also complex and fragmented. As a result, it is increasingly difficult for advertisers, including brands and agencies, as well as investors, to discern the difference between the offerings, and this situation requires that advertisers to maintain |
3. | Our search monetization revenue |
4. | In past years the browser companies, particularly Google and Microsoft, as well as others, have been instituting policy changes and regulations making it increasingly difficult to change a browser’s settings even with user consent, including the ability to change a browser’s default search settings. Changing such settings has been a major part of the Company’s monetization model and until now we have been successful in dealing with these measures, within the framework allowed by these companies; however, it is becoming increasingly difficult to do so. In connection with these efforts by the browser companies, they are also making an effort to reset the applicable browser’s settings back to its default setting, causing us to have to recapture our users on a more frequent basis. These activities have shortened the average lifetime we see from users utilizing our search settings. This has reduced the return on investment from our marketing and distribution efforts. Moreover, the increased frequency of changes has limited our visibility and therefore our ability to invest in customer acquisition. However, we continue to believe, as supported by the level of revenues over the last couple of years, that as the market |
Payments Due by Period(****) | Payments Due by Period(****) | |||||||||||||||||||||||||||||||||||||||
Contractual Commitments as of December 31, 2016 | Total | Less than 1 year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||||||||||||||||||||||
Contractual Commitments as of December 31, 2017 | Total | Less than 1 year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||||||||||||||||||||||
Long-term debt, including current portion (*) | $ | 49,900 | $ | 11,150 | $ | 38,750 | $ | - | $ | - | $ | 36,510 | $ | 6,104 | $ | 30,406 | $ | - | $ | - | ||||||||||||||||||||
Accrued severance pay (**) | 1,555 | - | - | - | 1,555 | 2,417 | - | - | - | 2,417 | ||||||||||||||||||||||||||||||
Convertible debt (*) | 29,854 | 7,463 | 14,927 | 7,464 | - | 24,832 | 8,278 | 16,554 | - | - | ||||||||||||||||||||||||||||||
Payment obligation related to acquisitions(***) | 7,714 | 7,714 | - | - | - | 5,146 | 5,146 | - | - | - | ||||||||||||||||||||||||||||||
Operating leases | 30,107 | 6,275 | 10,615 | 6,955 | 6,262 | 24,520 | 6,350 | 7,745 | 6,042 | 4,383 | ||||||||||||||||||||||||||||||
Total | $ | 119,130 | $ | 32,602 | $ | 64,292 | $ | 14,419 | $ | 7,817 | $ | 93,427 | $ | 25,877 | $ | 54,708 | $ | 6,042 | $ | 6,800 |
(*) | Long-term debt and convertible debt obligations represent maximum repayment of principal and do not include interest payments due thereunder. |
(**) | Prior notice to our executive employees as well as severance pay obligations to our Israeli employees, as required under Israeli labor law and as set forth in employment agreements, are payable only upon termination, retirement or death of the respective employee and are for the most part covered by ongoing payments to funds to cover such obligations. |
(***) | Payment obligation related to acquisitions, represents the maximum cash payments we will be obligated to make under consideration arrangements with former owners of certain entities we acquired. |
Name | Age | Position | ||
Alan Gelman*(1)(2)+ | Chairman of the Board | |||
Chief Executive Officer | ||||
Maoz Sigron | 40 | Chief Financial | ||
Dror Erez | 48 | Director | ||
Sarit Firon*(1)(3)(4) | External Director | |||
Roy Gen(1) | Director | |||
Avichay Nissenbaum*(2)(3)(4) | External Director | |||
Director | ||||
Rini Karlin | 45 | Senior Vice President, Human Resources | ||
Miki Kolko | Chief Technology Officer | |||
General Manager, | ||||
President, Undertone | ||||
Ran Cohen | 47 | Senior Vice President, Product |
* |
+ | On March 4, 2018, Mr. Alan Gelman, the Company’s chairman of the board of directors, notified us that due to his desire to pursue other opportunities, he will step down from his position as the Company’s chairman of the board as well as a director no later than May 4, 2018. |
(1) | Member of the investment committee. |
(2) | Member of the nominating and governance committee. |
(3) | Member of the compensation committee. |
(4) | Member of the audit committee. |
Name and Principal Position (1) | Salary Cost (2) | Bonus (3) | Equity-Based Compensation (4) | Total | ||||||||||||
Josef Mandelbaum, former CEO | 892 | 150 | 1,944 | 2,986 | ||||||||||||
Amir Nahmias, General Manager, CodeFuel Business Unit | 548 | 451 | 735 | 1,734 | ||||||||||||
Yacov Kaufman, CFO | 532 | 87 | 628 | 1,247 | ||||||||||||
Limor Gershoni Levy, Senior vice President, General Counsel | 343 | 59 | 408 | 810 | ||||||||||||
Robert Schwartz, President, Undertone Business Unit and Chief Strategy Officer | 441 | 105 | 88 | 634 |
Name and Principal Position (1) | Salary Cost (2)(3) | Bonus (4) | Equity-Based Compensation (5) | Total | ||||||||||||
Doron Gerstel, Chief Executive Officer | 619 | 39 | 227 | 885 | ||||||||||||
Michael Pallad, President, Undertone | 642 | 71 | 19 | 732 | ||||||||||||
Mike Glover, General Manager, Search | 473 | 48 | 45 | 566 | ||||||||||||
Miki Kolko, Chief Technology Officer | 372 | 55 | 121 | 548 | ||||||||||||
Yacov Kaufman, Former Chief Financial Officer | 270 | - | 168 | 438 |
(1) | Unless otherwise indicated herein, all Covered Executives are employed on a full-time (100%) basis. |
(2) | Salary cost includes the Covered Executive's gross salary plus payment of social benefits made by the Company on behalf of such Covered Executive. Such benefits may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (e.g., Managers' Life Insurance Policy), education funds (referred to in Hebrew as "keren hishtalmut"), pension, severance, |
(3) | Includes a total of $918 of dismissal notice accrued during 2017 with respect to the Covered Executive as a group. |
(4) | Annual bonuses granted to the Covered Executives based on formulas set forth in the annual compensation plan approved by the Board of Directors. |
Represents the equity-based compensation expenses recorded in our consolidated financial statements for the year ended December 31, |
• No bonus will be payable if less than 75% of the EBITDA target is achieved; • To the extent that 90% of a given target is achieved (but less than 100%), a reduced bonus in respect of such target will be payable based on a 1:2 ratio, i.e., a reduction of 2% per each shortfall of 1%. For example, if 95% of the EBITDA target is achieved and 100% of the revenue target is achieved, then 95% of the maximum bonus would be payable (90% in respect of the EBITDA target and 100% in respect of the revenue target); and • To the extent that the achievement of one target is more than 100% and the other is less than 100% (but at least 90%), the bonus shall be increased for the over-achievement based on a 1:1 ratio, subject to the aforesaid maximum bonus. For example, if 95% of the EBITDA target is achieved and 105% (or more) of the revenue target is achieved, then 100% of the maximum bonus would be payable. |
· | establishing our policies and overseeing the performance and activities of our chief executive officer; |
· | convening shareholders’ meetings; |
· | approving our financial statements; |
· | determining our plans of action, principles for funding them and the priorities among them, our organizational structure and examining our financial status; and |
· | issuing securities and distributing dividends. |
December 31, | December 31, | |||||||||||||||||||||||
2014* | 2015* | 2016 | 2015 | 2016** | 2017 | |||||||||||||||||||
Cost of sales | 19 | 20 | 17 | 20 | 65 | 72 | ||||||||||||||||||
Research and development | 187 | 168 | 136 | 221 | 132 | 106 | ||||||||||||||||||
Selling and marketing | 104 | 262 | 272 | 277 | 228 | 203 | ||||||||||||||||||
General and administration | 97 | 128 | 110 | 128 | 110 | 83 | ||||||||||||||||||
Total | 439 | 646 | 535 | 646 | 535 | 464 |
Name | Number of Ordinary Shares Beneficially Owned | Percentage of Ordinary Shares Outstanding | Number of Ordinary Shares Beneficially Owned | Percentage of Ordinary Shares Outstanding | ||||||||||||
Dror Erez (1) | 9,190,642 | 11.8 | % | 7,360,642 | 9.5 | % | ||||||||||
All directors and officers as a group (12 persons) (2) | 10,684,418 | 13.6 | % | |||||||||||||
All directors and officers as a group (13 persons)(2) | 8,044,655 | 10.3 | % |
Name | Number of Ordinary Shares Beneficially Owned | Percentage of Ordinary Shares Outstanding (1) | ||||||
Benchmark Israel II, L.P. and affiliates (2) | 9,576,772 | 12.3 | % | |||||
J.P. Morgan Investment Management Inc. (3) | 9,422,946 | 12.2 | % | |||||
Dror Erez (4) | 9,190,642 | 11.8 | % | |||||
Ronen Shilo (5) | 8,858,847 | 11.4 | % | |||||
Zack and Orli Rinat (6) | 6,484,347 | 8.4 | % |
Name | Number of Ordinary Shares Beneficially Owned | Percentage of Ordinary Shares Outstanding (1) | ||||||
Benchmark Israel II, L.P. and affiliates (2) | 9,571,772 | 12.34 | % | |||||
Ronen Shilo (3) | 7,508,847 | 9.68 | % | |||||
Dror Erez (4) | 7,360,642 | 9.5 | % | |||||
Zack and Orli Rinat (5) | 6,484,347 | 8.36 | % | |||||
J.P. Morgan Investment Management Inc. (6) | 4,203,067 | 5.41 | % |
(1) | Based upon 77,550,069 ordinary shares outstanding as of March |
(2) | Based solely upon, and qualified in its entirety with reference to, a Schedule 13G/A filed with the SEC on February |
(3) | Based on a Schedule 13D/A filed with the SEC on May 31, 2017. The Address of Mr. Shilo is Ronen Shilo c/o Conduit Ltd., 2 Ilan Ramon St. Ness-Ziona 7403635, Israel. |
(4) | Based upon information provided to us by Mr. Erez. Includes options to purchase 44,999 ordinary shares that are vested or will vest, within 60 days of March 12, 2018. Mr. Erez serves as a director of the Company. The Address of Mr. Erez is Dror Erez c/o Conduit Ltd., 2 Ilan Ramon St. Ness-Ziona 7403635, Israel. |
(5) | Based solely upon, and qualified in its entirety with reference to, a Schedule 13G filed with the SEC on January 16, 2014, by Zack and Orli Rinat. The Ordinary Shares are held by Zack Rinat and Orli Rinat as community property. The address of Zack and Orli Rinat is 26319 Esperanza Drive Los Altos Hills, CA. |
(6) | Consists |
NASDAQ | TASE | |||||||||||||||
High ($) | Low ($) | High ($) | Low ($) | |||||||||||||
Five most recent full financial years | ||||||||||||||||
2017 | 2.38 | 0.88 | 2.30 | 0.91 | ||||||||||||
2016 | 3.25 | 0.94 | 3.71 | 0.95 | ||||||||||||
2015 | 4.52 | 2.05 | 4.56 | 2.06 | ||||||||||||
2014 | 14.33 | 4.26 | 14.33 | 4.31 | ||||||||||||
2013 | 14.94 | 8.19 | 14.90 | 8.21 | ||||||||||||
Financial quarters during the past two recent full financial years and any subsequent period | ||||||||||||||||
Fourth Quarter 2017 | 1.34 | 0.88 | 1.32 | 0.91 | ||||||||||||
Third Quarter 2017 | 1.96 | 1.01 | 1.95 | 1.03 | ||||||||||||
Second Quarter 2017 | 2.06 | 1.30 | 2.00 | 1.36 | ||||||||||||
First Quarter 2017 | 2.38 | 1.43 | 2.30 | 1.41 | ||||||||||||
Fourth Quarter 2016 | 1.47 | 0.94 | 1.43 | 0.95 | ||||||||||||
Third Quarter 2016 | 1.49 | 1.07 | 1.51 | 1.09 | ||||||||||||
Second Quarter 2016 | 2.05 | 1.01 | 2.01 | 1.05 | ||||||||||||
First Quarter 2016 | 3.25 | 1.98 | 3.71 | 1.99 | ||||||||||||
Most recent six months | ||||||||||||||||
February 2018 | 1.07 | 0.94 | 0.95 | 1.03 | ||||||||||||
January 2018 | 1.15 | 1.00 | 1.04 | 1.12 | ||||||||||||
December 2017 | 1.10 | 0.91 | 1.06 | 0.91 | ||||||||||||
November 2017 | 1.11 | 0.88 | 1.11 | 0.97 | ||||||||||||
October 2017 | 1.34 | 0.96 | 1.32 | 1.03 | ||||||||||||
September 2017 | 1.24 | 1.01 | 1.19 | 1.03 |
NASDAQ | TASE | |||||||||||||||
High ($) | Low ($) | High ($) | Low ($) | |||||||||||||
Five most recent full financial years | ||||||||||||||||
2016 | 3.25 | 0.94 | 3.71 | 0.95 | ||||||||||||
2015 | 4.52 | 2.05 | 4.56 | 2.06 | ||||||||||||
2014 | 14.33 | 4.26 | 14.33 | 4.31 | ||||||||||||
2013 | 14.94 | 8.19 | 14.90 | 8.21 | ||||||||||||
2012 | 10.50 | 3.68 | 10.45 | 3.85 | ||||||||||||
Financial quarters during the past two recent full financial years and any subsequent period | ||||||||||||||||
Fourth Quarter 2016 | 1.47 | 0.94 | 1.43 | 0.95 | ||||||||||||
Third Quarter 2016 | 1.49 | 1.07 | 1.51 | 1.09 | ||||||||||||
Second Quarter 2016 | 2.05 | 1.01 | 2.01 | 1.05 | ||||||||||||
First Quarter 2016 | 3.25 | 1.98 | 3.71 | 1.99 | ||||||||||||
Fourth Quarter 2015 | 3.94 | 2.08 | 3.69 | 2.07 | ||||||||||||
Third Quarter 2015 | 2.92 | 2.05 | 2.98 | 2.06 | ||||||||||||
Second Quarter 2015 | 3.91 | 2.75 | 3.94 | 2.75 | ||||||||||||
First Quarter 2015 | 4.52 | 3.11 | 4.56 | 3.07 | ||||||||||||
Most recent six months | ||||||||||||||||
February 2017 | 2.38 | 1.84 | 2.30 | 1.86 | ||||||||||||
January 2017 | 1.87 | 1.44 | 1.93 | 1.42 | ||||||||||||
December 2016 | 1.47 | 1.10 | 1.43 | 1.17 | ||||||||||||
November 2016 | 1.22 | 0.94 | 1.21 | 0.95 | ||||||||||||
October 2016 | 1.24 | 1.01 | 1.21 | 1.05 | ||||||||||||
September 2016 | 1.39 | 1.16 | 1.38 | 1.21 |
· | amend our articles of association (except as set forth below) or our memorandum of association; |
· | make changes in our capital structure such as a reduction of capital, increase of capital or share split, merger or consolidation; |
· | authorize a new class of shares; |
· | elect directors, other than external directors; or |
· | appoint auditors |
· | the majority must include at least a majority of the shares of the voting shareholders who have no personal interest in the transaction voted at the meeting; or |
· | the total shareholdings of those who have no personal interest in the transaction and who vote against the transaction must not represent more than 2% of the aggregate voting rights in the company. |
· | any amendment to the articles of association; |
· | an increase in the company’s authorized share capital; |
· | a merger; or |
· | approval of related party transactions that require shareholder approval. |
· | any monetary liability whether imposed on him or her in favor of another person pursuant to a judgment, a settlement or an arbitrator’s award approved by a court; |
· | reasonable litigation expenses, including attorneys’ fees, incurred by him or her as a result of an investigation or proceedings instituted against him or her by an authority empowered to conduct an investigation or proceedings, which are concluded either (i) without the filing of an indictment against the office holder and without the levying of a monetary obligation in lieu of criminal proceedings upon the office holder, or (ii) without the filing of an indictment against the office holder but with levying a monetary obligation in substitute of such criminal proceedings upon the office holder for a crime that does not require proof of criminal intent; |
· | reasonable litigation expenses, including attorneys’ fees, in proceedings instituted against him or her by the company, on the company’s behalf or by a third-party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for a crime that does not require proof of criminal intent, or in connection with an administrative enforcement proceeding or financial sanction instituted against him; and |
· | reasonable litigation expenses, including attorneys’ fees, incurred by him or her as a result of an administrative enforcement proceeding instituted against him or her. |
· | Form F-3 Shelf Registration Rights. We were required to file a |
· | Piggyback Registration Rights. If we effect a registered offering of securities, the holders of registrable securities consisting of at least 3% of our outstanding share capital at the relevant time (or 2% in the case of W Capital Engage, L.P.) or a holder whose resale of registrable securities would otherwise be subject to volume limitations set forth in SEC Rule 144 will have the right to include its shares in the registration effected pursuant to such offering. The number of piggyback registrations is unlimited. |
· | All reasonable expenses incurred in connection with any such registrations, other than underwriting discounts and commissions, will be borne by us. We are subject to customary indemnification undertakings with respect to any registration effected pursuant to the Registration Rights Undertaking. |
· | amortization of the cost of purchased know-how and patents, which are used for the development or advancement of the company, over an eight-year period; |
· | accelerated depreciation rates on equipment and buildings; |
· | under specified conditions, an election to file consolidated tax returns with additional related Israeli Industrial Companies; and |
· | expenses related to a public offering are deductible in equal amounts over three years. |
· | an individual citizen or resident of the United States; |
· | a corporation (or entity classified as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state of the United States or the District of Columbia; |
· | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
· | a trust if (i) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (ii) the trust has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person. |
· | insurance companies; |
· | dealers in stocks, securities or currencies; |
· | financial institutions and financial services entities; |
· | regulated investment companies or real estate investment trusts; |
· | grantor trusts; |
· | S corporations; |
· | persons that acquire ordinary shares upon the exercise of employee stock options or otherwise as compensation; |
· | tax-exempt organizations; |
· | persons that hold ordinary shares as a position in a straddle or as part of a hedging, conversion or other integrated instrument; |
· | individual retirement and other tax-deferred accounts; |
· | certain former citizens or long-term residents of the United States; |
· | persons (other than Non-U.S. Holders) having a functional currency other than the U.S. dollar; and |
· | persons that own directly, indirectly or constructively 10% or more of our voting shares. |
(a) | the stock of that corporation with respect to which the dividends are paid is readily tradable on an established securities market in the United States, or |
(b) | that corporation is eligible for the benefits of a comprehensive income tax treaty with the United States which includes an information exchange program and is determined to be satisfactory by the United States Secretary of the Treasury. The Internal Revenue Service has determined that the United States-Israel Tax Treaty is satisfactory for this purpose. |
· | the item is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States and (i) in the case of a resident of a country which has a treaty with the United States, the item is attributable to a permanent establishment, or (ii) in the case of an individual, the item is attributable to a fixed place of business in the United States; or |
· | the Non-U.S. Holder is an individual who holds the ordinary shares as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition, and certain other conditions are met. |
U.S. dollars | ILS | Other Currencies | Total | U.S. dollars | NIS | Other Currencies | Total | |||||||||||||||||||||||||
In thousands of U.S. dollars | In thousands of U.S. dollars | |||||||||||||||||||||||||||||||
Current assets | 103,589 | 1,426 | 5,586 | 110,602 | 99,702 | 6,770 | 7,782 | 114,254 | ||||||||||||||||||||||||
Long-term assets | 4,580 | 225 | 517 | 5,322 | 6,511 | 252 | 495 | 5,672 | ||||||||||||||||||||||||
Current liabilities | (73,207 | ) | (9,879 | ) | (5,613 | ) | (88,699 | ) | (67,490 | ) | (6,546 | ) | (7,258 | ) | (81,294 | ) | ||||||||||||||||
Long-term liabilities | (50,180 | ) | (23,387 | ) | (31 | ) | (73,598 | ) | (39,701 | ) | (16,302 | ) | (70 | ) | (54,487 | ) | ||||||||||||||||
Total | (15,218 | ) | (31,614 | ) | 459 | (46,373 | ) | (978 | ) | (15,826 | ) | 949 | (15,854 | ) |
Notional Amount | Fair Value | Notional Amount | Fair Value | |||||||||||||
In thousands of U.S. dollars | In thousands of U.S. dollars | |||||||||||||||
Cross currency SWAP | 29,854 | 973 | 24,832 | 3,346 | ||||||||||||
Zero-cost collar contracts to hedge payroll expenses | 17,715 | 17 | 577 | 65 |
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2015 | 2016 | 2017 | |||||||||||||||||||
Average rate for period | 3.577 | 3.884 | 3.840 | 3.884 | 3.840 | 3.599 | ||||||||||||||||||
Rate at year-end | 3.889 | 3.902 | 3.845 | 3.902 | 3.845 | 3.467 |
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
ITEM 15. | CONTROLS AND PROCEDURES |
(a) | Disclosure controls and procedures |
(b) | Management annual report on internal control over financial reporting |
(c) | Attestation Report of the Registered Public Accounting Firm |
(d) | Changes in internal control over financial reporting |
ITEM 16B. | CODE OF ETHICS |
2015 | 2016 | 2016 | 2017 | |||||||||||||
Audit Fees | $ | 657 | $ | 663 | $ | 663 | $ | 707 | ||||||||
Tax Fees | 239 | 183 | 183 | 111 | ||||||||||||
Audit Related fees | 145 | 120 | 120 | 53 | ||||||||||||
Total | $ | 1,041 | $ | 966 | $ | 966 | $ | 871 |
· | the securities issued amount to 20% or more of our outstanding voting rights before the issuance; | |
· | some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and | |
· | the transaction will increase the relative holdings of a shareholder that holds 5% or more of our outstanding share capital or voting rights or will cause any person to become, as a result of the issuance, a holder of more than 5% of our outstanding share capital or voting rights. |
ITEM 18. | FINANCIAL STATEMENTS |
Page | |
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
December 31, | ||||||||
2015 | 2016 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 17,519 | $ | 23,962 | ||||
Short-term bank deposits | 42,442 | 8,414 | ||||||
Accounts receivable (net of allowance of $1,063 and $789 at December 31, 2015 and 2016, respectively) | 66,662 | 71,346 | ||||||
Prepaid expenses and other current assets | 17,396 | 10,036 | ||||||
Total Current Assets | 144,019 | 113,758 | ||||||
Property and equipment, net | 12,714 | 14,205 | ||||||
Intangible assets, net | 66,072 | 44,018 | ||||||
Goodwill | 203,693 | 190,737 | ||||||
Deferred taxes | 12,344 | 4,117 | ||||||
Other assets | 3,456 | 1,617 | ||||||
Total Assets | $ | 442,298 | $ | 368,452 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 40,388 | $ | 38,293 | ||||
Accrued expenses and other liabilities | 22,857 | 17,466 | ||||||
Short-term loans and current maturities of long-term and convertible debt | 23,756 | 17,944 | ||||||
Deferred revenues | 7,731 | 5,354 | ||||||
Payment obligation related to acquisitions | 11,893 | 7,653 | ||||||
Total Current Liabilities | 106,625 | 86,710 | ||||||
Long-Term Liabilities: | ||||||||
Long-term debt, net of current maturities | 46,920 | 37,928 | ||||||
Convertible debt, net of current maturities | 28,371 | 21,862 | ||||||
Payment obligation related to acquisitions | 37,231 | - | ||||||
Deferred taxes | 19,456 | 8,087 | ||||||
Other long-term liabilities | 3,858 | 5,721 | ||||||
Total Liabilities | 242,461 | 160,308 | ||||||
Commitments and Contingencies | ||||||||
Shareholders' Equity: | ||||||||
Ordinary shares of ILS 0.01 par value - Authorized: 120,000,000 shares; Issued: 76,157,506 and 77,569,088 shares at December 31, 2015 and 2016, respectively; Outstanding: 75,811,487 and 77,223,069 shares at December 31, 2015 and 2016, respectively | 206 | 210 | ||||||
Additional paid-in capital | 227,258 | 234,831 | ||||||
Treasury shares at cost (346,019 shares at December 31, 2015 and 2016) | (1,002 | ) | (1,002 | ) | ||||
Accumulated other comprehensive loss | (794 | ) | (265 | ) | ||||
Accumulated deficit | (25,831 | ) | (25,630 | ) | ||||
Total Shareholders' Equity | 199,837 | 208,144 | ||||||
Total Liabilities and Shareholders' Equity | $ | 442,298 | $ | 368,452 |
December 31, | ||||||||
2016 | 2017 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 23,962 | $ | 31,567 | ||||
Short-term bank deposits | 8,414 | 5,913 | ||||||
Accounts receivable (net of allowance of $789 and $609 at December 31, 2016 and 2017, respectively) | 71,346 | 62,830 | ||||||
Prepaid expenses and other current assets | 10,036 | 13,955 | ||||||
Total Current Assets | 113,758 | 114,265 | ||||||
Property and equipment, net | 14,205 | 17,476 | ||||||
Intangible assets, net | 44,018 | 11,309 | ||||||
Goodwill | 190,737 | 125,051 | ||||||
Deferred taxes | 4,117 | 4,798 | ||||||
Other assets | 1,617 | 1,128 | ||||||
Total Assets | $ | 368,452 | $ | 274,027 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 38,293 | $ | 39,180 | ||||
Accrued expenses and other liabilities | 17,466 | 17,784 | ||||||
Short-term loans and current maturities of long-term and convertible debt | 17,944 | 13,989 | ||||||
Deferred revenues | 5,354 | 5,271 | ||||||
Payment obligation related to acquisitions | 7,653 | 5,146 | ||||||
Total Current Liabilities | 86,710 | 81,370 | ||||||
Long-Term Liabilities: | ||||||||
Long-term debt, net of current maturities | 37,928 | 30,026 | ||||||
Convertible debt, net of current maturities | 21,862 | 16,693 | ||||||
Deferred taxes | 8,087 | - | ||||||
Other long-term liabilities | 5,721 | 7,606 | ||||||
Total Liabilities | 160,308 | 135,695 | ||||||
Commitments and Contingencies | ||||||||
Shareholders' Equity: | ||||||||
Ordinary shares of ILS 0.01 par value - Authorized: 120,000,000 shares; Issued: 77,569,088 and 77,896,088 shares at December 31, 2016 and 2017, respectively; Outstanding: 77,223,069 and 77,550,069 shares at December 31, 2016 and 2017, respectively | 210 | 211 | ||||||
Additional paid-in capital | 234,831 | 236,975 | ||||||
Treasury shares at cost (346,019 shares at December 31, 2016 and 2017) | (1,002 | ) | (1,002 | ) | ||||
Accumulated other comprehensive income (loss) | (265 | ) | 532 | |||||
Accumulated deficit | (25,630 | ) | (98,384 | ) | ||||
Total Shareholders' Equity | 208,144 | 138,332 | ||||||
Total Liabilities and Shareholders' Equity | $ | 368,452 | $ | 274,027 |
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2015 | 2016 | 2017 | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Search and other | $ | 343,655 | $ | 188,897 | $ | 172,683 | $ | 188,897 | $ | 172,683 | $ | 139,505 | ||||||||||||
Advertising | 45,076 | 32,053 | 140,111 | 32,053 | 140,111 | 134,481 | ||||||||||||||||||
Total Revenues | 388,731 | 220,950 | 312,794 | 220,950 | 312,794 | 273,986 | ||||||||||||||||||
Costs and Expenses: | ||||||||||||||||||||||||
Cost of revenues | 10,950 | 7,877 | 16,515 | 7,877 | 25,924 | 24,659 | ||||||||||||||||||
Customer acquisition costs and media buy | 174,575 | 91,194 | 140,210 | 91,194 | 140,210 | 130,885 | ||||||||||||||||||
Research and development | 37,427 | 21,692 | 26,528 | 21,692 | 25,221 | 17,189 | ||||||||||||||||||
Selling and marketing | 20,792 | 22,886 | 58,572 | 22,886 | 54,559 | 52,742 | ||||||||||||||||||
General and administrative | 36,730 | 31,064 | 32,916 | 31,064 | 28,827 | 21,911 | ||||||||||||||||||
Depreciation and amortization | 21,321 | 11,422 | 25,977 | 11,422 | 25,977 | 16,591 | ||||||||||||||||||
Impairment, net of change in fair value of contingent consideration | 19,941 | 72,785 | - | 72,785 | - | 85,667 | ||||||||||||||||||
Restructuring charges | 3,981 | 1,052 | 728 | 1,052 | 728 | - | ||||||||||||||||||
Total Costs and Expenses | 325,717 | 259,972 | 301,446 | 259,972 | 301,446 | 349,644 | ||||||||||||||||||
Income (Loss) from Operations | 63,014 | (39,022 | ) | 11,348 | (39,022 | ) | 11,348 | (75,658 | ) | |||||||||||||||
Financial expenses, net | 2,888 | 1,939 | 8,288 | 1,939 | 8,288 | 5,922 | ||||||||||||||||||
Income (Loss) before Taxes on Income | 60,126 | (40,961 | ) | 3,060 | (40,961 | ) | 3,060 | (81,580 | ) | |||||||||||||||
Taxes on income | 10,816 | 697 | 212 | |||||||||||||||||||||
Taxes on income (benefit) | 697 | 212 | (8,826 | ) | ||||||||||||||||||||
Net Income (Loss) from Continuing Operations | 49,310 | (41,658 | ) | 2,848 | (41,658 | ) | 2,848 | (72,754 | ) | |||||||||||||||
Net loss from discontinued operations | 6,484 | 26,999 | 2,647 | 26,999 | 2,647 | - | ||||||||||||||||||
Net Income (Loss) | $ | 42,826 | $ | (68,657 | ) | $ | 201 | $ | (68,657 | ) | $ | 201 | $ | (72,754 | ) | |||||||||
Net Earnings (Loss) per Share - Basic: | ||||||||||||||||||||||||
Continuing operations | $ | 0.72 | $ | (0.58 | ) | $ | 0.04 | $ | (0.58 | ) | $ | 0.04 | $ | (0.94 | ) | |||||||||
Discontinued operations | $ | (0.09 | ) | $ | (0.38 | ) | $ | (0.04 | ) | $ | (0.38 | ) | $ | (0.04 | ) | $ | - | |||||||
Net income (Loss) | $ | 0.63 | $ | (0.96 | ) | $ | 0.00 | *) | $ | (0.96 | ) | $ | 0.00 | *) | $ | (0.94 | ) | |||||||
Net Earnings (Loss) per Share – Diluted: | ||||||||||||||||||||||||
Continuing operations | $ | 0.67 | $ | (0.58 | ) | $ | 0.04 | $ | (0.58 | ) | $ | 0.04 | $ | (0.94 | ) | |||||||||
Discontinued operations | $ | (0.09 | ) | $ | (0.38 | ) | $ | (0.04 | ) | $ | (0.38 | ) | $ | (0.04 | ) | $ | - | |||||||
Net income (Loss) | $ | 0.58 | $ | (0.96 | ) | $ | 0.00 | *) | $ | (0.96 | ) | $ | 0.00 | *) | $ | (0.94 | ) | |||||||
Weighted average number of shares – Basic: | ||||||||||||||||||||||||
Continuing and Discontinued operations | 68,213,209 | 71,300,432 | 76,560,454 | 71,300,432 | 76,560,454 | 77,549,171 | ||||||||||||||||||
Weighted average number of shares – Diluted: | ||||||||||||||||||||||||
Continuing and Discontinued operations | 70,327,411 | 71,300,432 | 76,673,803 | 71,300,432 | 76,673,803 | 77,549,171 |
Year ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Net income (loss) | $ | (68,657 | ) | $ | 201 | $ | (72,754 | ) | ||||
Other comprehensive income (loss): | ||||||||||||
Change in foreign currency translation adjustment | (822 | ) | 521 | 717 | ||||||||
Cash Flow Hedge: | ||||||||||||
Unrealized gain (loss) from cash flow hedges | 206 | 175 | 605 | |||||||||
Less: reclassification adjustment for net gain (loss) included in net income (loss) | (178 | ) | (167 | ) | (525 | ) | ||||||
Net change | 28 | 8 | 80 | |||||||||
Other comprehensive income (loss) | (794 | ) | 529 | 797 | ||||||||
Comprehensive Income (loss) | $ | (69,451 | ) | $ | 730 | $ | (71,957 | ) |
Common stock | Additional paid-in capital | Accumulated Other Comprehensive income (loss) | Retained earnings (Accumulated deficit) | Treasury shares | Total shareholders’ equity | |||||||||||||||||||||||
Number of Shares | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Balance as of December 31, 2014 | 69,202,431 | 189 | 203,984 | - | 42,826 | (1,002 | ) | 245,997 | ||||||||||||||||||||
Issuance of shares related to acquisitions | 1,798,837 | 5 | 5,574 | - | - | - | 5,579 | |||||||||||||||||||||
Issuance of shares in private placement, net of issuance cost of $105 | 4,436,898 | 11 | 10,009 | - | - | - | 10,020 | |||||||||||||||||||||
Stock-based compensation | - | - | 7,679 | - | - | - | 7,679 | |||||||||||||||||||||
Exercise of stock option and vesting of restricted stock units | 373,321 | 1 | 12 | - | - | - | 13 | |||||||||||||||||||||
Other comprehensive loss | - | - | - | (794 | ) | - | - | (794 | ) | |||||||||||||||||||
Net loss | - | - | - | - | (68,657 | ) | - | (68,657 | ) | |||||||||||||||||||
Balance as of December 31, 2015 | 75,811,487 | 206 | 227,258 | (794 | ) | (25,831 | ) | (1,002 | ) | 199,837 | ||||||||||||||||||
Issuance of shares related to acquisitions | 290,981 | 1 | 674 | - | - | - | 675 | |||||||||||||||||||||
Issuance of shares related to price adjustment of private placement | 782,981 | 2 | (2 | ) | - | - | - | - | ||||||||||||||||||||
Stock-based compensation | - | - | 6,900 | - | - | - | 6,900 | |||||||||||||||||||||
Exercise of stock option and vesting of restricted stock units | 337,620 | 1 | 1 | - | - | - | 2 | |||||||||||||||||||||
Other comprehensive income | - | - | - | 529 | - | - | 529 | |||||||||||||||||||||
Net income | - | - | - | - | 201 | - | 201 | |||||||||||||||||||||
Balance as of December 31, 2016 | 77,223,069 | 210 | 234,831 | (265 | ) | (25,630 | ) | (1,002 | ) | 208,144 | ||||||||||||||||||
Stock-based compensation | - | - | 2,144 | - | - | - | 2,144 | |||||||||||||||||||||
Exercise of stock option and vesting of restricted stock units | 327,000 | 1 | - | - | - | - | 1 | |||||||||||||||||||||
Other comprehensive income | - | - | 797 | - | - | 797 | ||||||||||||||||||||||
Net income | - | - | - | - | (72,754 | ) | - | (72,754 | ) | |||||||||||||||||||
Balance as of December 31, 2017 | 77,550,069 | 211 | 236,975 | 532 | (98,384 | ) | (1,002 | ) | 138,332 |
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Net income (Loss) | $ | 42,826 | $ | (68,657 | ) | $ | 201 | |||||
Other comprehensive income (loss): | ||||||||||||
Change in foreign currency translation adjustment | - | (822 | ) | 521 | ||||||||
Cash Flow Hedge: | ||||||||||||
Unrealized gain (loss) from cash flow hedges | (62 | ) | 206 | 175 | ||||||||
Less: reclassification adjustment for net gain (loss) included in net income (loss) | 62 | (178 | ) | (167 | ) | |||||||
Net change | - | 28 | 8 | |||||||||
Other comprehensive income (loss) | - | (794 | ) | 529 | ||||||||
Comprehensive Income (Loss) | $ | 42,826 | $ | (69,451 | ) | $ | 730 |
Common stock | Additional paid-in capital | Accumulated Other Comprehensive income (loss) | Retained earnings (Accumulated deficit) | Treasury shares | Total shareholders’ equity | |||||||||||||||||||||||
Number of Shares | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Balance as of December 31, 2013 | 54,753,582 | 147 | 10,882 | - | - | (1,002 | ) | 10,027 | ||||||||||||||||||||
Issuance of shares related to acquisitions | 13,124,100 | 38 | 171,514 | - | - | - | 171,552 | |||||||||||||||||||||
Acquisition related expenses paid by the shareholders | - | - | 3,060 | - | - | - | 3,060 | |||||||||||||||||||||
Contribution by shareholders | - | - | 1,803 | - | - | - | 1,803 | |||||||||||||||||||||
Stock-based compensation | - | - | 15,145 | - | - | - | 15,145 | |||||||||||||||||||||
Exercise of stock options | 1,324,749 | 4 | 1,580 | - | - | - | 1,584 | |||||||||||||||||||||
Net income | - | - | - | - | 42,826 | - | 42,826 | |||||||||||||||||||||
Balance as of December 31, 2014 | 69,202,431 | 189 | 203,984 | - | 42,826 | (1,002 | ) | 245,997 | ||||||||||||||||||||
Issuance of shares related to acquisitions | 1,798,837 | 5 | 5,574 | - | - | - | 5,579 | |||||||||||||||||||||
Issuance of shares in private placement, net of issuance cost of $105 | 4,436,898 | 11 | 10,009 | - | - | - | 10,020 | |||||||||||||||||||||
Stock-based compensation | - | - | 7,679 | - | - | - | 7,679 | |||||||||||||||||||||
Exercise of stock option and vesting of restricted stock units | 373,321 | 1 | 12 | - | - | - | 13 | |||||||||||||||||||||
Other comprehensive loss | - | - | - | (794 | ) | - | - | (794 | ) | |||||||||||||||||||
Net loss | - | - | - | - | (68,657 | ) | - | �� | (68,657 | ) | ||||||||||||||||||
Balance as of December 31, 2015 | 75,811,487 | 206 | 227,258 | (794 | ) | (25,831 | ) | (1,002 | ) | 199,837 | ||||||||||||||||||
Issuance of shares related to acquisitions | 290,981 | 1 | 674 | - | - | - | 675 | |||||||||||||||||||||
Issuance of shares related to price adjustment of private placement | 782,981 | 2 | (2 | ) | - | - | - | - | ||||||||||||||||||||
Stock-based compensation | - | - | 6,900 | - | - | - | 6,900 | |||||||||||||||||||||
Exercise of stock option and vesting of restricted stock units | 337,620 | 1 | 1 | - | - | - | 2 | |||||||||||||||||||||
Other comprehensive income | - | - | - | 529 | - | - | 529 | |||||||||||||||||||||
Net income | - | - | - | - | 201 | - | 201 | |||||||||||||||||||||
Balance as of December 31, 2016 | 77,223,069 | 210 | 234,831 | (265 | ) | (25,630 | ) | (1,002 | ) | 208,144 |
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2015 | 2016 | 2017 | |||||||||||||||||||
Operating activities: | ||||||||||||||||||||||||
Net income (loss) | $ | 42,826 | $ | (68,657 | ) | $ | 201 | $ | (68,657 | ) | $ | 201 | $ | (72,754 | ) | |||||||||
Loss from discontinued operations, net | (6,484 | ) | (26,999 | ) | (2,647 | ) | (26,999 | ) | (2,647 | ) | - | |||||||||||||
Net income (loss) from continuing operations | 49,310 | (41,658 | ) | 2,848 | (41,658 | ) | 2,848 | (72,754 | ) | |||||||||||||||
Adjustments required to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||
Depreciation and amortization | 21,321 | 11,422 | 25,977 | 11,422 | 25,977 | 16,591 | ||||||||||||||||||
Impairment of intangible assets and goodwill | 19,941 | 79,349 | - | 79,349 | - | 85,667 | ||||||||||||||||||
Restructuring costs related to impairment of property and equipment | 632 | 124 | 254 | 124 | 254 | |||||||||||||||||||
Stock-based compensation expense | 13,769 | 6,738 | 6,844 | 6,738 | 6,844 | 2,112 | ||||||||||||||||||
Issuance of ordinary shares related to employees' retention | - | 63 | - | 63 | - | |||||||||||||||||||
Foreign currency translation | - | (347 | ) | 980 | (347 | ) | 980 | 83 | ||||||||||||||||
Acquisition related expenses paid by shareholders | 3,060 | - | - | |||||||||||||||||||||
Accretion of payment obligation related to acquisition | 1,067 | 311 | 320 | 311 | 320 | 43 | ||||||||||||||||||
Accrued interest, net | 655 | 37 | 406 | 37 | 406 | 475 | ||||||||||||||||||
Deferred taxes, net | (13,851 | ) | (8,973 | ) | (3,268 | ) | (8,973 | ) | (3,268 | ) | (8,877 | ) | ||||||||||||
Accrued severance pay, net | 392 | 238 | 214 | 238 | 214 | 801 | ||||||||||||||||||
Change in payment obligation related to acquisitions | 713 | (5,937 | ) | 983 | (5,937 | ) | 983 | |||||||||||||||||
Fair value revaluation - convertible debt | (2,566 | ) | 175 | 1,350 | 175 | 1,350 | 3,785 | |||||||||||||||||
Loss from sale of property and equipment | 121 | 17 | 149 | 17 | 149 | |||||||||||||||||||
Net changes in operating assets and liabilities: | ||||||||||||||||||||||||
Accounts receivable, net | (23,568 | ) | 3,362 | (5,333 | ) | 3,362 | (5,333 | ) | 8,888 | |||||||||||||||
Prepaid expenses and other | (5,020 | ) | (3,402 | ) | 8,613 | |||||||||||||||||||
Prepaid expenses and other current assets | (3,402 | ) | 8,613 | (3,241 | ) | |||||||||||||||||||
Accounts payable | 2,228 | (3,725 | ) | (1,702 | ) | (3,725 | ) | (1,702 | ) | 1,106 | ||||||||||||||
Accrued expenses and other liabilities | 9,261 | (13,250 | ) | (2,486 | ) | (13,250 | ) | (2,486 | ) | 1,429 | ||||||||||||||
Deferred revenues | (407 | ) | (772 | ) | (2,365 | ) | (772 | ) | (2,365 | ) | (95 | ) | ||||||||||||
Net cash provided by continuing operating activities | 77,058 | 23,772 | 33,784 | 23,772 | 33,784 | 36,013 | ||||||||||||||||||
Net cash used in discontinued operating activities | (5,016 | ) | (6,203 | ) | (3,329 | ) | (6,203 | ) | (3,329 | ) | - | |||||||||||||
Net cash provided by operating activities | $ | 72,042 | $ | 17,569 | $ | 30,455 | $ | 17,569 | $ | 30,455 | $ | 36,013 | ||||||||||||
Investing activities: | ||||||||||||||||||||||||
Purchases of property and equipment | $ | (10,882 | ) | $ | (2,029 | ) | $ | (1,504 | ) | $ | (2,029 | ) | $ | (1,504 | ) | $ | (1,606 | ) | ||||||
Proceeds from sale of property and equipment | 58 | 24 | 151 | 24 | 151 | 10 | ||||||||||||||||||
Capitalization of development costs | - | (4,005 | ) | (4,591 | ) | (4,005 | ) | (4,591 | ) | (5,756 | ) | |||||||||||||
Change in restricted cash, net | (202 | ) | 50 | 647 | 50 | 647 | - | |||||||||||||||||
Short-term deposits, net | (15,000 | ) | (27,442 | ) | 34,028 | (27,442 | ) | 34,028 | 2,501 | |||||||||||||||
Cash paid for acquisition, net of cash acquired | 19,042 | (87,044 | ) | - | (87,044 | ) | - | - | ||||||||||||||||
Net cash provided by (used in) continuing investing activities | (6,984 | ) | (120,446 | ) | 28,731 | (120,446 | ) | 28,731 | (4,851 | ) | ||||||||||||||
Net cash provided by discontinued investing activities | - | - | - | - | - | - | ||||||||||||||||||
Net cash provided by (used in) investing activities | $ | (6,984 | ) | $ | (120,446 | ) | $ | 28,731 | $ | (120,446 | ) | $ | 28,731 | $ | (4,851 | ) | ||||||||
Financing activities: | ||||||||||||||||||||||||
Issuance of shares in private placement, net | $ | - | $ | 10,020 | $ | - | $ | 10,020 | $ | - | $ | - | ||||||||||||
Exercise of stock options and restricted share units | 1,584 | 13 | 2 | 13 | 2 | 1 | ||||||||||||||||||
Contribution by shareholders | 585 | - | - | |||||||||||||||||||||
Payments made in connection with acquisition | (2,545 | ) | (1,534 | ) | (29,537 | ) | (1,534 | ) | (29,537 | ) | (2,551 | ) | ||||||||||||
Proceeds from the issuance of convertible debt | 37,852 | - | - | |||||||||||||||||||||
Proceeds from short-term loans | - | 13,000 | 40,000 | 13,000 | 40,000 | - | ||||||||||||||||||
Proceeds from long-term loans | 5,000 | |||||||||||||||||||||||
Repayment of short-term loans | - | - | (46,000 | ) | - | (46,000 | ) | (7,000 | ) | |||||||||||||||
Repayment of convertible debt | - | - | (7,620 | ) | - | (7,620 | ) | (7,901 | ) | |||||||||||||||
Repayment of long-term loans | (2,300 | ) | (2,300 | ) | (9,452 | ) | (2,300 | ) | (9,452 | ) | (11,389 | ) | ||||||||||||
Net cash provided by (used in) continuing financing activities | $ | 35,176 | $ | 19,199 | $ | (52,607 | ) | $ | 19,199 | $ | (52,607 | ) | $ | (23,840 | ) | |||||||||
Effect of exchange rate changes on cash and cash equivalents | - | 14 | (136 | ) | 14 | (136 | ) | 283 | ||||||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 105,250 | $ | (77,461 | ) | $ | 9,772 | $ | (77,461 | ) | $ | 9,772 | $ | 7,605 | ||||||||||
Decrease in cash and cash equivalents - discontinued activities | (5,016 | ) | (6,203 | ) | (3,329 | ) | (6,203 | ) | (3,329 | ) | - | |||||||||||||
Cash and cash equivalents at beginning of year | 949 | 101,183 | 17,519 | 101,183 | 17,519 | 23,962 | ||||||||||||||||||
Cash and cash equivalents at end of year | $ | 101,183 | $ | 17,519 | $ | 23,962 | $ | 17,519 | $ | 23,962 | $ | 31,567 |
Year ended December 31 | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Supplemental Disclosure of Cash Flow Activities: | ||||||||||||
Cash paid during the year for: | ||||||||||||
Income taxes | $ | 21,340 | $ | 3,976 | $ | 8,391 | ||||||
Interest | $ | 2,260 | $ | 5,678 | $ | 4,619 | ||||||
Non-cash investing and financing activities: | ||||||||||||
Issuance of shares in connection with acquisitions | $ | 5,579 | $ | 673 | $ | - | ||||||
Issuance of shares in private placement | $ | - | $ | 2 | $ | - | ||||||
Stock-based compensation capitalized as part of capitalization of software development costs | $ | 187 | $ | 14 | $ | 31 | ||||||
Purchase of property and equipment on credit | $ | 312 | $ | 322 | $ | - |
Year ended December 31 | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Supplemental Disclosure of Cash Flow Activities: | ||||||||||||
Cash paid during the year for: | ||||||||||||
Income taxes | $ | 20,855 | $ | 21,340 | $ | 3,976 | ||||||
Interest | $ | 260 | $ | 2,260 | $ | 5,678 | ||||||
Non-cash investing and financing activities: | ||||||||||||
Issuance of shares in connection with acquisitions | $ | 171,552 | $ | 5,579 | $ | 673 | ||||||
Issuance of shares in private placement | $ | - | $ | - | $ | 2 | ||||||
Contribution by shareholders | $ | 1,218 | $ | - | $ | - | ||||||
Acquisition related expenses paid by shareholders | $ | 3,060 | $ | - | $ | - | ||||||
Stock-based compensation capitalized as part of capitalization of software development costs | $ | - | $ | 187 | $ | 14 | ||||||
Purchase of property and equipment on credit | $ | 1,205 | $ | 312 | $ | 322 |
NOTE 1: GENERAL |
a. | Perion Network Ltd. ("Perion") and its wholly-owned subsidiaries (collectively referred to as the "Company"), is a global technology company |
b. | On |
c. | In March 2016, the Company decided to discontinue the operations of the mobile self-serve side of the business and |
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES |
% | ||||
Computers and peripheral equipment | 33 | |||
Office furniture and equipment | 6 - 15 |
Year ended December 31 | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Risk-free interest rate | 0.17% - 1.76% | 0.46% - 1.73% | 0.81% - 2.08% | |||||||||
Expected volatility | 43.49% - 50.31% | 49.49% - 53.54% | 52% - 56% | |||||||||
Early exercise factor | 160% - 210% | 150% - 200% | 150% - 200% | |||||||||
Forfeiture rate post vesting | 0% - 18% | 5% - 20% | 0% - 23% | |||||||||
Dividend yield | 0% | 0% | 0% |
Year ended December 31 | |||||
2014 | 2015 | 2016 | |||
Risk-free interest rate | 0.10% - 1.72% | 0.17% - 1.76% | 0.46% - 1.73% | ||
Expected volatility | 44.44% - 51.62% | 43.49% - 50.31% | 49.49% - 53.54% | ||
Early exercise factor | 100% - 256% | 160% - 210% | 150% - 200% | ||
Forfeiture rate post vesting | 0% - 15% | 0% - 18% | 5% - 20% | ||
Dividend yield | 0% | 0% | 0% |
· | Level 1 - Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets. |
· | Level 2 - Other inputs that are directly or indirectly observable in the market place. |
· | Level 3 - Unobservable inputs which are supported by little or no market activity. |
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016* | ||||||||||
Costs and expenses | 7,719 | 7,444 | 5,192 | |||||||||
Impairment of intangible assets and goodwill | - | 19,555 | - | |||||||||
Gain on disposal of the discontinued operations | - | - | (1,750 | ) | ||||||||
Loss before taxes on income | (7,719 | ) | (26,999 | ) | (3,442 | ) | ||||||
Taxes on income | 1,235 | - | 795 | |||||||||
Total net loss on discontinued operations | $ | (6,484 | ) | $ | (26,999 | ) | $ | (2,647 | ) |
Year ended December 31, | ||||||||
2015 | 2016* | |||||||
Costs and expenses | 7,444 | 5,192 | ||||||
Impairment of intangible assets and goodwill | 19,555 | - | ||||||
Gain on disposal of the discontinued operations | - | (1,750 | ) | |||||
Loss before taxes on income | (26,999 | ) | (3,442 | ) | ||||
Taxes on income | - | 795 | ||||||
Total net loss on discontinued operations | $ | (26,999 | ) | $ | (2,647 | ) |
· | In March 2016, by ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. |
· | In April 2016, by 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, that clarified two aspects of ASC 606, identifying performance obligations and the licensing implementation guidance, while retaining the related principles of those areas. |
· | In May 2016, by ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU 2016-12 address certain issues in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. |
NOTE 3: | FAIR VALUE OF FINANCIAL INSTRUMENTS |
Fair value measurements using input type | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Derivative assets | $ | - | $ | 1,117 | $ | - | $ | 1,117 | ||||||||
Total financial assets | $ | - | $ | 1,117 | $ | - | $ | 1,117 | ||||||||
Liabilities: | ||||||||||||||||
Payment obligation in connection with acquisitions | $ | - | $ | - | $ | 7,653 | $ | 7,653 | ||||||||
Derivative liabilities | - | 84 | - | 84 | ||||||||||||
Convertible debt | 29,526 | - | - | 29,526 | ||||||||||||
Total financial liabilities | $ | 29,526 | $ | 84 | $ | 7,653 | $ | 37,263 |
Fair value measurements using input type | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Derivative assets | $ | - | $ | 3,486 | $ | - | $ | 3,486 | ||||||||
Total financial assets | $ | - | $ | 3,486 | $ | - | $ | 3,486 | ||||||||
Liabilities: | ||||||||||||||||
Payment obligation in connection with acquisitions | $ | - | $ | - | $ | - | $ | - | ||||||||
Convertible bonds | 25,353 | - | - | 25,353 | ||||||||||||
Total financial liabilities | $ | 25,353 | $ | - | $ | - | $ | 25,353 |
Fair value measurements using input type | Fair value measurements using input type | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Derivative assets | $ | - | $ | 608 | $ | - | $ | 608 | $ | - | $ | 1,117 | $ | - | $ | 1,117 | ||||||||||||||||
Total financial assets | $ | - | $ | 608 | $ | - | $ | 608 | $ | - | $ | 1,117 | $ | - | $ | 1,117 | ||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Payment obligation in connection with acquisitions | $ | - | $ | - | $ | 49,124 | $ | 49,124 | $ | - | $ | - | $ | 2,507 | $ | 2,507 | ||||||||||||||||
Derivative liabilities | - | 214 | - | 214 | - | 84 | - | 84 | ||||||||||||||||||||||||
Convertible debt | 35,463 | - | - | 35,463 | ||||||||||||||||||||||||||||
Convertible bonds | 29,526 | - | - | 29,526 | ||||||||||||||||||||||||||||
Total financial liabilities | $ | 35,463 | $ | 214 | $ | 49,124 | $ | 84,801 | $ | 29,526 | $ | 84 | $ | 2,507 | $ | 32,117 |
Total fair value as of January 1, 2015 | $ | 13,645 | ||
Accretion of contingent liability related to acquisition | 311 | |||
Change in fair value of contingent consideration related to acquisition | (6,564 | ) | ||
Settlements | (2,500 | ) | ||
Fair value of payment obligation in connection with Undertone acquisition | 44,023 | |||
Reclassification to accrued expenses | (189 | ) | ||
Change in fair value recognized in earnings with respect to the employees of Grow Mobile | 398 | |||
Total fair value as of December 31, 2015 | $ | 49,124 | ||
Accretion and interest of payment obligation related to acquisition | $ | 1,303 | ||
Settlements | (7,537 | ) | ||
Change to payment obligation as a result of working capital adjustment | 309 | |||
Amendment to the merger agreement | (35,546 | ) | ||
Total fair value as of December 31, 2016 | $ | 7,653 |
Total fair value as of January 1, 2016 | $ | 43,978 | ||
Accretion and interest of payment obligation related to acquisition | $ | 1,303 | ||
Settlements | (7,537 | ) | ||
Change to payment obligation as a result of working capital adjustment | 309 | |||
Amendment to the merger agreement | (35,546 | ) | ||
Total fair value as of December 31, 2016 | $ | 2,507 | ||
Accretion and interest of payment obligation related to acquisition | $ | 44 | ||
Settlements | (2,551 | ) | ||
Total fair value as of December 31, 2017 | $ | - |
NOTE 4: | ACQUISITIONS |
a. | Interactive Holding Corp. |
1. | $89,078 paid in cash on November 30, 2015; |
2. | $1,182 paid in cash on January 29, 2016; |
3. |
4. |
5. | $16,000 were retained as a holdback to cover potential claims until May 31, 2017, for which a liability of $14,391 was recorded at fair value ($ |
6. | Working capital adjustment in the amount of $1,498. |
Cash and cash equivalents | $ | 7,378 | ||
Accounts receivable | 38,493 | |||
Prepaid expenses and other assets | 4,427 | |||
Long term restricted cash | 1,182 | |||
Property and equipment | 1,905 | |||
Deferred taxes | 815 | |||
Accounts payable | (23,152 | ) | ||
Accrued expenses and other liabilities | (11,083 | ) | ||
Deferred revenues | (1,047 | ) | ||
Long term loan, including current maturities | (48,601 | ) | ||
Deferred tax liability | (20,241 | ) | ||
Intangible assets | 63,200 | |||
Goodwill | 106,492 | |||
Total purchase price | $ | 119,768 |
Estimated useful life | Fair value | Estimated useful life | |||||||||
Acquired technology (1) | $ | 19,500 | 5 years | $ | 19,500 | 5 years | |||||
Customer relationships (2) | 30,000 | 6 years | 30,000 | 6 years | |||||||
Backlog (3) | 4,200 | less than 1 year | 4,200 | less than 1 year | |||||||
Tradename (4) | 9,500 | 4 years | 9,500 | 4 years | |||||||
Total amount allocated to intangible assets | $ | 63,200 | $ | 63,200 |
(1) | Acquired technology represents the combined technology for delivering and administering Undertone’s attention-grabbing, full-page video advertisements and other advertising formats. |
(2) | Customer relationships represent the existing relationships and agreements with Undertone’s brand advertisers. |
(3) | Backlog represents customer insertion orders that are highly probable to be turned into revenues in the near future. |
(4) | Tradename represents trade names and logos under which Undertone markets and sells its services. |
b. | Make Me Reach SAS |
Cash | $ | 1,050 | ||
Accounts receivable | 666 | |||
Prepaid expenses and other assets | 86 | |||
Property and equipment | 87 | |||
Accounts payable | (305 | ) | ||
Accrued expenses and other liabilities | (433 | ) | ||
Deferred revenues | (126 | ) | ||
Deferred tax liability | (1,159 | ) | ||
Intangible assets | 3,454 | |||
Goodwill | 7,452 | |||
Total purchase price | $ | 10,772 |
Estimated useful life | Fair value | Estimated useful life | |||||||||
Acquired technology | $ | 1,261 | 5 years | $ | 1,261 | 5 years | |||||
Customer relationship | 395 | 5 years | 395 | 5 years | |||||||
Distribution channel | 1,798 | 5 years | 1,798 | 5 years | |||||||
Total amount allocated to intangible assets | $ | 3,454 | $ | 3,454 |
NOTE 5: | PROPERTY AND EQUIPMENT, NET |
December 31, | ||||||||
2016 | 2017 | |||||||
Cost: | ||||||||
Computers and peripheral equipment | $ | 9,607 | $ | 10,295 | ||||
Office furniture and equipment | 2,679 | 2,811 | ||||||
Leasehold improvements | 7,142 | 7,779 | ||||||
Capitalized software | 5,005 | 10,650 | ||||||
Total cost | 24,433 | 31,535 | ||||||
Less: accumulated depreciation and amortization | (10,228 | ) | (14,059 | ) | ||||
Property and equipment, net | $ | 14,205 | $ | 17,476 |
December 31, | ||||||||
2015 | 2016 | |||||||
Cost: | ||||||||
Computers and peripheral equipment | $ | 11,775 | $ | 9,607 | ||||
Office furniture and equipment | 2,837 | 2,679 | ||||||
Leasehold improvements | 6,981 | 7,142 | ||||||
Capitalized software | 557 | 5,005 | ||||||
Total cost | 22,150 | 24,433 | ||||||
Less: accumulated depreciation and amortization | 9,436 | 10,228 | ||||||
Property and equipment, net | $ | 12,714 | $ | 14,205 |
NOTE 6: | GOODWILL AND OTHER INTANGIBLE ASSETS, NET |
a. | Goodwill |
Balance as of January 1, 2015 | $ | 164,092 | ||
Acquisition of MMR | 7,452 | |||
Acquisition of Undertone | 119,448 | |||
Impairment | (87,043 | ) | ||
Revaluation (foreign currency exchange) | (256 | ) | ||
Balance as of December 31, 2015 | $ | 203,693 | ||
Final adjustments to Undertone's purchase price (see Note 4) | (12,956 | ) | ||
Balance as of December 31, 2016 | $ | 190,737 |
Balance as of January 1, 2016 | $ | 203,693 | ||
Acquisition of Undertone | (12,956 | ) | ||
Balance as of December 31, 2016 | $ | 190,737 | ||
Impairment on Undertone's goodwill | (65,686 | ) | ||
Balance as of December 31, 2017 | $ | 125,051 |
b. | Intangible assets, net |
December 31, 2015 | Amortization | OCI | Disposals | December 31, 2016 | ||||||||||||||||
Acquired technology | $ | 30,715 | $ | - | $ | (41 | ) | $ | - | $ | 30,674 | |||||||||
Accumulated amortization | (8,963 | ) | (5,543 | ) | 16 | - | (14,490 | ) | ||||||||||||
Impairment | (956 | ) | - | - | - | (956 | ) | |||||||||||||
Acquired technology, net | 20,796 | (5,543 | ) | (25 | ) | - | 15,228 | |||||||||||||
Customer relationships | 31,911 | - | (13 | ) | - | 31,898 | ||||||||||||||
Accumulated amortization | (1,161 | ) | (12,750 | ) | 6 | - | (13,905 | ) | ||||||||||||
Impairment | (91 | ) | - | - | - | (91 | ) | |||||||||||||
Customer relationships, net | 30,659 | (12,750 | ) | (7 | ) | - | 17,902 | |||||||||||||
Tradename and other | 22,483 | - | (59 | ) | (4,200 | ) | 18,224 | |||||||||||||
Accumulated amortization | (4,609 | ) | (3,681 | ) | 11 | 4,200 | (4,079 | ) | ||||||||||||
Impairment | (3,257 | ) | - | - | - | (3,257 | ) | |||||||||||||
Tradename and other, net | 14,617 | (3,681 | ) | (48 | ) | - | 10,888 | |||||||||||||
Intangible assets, net | $ | 66,072 | $ | (21,974 | ) | $ | (80 | ) | $ | - | $ | 44,018 |
December 31, 2016 | Amortization | OCI | Impairment | December 31, 2017 | ||||||||||||||||
Acquired technology | $ | 30,674 | $ | - | $ | 163 | - | $ | 30,837 | |||||||||||
Accumulated amortization | (14,490 | ) | (5,390 | ) | (79 | ) | - | (19,959 | ) | |||||||||||
Impairment | (956 | ) | - | - | (7,793 | ) * | ) | (8,749 | ) | |||||||||||
Acquired technology, net | 15,228 | (5,390 | ) | 84 | (7,793 | ) | 2,129 | |||||||||||||
Customer relationships | 31,898 | - | 51 | - | 31,949 | |||||||||||||||
Accumulated amortization | (13,905 | ) | (4,900 | ) | (27 | ) | - | (18,832 | ) | |||||||||||
Impairment | (91 | ) | - | - | (10,335 | ) * | ) | (10,426 | ) | |||||||||||
Customer relationships, net | 17,902 | (4,900 | ) | 24 | (10,335 | ) | 2,691 | |||||||||||||
Tradename and other | 18,224 | - | 233 | - | 18,457 | |||||||||||||||
Accumulated amortization | (4,079 | ) | (2,734 | ) | (45 | ) | - | (6,858 | ) | |||||||||||
Impairment | (3,257 | ) | - | - | (1,853 | ) * | ) | (5,110 | ) | |||||||||||
Tradename and other, net | 10,888 | (2,734 | ) | 188 | (1,853 | ) | 6,489 | |||||||||||||
Intangible assets, net | $ | 44,018 | $ | (13,024 | ) | $ | 296 | $ | (19,981 | ) | $ | 11,309 |
December 31, 2015 | Amortization | OCI | Impairment | December 31, 2016 | ||||||||||||||||
Acquired technology | $ | 30,715 | $ | - | $ | (41 | ) | - | $ | 30,674 | ||||||||||
Accumulated amortization | (8,963 | ) | (5,543 | ) | 16 | - | (14,490 | ) | ||||||||||||
Impairment | (956 | ) | - | - | - | (956 | ) | |||||||||||||
Acquired technology, net | 20,796 | (5,543 | ) | (25 | ) | - | 15,228 | |||||||||||||
Customer relationships | 31,911 | - | (13 | ) | - | 31,898 | ||||||||||||||
Accumulated amortization | (1,161 | ) | (12,750 | ) | 6 | - | (13,905 | ) | ||||||||||||
Impairment | (91 | ) | - | - | - | (91 | ) | |||||||||||||
Customer relationships, net | 30,659 | (12,750 | ) | (7 | ) | - | 17,902 | |||||||||||||
Tradename and other | 22,483 | - | (59 | ) | (4,200 | ) | 18,224 | |||||||||||||
Accumulated amortization | (4,609 | ) | (3,681 | ) | 11 | 4,200 | (4,079 | ) | ||||||||||||
Impairment | (3,257 | ) | - | - | - | (3,257 | ) | |||||||||||||
Tradename and other, net | 14,617 | (3,681 | ) | (48 | ) | - | 10,888 | |||||||||||||
Intangible assets, net | $ | 66,072 | $ | (21,974 | ) | $ | (80 | ) | $ | - | $ | 44,018 |
December 31, 2014 | Additions | Amortization | Impairment | OCI | Disposals | December 31, 2015 | ||||||||||||||||||||||
Acquired technology | $ | 38,515 | $ | 20,761 | $ | - | $ | - | $ | (46 | ) | $ | (28,515 | ) | $ | 30,715 | ||||||||||||
Accumulated amortization | (15,698 | ) | - | (4,374 | ) | - | 2 | 11,107 | (8,963 | ) | ||||||||||||||||||
Impairment | (14,347 | ) | - | - | (4,017 | ) | - | 17,408 | (956 | ) | ||||||||||||||||||
Acquired technology, net | 8,470 | 20,761 | (4,374 | ) | (4,017 | ) | (44 | ) | - | 20,796 | ||||||||||||||||||
In-process R&D | 2,000 | - | - | - | - | (2,000 | ) | - | ||||||||||||||||||||
Impairment | (2,000 | ) | - | - | - | - | 2,000 | - | ||||||||||||||||||||
In-process R&D, net | - | - | - | - | - | - | - | |||||||||||||||||||||
Customer relationships | 3,144 | 30,395 | - | - | (14 | ) | (1,614 | ) | 31,911 | |||||||||||||||||||
Accumulated amortization | (903 | ) | - | (766 | ) | - | - | 508 | (1,161 | ) | ||||||||||||||||||
Impairment | - | - | - | (1,197 | ) | - | 1,106 | (91 | ) | |||||||||||||||||||
Customer relationships, net | 2,241 | 30,395 | (766 | ) | (1,197 | ) | (14 | ) | - | 30,659 | ||||||||||||||||||
Tradename and other | 11,911 | 15,498 | - | - | (66 | ) | (4,860 | ) | 22,483 | |||||||||||||||||||
Accumulated amortization | (2,138 | ) | - | (3,739 | ) | - | 2 | 1,266 | (4,609 | ) | ||||||||||||||||||
Impairment | (3,594 | ) | - | - | (3,257 | ) | - | 3,594 | (3,257 | ) | ||||||||||||||||||
Tradename and other, net | 6,179 | 15,498 | (3,739 | ) | (3,257 | ) | (64 | ) | - | 14,617 | ||||||||||||||||||
Intangible assets, net | $ | 16,890 | $ | 66,654 | $ | (8,879 | ) | $ | (8,471 | ) | $ | (122 | ) | $ | - | $ | 66,072 |
Estimated useful life | |||||
Acquired technology | 3-5 years | ||||
Customer relationships | 4-5 years | ||||
Tradename and other | 4-11 years |
2017 | $ | 16,197 | ||||||
2018 | 12,028 | $ | 4,823 | |||||
2019 | 9,944 | 4,238 | ||||||
2020 | 4,861 | 1,262 | ||||||
2021 | 229 | 229 | ||||||
2022 | 240 | |||||||
Thereafter | 759 | 517 | ||||||
$ | 44,018 | $ | 11,309 |
NOTE 7: | ACCRUED EXPENSES AND OTHER LIABILITIES |
December 31, | ||||||||
2016 | 2017 | |||||||
Employees and payroll accruals | $ | 7,668 | $ | 8,020 | ||||
Government authorities | 2,929 | 2,427 | ||||||
Professional services accruals | 1,812 | 1,886 | ||||||
Other accruals | 3,549 | 4,155 | ||||||
Other overhead related expenses | 991 | 885 | ||||||
Hosting, software and web services accruals | 433 | 411 | ||||||
Derivative liabilities | 84 | - | ||||||
$ | 17,466 | $ | 17,784 |
December 31, | ||||||||
2015 | 2016 | |||||||
Employees and payroll accruals | $ | 10,190 | $ | 7,668 | ||||
Government authorities | 1,850 | 2,929 | ||||||
Professional services accruals | 3,171 | 1,812 | ||||||
Other accruals | 3,587 | 3,549 | ||||||
Other overhead related expenses | 1,592 | 991 | ||||||
Accrued restructuring charges (see note 16) | 1,756 | - | ||||||
Hosting, software and web services accruals | 497 | 433 | ||||||
Derivative liabilities | 214 | 84 | ||||||
$ | 22,857 | $ | 17,466 |
December 31, | ||||||||||
Balance sheet | 2016 | 2017 | ||||||||
Derivatives designated as hedging instruments: | ||||||||||
Foreign exchange forward contracts and other derivatives | ''Prepaid expenses and other current assets'' | $ | 125 | $ | 140 | |||||
''Accrued expenses and other liabilities'' | 84 | - | ||||||||
''Accumulated other comprehensive income'' | 36 | 116 | ||||||||
Derivatives not designated as hedging instruments: | ||||||||||
Foreign exchange forward contracts and other derivatives | ''Prepaid expenses and other current assets'' | 20 | $ | - | ||||||
Cross currency SWAP | ''Prepaid expenses and other current assets'' | $ | 973 | $ | 3,346 |
December 31, | |||||||||
Balance sheet | 2015 | 2016 | |||||||
Derivatives designated as hedging instruments: | |||||||||
Foreign exchange forward contracts and other derivatives | ''Prepaid expenses and other current assets'' | $ | 242 | $ | 125 | ||||
''Accrued expenses and other liabilities'' | 214 | 84 | |||||||
''Accumulated other comprehensive income'' | - | 36 | |||||||
Derivatives not designated as hedging instruments: | |||||||||
Foreign exchange forward contracts and other derivatives | ''Prepaid expenses and other current assets'' | - | $ | 20 | |||||
Cross currency SWAP | ''Prepaid expenses and other current assets'' | $ | 366 | $ | 973 |
December 31, | ||||||||
2015 | 2016 | |||||||
Option contracts | $ | 206 | $ | 175 |
Gain recognized in Statements of Comprehensive Income | Gain (loss) recognized in consolidated statements of Income | |||||||||||||||||
Year ended December 31, | Statement of Income item | Year ended December 31, | ||||||||||||||||
2017 | 2015 | 2016 | 2017 | |||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||
Foreign exchange options and forward contracts | $ | 80 | "Operating expenses" | $ | 178 | $ | 167 | $ | 525 | |||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||
Foreign exchange options and forward contracts | "Financial expenses" | (175 | ) | (16 | ) | 132 | ||||||||||||
SWAP | "Financial expenses" | 225 | 608 | 2,373 | ||||||||||||||
Total | $ | 80 | $ | 228 | $ | 759 | $ | 3,030 |
Gain recognized in Statements of Comprehensive Income | Gain (loss) recognized in consolidated statements of Income | ||||||||||||||||
Year ended December 31, | Statement of Income item | Year ended December 31, | |||||||||||||||
2016 | 2014 | 2015 | 2016 | ||||||||||||||
Derivatives designated as hedging instruments: | |||||||||||||||||
Foreign exchange options and forward contracts | $ | 36 | "Operating expenses" | $ | (62 | ) | $ | 178 | $ | 167 | |||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||
Foreign exchange options and forward contracts | "Financial expenses" | 125 | (175 | ) | (16 | ) | |||||||||||
SWAP | "Financial expenses" | - | 225 | 608 | |||||||||||||
Total | $ | 36 | $ | 63 | $ | 228 | $ | 759 |
NOTE 9: | SHORT TERM AND |
1. | On May 17, 2012, the Company entered into loan agreements, with two Israeli Banks, pursuant to which the Company borrowed a total of $10,000. |
2. | On November 30, 2015, concurrently with the closing of the Undertone acquisition, Interactive Holding Corp. entered into a new secured credit agreement for $50,000, due in quarterly installments from March 2016 to November 2019. The installments started at $625 per quarter, increase to $1,250 per quarter in March 2018 and require a final payment upon maturity of $35,000. The outstanding principal bears interest at LIBOR plus 5.5% per annum and is secured by substantially all the assets of the companies in the Undertone group and by guarantees of such companies. The credit is required to be prepaid by Undertone in certain circumstances, such as from proceeds of asset sales or casualty insurance policies, debt or equity offerings, or from excess cash flow in the event that Undertone's total leverage ratio exceeds specified targets, and a pro rata portion of indemnification payments (or offset of the holdback amount) under the Merger Agreement. The debt issuance cost amounted to $1,399, which was deducted from the carrying amount of that debt in the consolidated balance sheets and amortized during the term of the loan as interest expense according to the effective interest method. |
3. | On November 22, 2015, the Company borrowed $19,900 under a credit facility from an Israeli Bank. The credit facility was secured by a lien on the accounts receivable of ClientConnect Ltd., an Israeli subsidiary of Perion, from its current and future business clients and was guaranteed by Perion. facility in full. |
4. | On November 28, 2016, the Company borrowed $7,000 under a credit facility from the same Israeli bank. The credit facility is guaranteed by a lien on the accounts receivable of ClientConnect Ltd., from its current and future business clients and is guaranteed by Perion. As of December 31, 2016, the utilized balance of the credit facility was $7,000 bearing annual interest of LIBOR + 3.3%. On January 26, 2017, the Company repaid the credit facility. |
5. | On May 9, 2017, the Company secured $17.5 million under a new credit facility from an Israeli bank. $17.5 million includes $12.5M revolving credit line and $5M term loan. The $12.5M credit facility is secured, among other, by a lien on the accounts receivable of ClientConnect Ltd., an Israeli subsidiary, from its current and future business clients. Both facilities are guaranteed by Perion. Out of the total credit facility, $5.0 million is a long-term loan bearing interest at LIBOR plus 5% per annum, to be repaid in 36 equal installments starting from June 30, 2017, and a $12.5 million revolving credit line bearing interest at LIBOR plus 3.5% per annum. As of December 31, 2017, the remaining balance of the loan was $4.1 million. The $12.5 million credit line is available until May 15, 2020 and is not utilized as of December 31, 2017. |
Repayment amount | ||||
2017 | $ | 11,150 | ||
2018 | 5,000 | |||
2019 | 33,750 | |||
Total principal payments | 49,900 | |||
Less: unamortized original issue discount | (1,316 | ) | ||
Present value of principal payments | 48,584 | |||
Less: current portion | 10,656 | |||
Long-term debt | $ | 37,928 |
Repayment amount | ||||
2018 | $ | 6,102 | ||
2019 | 29,714 | |||
2020 | 694 | |||
Total principal payments | 36,510 | |||
Less: unamortized original issue discount | (842 | ) | ||
Present value of principal payments | 35,668 | |||
Less: current portion | (5,642 | ) | ||
Long-term debt | $ | 30,026 |
NOTE 10: | CONVERTIBLE DEBT |
Balance as of January 1, 2015 | $ | 35,752 | ||
Change in accrued interest | 1,823 | |||
Change in fair value | 175 | |||
Payment of interest | (1,824 | ) | ||
Balance as of December 31, 2015* | $ | 35,926 | ||
Change in accrued interest | 1,586 | |||
Change in fair value | 1,350 | |||
Payment of interest | (1,716 | ) | ||
Payment of principal | (7,620 | ) | ||
Balance as of December 31, 2016* | $ | 29,526 |
Balance as of January 1, 2016 | $ | 35,926 | ||
Change in accrued interest | 1,586 | |||
Change in fair value | 1,350 | |||
Payment of interest | (1,716 | ) | ||
Payment of principal | (7,620 | ) | ||
Balance as of December 31, 2016* | $ | 29,526 | ||
Change in accrued interest | 1,344 | |||
Change in fair value | 3,785 | |||
Payment of interest | (1,401 | ) | ||
Payment of principal | (7,901 | ) | ||
Balance as of December 31, 2017* | $ | 25,353 |
Repayment amount | Repayment amount | |||||||
2017 | $ | 7,463 | ||||||
2018 | 7,464 | $ | 8,277 | |||||
2019 | 7,463 | 8,278 | ||||||
2020 | 7,464 | 8,277 | ||||||
$ | 29,854 | $ | 24,832 |
NOTE 11: | COMMITMENTS AND CONTINGENT LIABILITIES |
Minimum lease payments | Minimum sublease rentals | Net future minimum lease commitment | ||||||||||
2017 | $ | 6,275 | $ | 693 | $ | 5,582 | ||||||
2018 | 6,318 | 694 | 5,624 | |||||||||
2019 | 4,297 | 697 | 3,600 | |||||||||
2020 | 3,613 | 627 | 2,986 | |||||||||
2021 | 3,342 | 695 | 2,647 | |||||||||
Thereafter | 6,262 | 970 | 5,292 | |||||||||
$ | 30,107 | $ | 4,376 | $ | 25,731 |
Minimum lease payments | Minimum sublease rentals | Net future minimum lease commitment | ||||||||||
2018 | $ | 6,348 | $ | 694 | $ | 5,654 | ||||||
2019 | 4,266 | 697 | 3,569 | |||||||||
2020 | 3,434 | 627 | 2,807 | |||||||||
2021 | 3,506 | 695 | 2,811 | |||||||||
2022 | 2,522 | 540 | 1,982 | |||||||||
Thereafter | 4,383 | 430 | 3,953 | |||||||||
$ | 24,459 | $ | 3,683 | $ | 20,776 |
b. Contingent purchase obligation |
NOTE 12: | SHAREHOLDERS' EQUITY |
a. | Ordinary shares |
b. | Private placement |
c. | Stock Options, Restricted Stock Units and Warrants |
Weighted average | ||||||||||||||||
Number of options | Exercise price | Remaining contractual term (in years) | Aggregate intrinsic value | |||||||||||||
Outstanding at January 1, 2017 | 5,354,220 | $ | 4.04 | 2.82 | $ | 549 | ||||||||||
Granted | 10,991,668 | 1.41 | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Cancelled | (3,733,139 | ) | 3.48 | - | - | |||||||||||
Outstanding at December 31, 2017 | 12,612,749 | $ | 2.14 | 4.05 | $ | 56 | ||||||||||
Exercisable at December 31, 2017 | 2,233,865 | $ | 4.23 | 2.14 | $ | 17 | ||||||||||
Vested and expected to vest at December 31, 2017 | 10,535,436 | $ | 2.77 | 3.73 | $ | 53 |
Weighted average | ||||||||||||||||
Number of Performance based options | Exercise price | Remaining contractual term (in years) | Aggregate intrinsic value | |||||||||||||
Outstanding at January 1, 2017 | 1,516,666 | $ | 2.53 | 3.77 | $ | - | ||||||||||
Cancelled | (666,666 | ) | 2.28 | - | - | |||||||||||
Outstanding at December 31, 2017 | 850,000 | 2.72 | 2.94 | - | ||||||||||||
Exercisable at December 31, 2017 | 566,665 | 2.72 | 2.94 | - | ||||||||||||
Vested and expected to vest at December 31, 2017 | 1,315,714 | $ | 2.72 | 3.08 | $ | - |
Weighted average | ||||||||||||||||
Number of options | Exercise price | Remaining contractual term (in years) | Aggregate intrinsic value | |||||||||||||
Outstanding at January 1, 2016 | 5,467,337 | $ | 5.30 | 3.17 | $ | 1,709 | ||||||||||
Granted | 2,248,000 | $ | 1.94 | |||||||||||||
Exercised | (200 | ) | $ | 2.00 | ||||||||||||
Cancelled | (2,360,917 | ) | $ | 4.97 | ||||||||||||
Outstanding at December 31, 2016 | 5,354,220 | $ | 4.04 | 2.82 | $ | 549 | ||||||||||
Exercisable at December 31, 2016 | 1,552,014 | $ | 7.88 | 1.43 | $ | 6 | ||||||||||
Vested and expected to vest at December 31, 2016 | 4,299,107 | $ | 4.57 | 2.57 | $ | 316 |
Outstanding | Exercisable | |||||||||||||||||||||||||
Range of exercise price | Number of options | Weighted average remaining contractual life (years) | Weighted average exercise price | Number of options | Weighted average remaining contractual life (years) | Weighted average exercise price | ||||||||||||||||||||
$ | 0.34 - 2.00 | 9,270,118 | 2.74 | $ | 1.50 | 343,845 | 4.31 | $ | 1.26 | |||||||||||||||||
2.11 - 2.63 | 2,517,834 | 3.04 | 2.44 | 1,181,893 | 1.59 | 2.31 | ||||||||||||||||||||
3.27 - 3.77 | 1,148,166 | 1.19 | 3.61 | 748,161 | 1.21 | 3.59 | ||||||||||||||||||||
4.04 - 6.93 | 101,953 | 0.56 | 5.23 | 101,953 | 0.56 | 5.23 | ||||||||||||||||||||
7.80 - 9.14 | 78,500 | 0.05 | 8.53 | 78,500 | 0.05 | 8.53 | ||||||||||||||||||||
10.06 - 11.94 | 322,428 | 0.29 | 11.29 | 322,428 | 0.29 | 11.29 | ||||||||||||||||||||
$ | 12.56 - 13.54 | 23,750 | 0.43 | 12.63 | 23,750 | 0.43 | 12.63 | |||||||||||||||||||
13,462,749 | 2.57 | $ | 2.18 | 2,800,530 | 1.58 | $ | 3.93 |
Number of RSUs | Weighted average grant date fair value ($) | |||||||
Unvested at January 1, 2017 | 327,000 | $ | 12.64 | |||||
Vested | ||||||||
Cancelled | (327,000 | ) | 12.64 | |||||
Unvested at December 31, 2017 | - | - | ||||||
Expected to vest after December 31, 2017 | - | - |
Year ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Cost of revenues | $ | 247 | $ | 219 | $ | 36 | ||||||
Research and development | 804 | 708 | 229 | |||||||||
Selling and marketing | 1,397 | 1,907 | 744 | |||||||||
General and administrative | 4,290 | 4,010 | 1,104 | |||||||||
Total | $ | 6,738 | $ | 6,844 | $ | 2,113 | ||||||
Share-based compensation in discontinued operations | $ | 878 | $ | 42 | $ | - |
Weighted average | ||||||||||||||||
Number of Performance based options | Exercise price | Remaining contractual term (in years) | Aggregate intrinsic value | |||||||||||||
Outstanding at January 1, 2016 | 3,550,000 | $ | 2.38 | 4.93 | $ | 4,793 | ||||||||||
Cancelled | (2,033,334 | ) | $ | 2.28 | ||||||||||||
Outstanding at December 31, 2016 | 1,516,666 | $ | 2.53 | 3.77 | - | |||||||||||
Exercisable at December 31, 2016 | 549,995 | $ | 2.51 | 3.48 | - | |||||||||||
Vested and expected to vest at December 31, 2016 | 1,174,535 | $ | 2.52 | 3.72 | - |
Outstanding | Exercisable | |||||||||||||||||||||||
Range of exercise price | Number of options | Weighted average remaining contractual life (years) | Weighted average exercise price | Number of options | Weighted average remaining contractual life (years) | Weighted average exercise price | ||||||||||||||||||
$0.34-$2.00 | 1,504,493 | 4.28 | $ | 1.09 | 86,249 | 2.01 | $ | 1.88 | ||||||||||||||||
$2.11-$2.52 | 2,200,166 | 3.47 | $ | 2.28 | 539,994 | 3.45 | $ | 2.26 | ||||||||||||||||
$3.27-$3.77 | 1,917,666 | 2.70 | $ | 3.57 | 312,496 | 2.40 | $ | 3.61 | ||||||||||||||||
$4.04-$6.93 | 312,521 | 1.21 | $ | 5.20 | 295,851 | 1.11 | $ | 5.22 | ||||||||||||||||
$7.80-$9.14 | 141,875 | 1.03 | $ | 8.71 | 141,875 | 1.03 | $ | 8.71 | ||||||||||||||||
$10.06-$11.94 | 668,540 | 1.46 | $ | 11.21 | 606,587 | 1.38 | $ | 11.24 | ||||||||||||||||
$12.56-$13.54 | 125,625 | 0.46 | $ | 12.59 | 118,957 | 0.37 | $ | 12.58 | ||||||||||||||||
6,870,886 | 3.03 | $ | 3.70 | 2,102,009 | 1.97 | $ | 6.47 |
Number of RSUs | Weighted average grant date fair value | |||||||
Unvested at January 1, 2016 | 692,320 | $ | 12.64 | |||||
Vested | (337,420 | ) | $ | 12.64 | ||||
Cancelled | (27,900 | ) | $ | 12.64 | ||||
Unvested at December 31, 2016 | 327,000 | $ | 12.64 | |||||
Expected to vest after December 31, 2016 | 327,000 | $ | 12.64 |
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Cost of revenues | $ | 249 | $ | 247 | $ | 219 | ||||||
Research and development | 2,058 | 804 | 708 | |||||||||
Selling and marketing | 1,940 | 1,397 | 1,907 | |||||||||
General and administrative | 9,302 | 4,290 | 4,010 | |||||||||
Restructuring costs | 220 | - | - | |||||||||
Total | $ | 13,769 | $ | 6,738 | $ | 6,844 | ||||||
Share-based compensation in discontinued operations | $ | (1,376 | ) | $ | 878 | $ | 42 |
In connection with the Undertone acquisition, the Company granted warrants to purchase 200,000 ordinary shares, at a weighted average exercise price of $3.03 per share, to a third-party vendor that provides development services to Undertone. The warrants are exercisable until December 27, 2020, and its weighted-average grant-date fair value |
NOTE 13: | FINANCIAL INCOME (EXPENSE), NET |
Year ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Financial income: | ||||||||||||
Interest income | $ | 551 | $ | 204 | $ | 132 | ||||||
Foreign currency translation gains, net | 572 | - | 204 | |||||||||
Change in fair value of SWAP | 225 | 608 | 2,373 | |||||||||
Other | 197 | |||||||||||
$ | 1,348 | $ | 812 | $ | 2,906 | |||||||
Financial expense: | ||||||||||||
Foreign currency translation losses, net | $ | $ | (779 | ) | $ | |||||||
Interest and change in fair value of payment obligation related to acquisitions | (489 | ) | (1,303 | ) | (43 | ) | ||||||
Issuance costs of convertible debt | - | - | ||||||||||
Interest expense on debts | (2,313 | ) | (5,306 | ) | (4,794 | ) | ||||||
Change in fair value of convertible debt | (175 | ) | (1,350 | ) | (3,785 | ) | ||||||
Bank charges and other | (310 | ) | (362 | ) | (206 | ) | ||||||
$ | (3,287 | ) | $ | (9,100 | ) | $ | (8,828 | |||||
Financial expense, net | $ | (1,939 | ) | $ | (8,288 | ) | $ | (5,922 | ) |
NOTE 14: | INCOME TAXES |
a. | Income (Loss) before taxes on income |
Year ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Domestic | $ | (16,712 | ) | $ | (3,393 | ) | $ | 10,485 | ||||
Foreign | (24,249 | ) | 6,453 | (92,065 | ) | |||||||
Total | $ | (40,961 | ) | $ | 3,060 | $ | (81,580 | ) |
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Financial income: | ||||||||||||
Interest income | $ | 93 | $ | 551 | $ | 204 | ||||||
Foreign currency translation gains, net | - | 572 | - | |||||||||
Change in fair value of convertible debt | 2,566 | - | - | |||||||||
Change in fair value of SWAP | - | 225 | 608 | |||||||||
$ | 2,659 | $ | 1,348 | $ | 812 | |||||||
Financial expense: | ||||||||||||
Foreign currency translation losses, net | $ | (2,669 | ) | $ | - | $ | (779 | ) | ||||
Interest and change in fair value of payment obligation related to acquisitions | (1,067 | ) | (489 | ) | (1,303 | ) | ||||||
Issuance costs of convertible debt | (741 | ) | - | - | ||||||||
Interest expense on debts | (733 | ) | (2,313 | ) | (5,306 | ) | ||||||
Change in fair value of convertible debt | - | (175 | ) | (1,350 | ) | |||||||
Bank charges and other | (337 | ) | (310 | ) | (362 | ) | ||||||
$ | (5,547 | ) | $ | (3,287 | ) | $ | (9,100 | ) | ||||
Financial expense, net | $ | (2,888 | ) | $ | (1,939 | ) | $ | (8,288 | ) |
b. | Taxes on income |
Year ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Current taxes | $ | 9,656 | $ | 3,753 | $ | 1,212 | ||||||
Taxes in respect of previous years | 14 | (273 | ) | (1,179 | ) | |||||||
Deferred tax benefit | (8,973 | ) | (3,268 | ) | (8,859 | ) | ||||||
Total | $ | 697 | $ | 212 | $ | (8,826 | ) |
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Domestic | $ | 62,991 | $ | (16,712 | ) | $ | (3,393 | ) | ||||
Foreign | (2,865 | ) | (24,249 | ) | 6,453 | |||||||
Total | $ | 60,126 | $ | (40,961 | ) | $ | 3,060 |
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Current taxes | $ | 24,667 | $ | 9,670 | $ | 3,480 | ||||||
Deferred tax benefit | (13,851 | ) | (8,973 | ) | (3,268 | ) | ||||||
Total | $ | 10,816 | $ | 697 | $ | 212 |
Year ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Domestic | $ | 8,830 | $ | 3,396 | $ | 1,548 | ||||||
Foreign | (8,133 | ) | (3,184 | ) | (10,374 | ) | ||||||
Total | $ | 697 | $ | 212 | $ | (8,826 | ) | |||||
Domestic: | ||||||||||||
Current taxes | $ | 8,929 | $ | 2,800 | $ | 387 | ||||||
Deferred tax (benefit) expense | (113 | ) | 937 | 2,532 | ||||||||
Taxes in respect of previous years | 14 | (341 | ) | (1,371 | ) | |||||||
Total - Domestic | $ | 8,830 | $ | 3,396 | $ | 1,548 | ||||||
Foreign: | ||||||||||||
Current taxes | $ | 727 | $ | 953 | $ | 825 | ||||||
Deferred tax benefit | (8,860 | ) | (4,205 | ) | (11,391 | ) | ||||||
Taxes in respect of previous years | - | 68 | 192 | |||||||||
Total - Foreign | $ | (8,133 | ) | $ | (3,184 | ) | $ | (10,374 | ) | |||
Total income tax expense | $ | 697 | $ | 212 | $ | (8,826 | ) |
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Domestic | $ | 12,951 | $ | 8,830 | $ | 3,396 | ||||||
Foreign | (2,135 | ) | (8,133 | ) | (3,184 | ) | ||||||
Total | $ | 10,816 | $ | 697 | $ | 212 | ||||||
Domestic: | ||||||||||||
Current taxes | $ | 24,507 | $ | 8,943 | $ | 2,459 | ||||||
Deferred tax (benefit) expense | (11,556 | ) | (113 | ) | 937 | |||||||
Total - Domestic | $ | 12,951 | $ | 8,830 | $ | 3,396 | ||||||
Foreign: | ||||||||||||
Current taxes | $ | 160 | $ | 727 | $ | 1,021 | ||||||
Deferred tax benefit | (2,295 | ) | (8,860 | ) | (4,205 | ) | ||||||
Total - Foreign | $ | (2,135 | ) | $ | (8,133 | ) | $ | (3,184 | ) | |||
Total income tax expense | $ | 10,816 | $ | 697 | $ | 212 |
c. | Deferred Taxes |
December 31, | December 31, | |||||||||||||||
2015 | 2016 | 2016 | 2017 | |||||||||||||
Deferred tax assets: | ||||||||||||||||
Net operating loss carry forwards | $ | 10,280 | $ | 8,267 | $ | 8,267 | $ | 5,809 | ||||||||
Research and development | 4,008 | 3,190 | 3,190 | 753 | ||||||||||||
Intangible assets | - | 829 | ||||||||||||||
Other temporary differences mainly relating to reserve and allowances | 4,058 | 2,703 | 2,703 | 1,937 | ||||||||||||
Deferred tax assets, before valuation allowance | 18,346 | 14,160 | 14,160 | 9,328 | ||||||||||||
Valuation allowance | 4,212 | 4,739 | 4,739 | 4,530 | ||||||||||||
Total deferred tax assets, net | $ | 14,134 | $ | 9,421 | $ | 9,421 | $ | 4,798 | ||||||||
Deferred tax liabilities: | ||||||||||||||||
Intangible assets | $ | (17,971 | ) | $ | (10,998 | ) | $ | (10,998 | ) | $ | - | |||||
Property and equipment, net | (3,275 | ) | (2,393 | ) | (2,393 | ) | $ | - | ||||||||
Total deferred tax liabilities | $ | (21,246 | ) | $ | (13,391 | ) | $ | (13,391 | ) | $ | - | |||||
Total deferred tax liability, net | $ | (7,112 | ) | $ | (3,970 | ) | $ | (3,970 | ) | $ | 4,798 | |||||
Domestic: | ||||||||||||||||
Long term deferred tax asset, net | $ | 5,006 | $ | 4,069 | $ | 4,069 | $ | 1,536 | ||||||||
Long term deferred tax liability | (261 | ) | - | - | ||||||||||||
$ | 4,745 | $ | 4,069 | $ | 4,069 | $ | 1,536 | |||||||||
Foreign: | ||||||||||||||||
Long term deferred tax asset, net | $ | 7,338 | $ | 48 | $ | 48 | $ | 3,262 | ||||||||
Long term deferred tax liability | (19,195 | ) | (8,087 | ) | (8,087 | ) | ||||||||||
$ | (11,857 | ) | $ | (8,039 | ) | $ | (8,039 | ) | $ | 3,262 | ||||||
Total deferred tax liability, net | $ | (7,112 | ) | $ | (3,970 | ) | ||||||||||
Total deferred tax asset (liability), net | $ | (3,970 | ) | $ | 4,798 |
d. | Reconciliation of the Company’s effective tax rate to the statutory tax rate in Israel |
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2015 | 2016 | 2017 | |||||||||||||||||||
Income (Loss) before taxes on income | $ | 60,126 | $ | (40,961 | ) | $ | 3,060 | $ | (40,961 | ) | $ | 3,060 | $ | (81,580 | ) | |||||||||
Statutory tax rate in Israel | 26.5 | % | 26.5 | % | 25.0 | % | 26.5 | % | 25.0 | % | 24.0 | % | ||||||||||||
Theoretical tax expense (income) | $ | 15,933 | $ | (10,855 | ) | $ | 765 | $ | (10,855 | ) | $ | 765 | $ | (19,579 | ) | |||||||||
Increase (decrease) in tax expenses resulting from: | ||||||||||||||||||||||||
"Preferred Enterprise" benefits * | (13,325 | ) | (5,654 | ) | (1,356 | ) | (5,654 | ) | (1,356 | ) | (584 | ) | ||||||||||||
Non-deductible expenses including impairment charges | 8,015 | 20,738 | 1,777 | |||||||||||||||||||||
Non-deductible expenses | 18,493 | 1,777 | 1,150 | |||||||||||||||||||||
Non- deductible Impairment charges | 2,245 | - | 12,652 | |||||||||||||||||||||
Deferred taxes on losses and other temporary charges for which a valuation allowance was provided, net | 1,962 | (4,617 | ) | 527 | (4,617 | ) | 527 | (209 | ) | |||||||||||||||
Tax adjustment in respect of different tax rate of foreign subsidiaries | (793 | ) | 1,185 | (2,032 | ) | 1,185 | (2,032 | ) | (3,392 | ) | ||||||||||||||
Change in future tax rate | - | - | 448 | - | 448 | 836 | ||||||||||||||||||
Other | (976 | ) | (100 | ) | 83 | (100 | ) | 83 | 300 | |||||||||||||||
Taxes on income | $ | 10,816 | $ | 697 | $ | 212 | $ | 697 | $ | 212 | $ | (8,826 | ) | |||||||||||
* Benefit per ordinary share from "Preferred Enterprise" status: | * Benefit per ordinary share from "Preferred Enterprise" status: | * Benefit per ordinary share from "Preferred Enterprise" status: | ||||||||||||||||||||||
Basic | $ | 0.17 | $ | 0.12 | $ | 0.02 | $ | 0.12 | $ | 0.02 | $ | 0.01 | ||||||||||||
Diluted | $ | 0.16 | $ | 0.12 | $ | 0.02 | $ | 0.12 | $ | 0.02 | $ | 0.01 |
e. | Income tax rates |
f. | Law for the Encouragement of Capital Investments, 1959 |
g. | Uncertain tax positions |
December 31, | ||||||||
2016 | 2017 | |||||||
Balance at the beginning of the year | $ | 2,401 | $ | 3,236 | ||||
Increase (decrease) related to prior year tax positions, net | (812 | ) | 153 | |||||
Increase related to current year tax positions | 1,647 | 674 | ||||||
Balance at the end of the year | $ | 3,236 | $ | 4,063 |
December 31, | ||||||||
2015 | 2016 | |||||||
Balance at the beginning of the year | $ | 724 | $ | 2,367 | ||||
Decrease related to prior year tax positions, net | (22 | ) | (195 | ) | ||||
Increase related to current year tax positions | 1,665 | 1,257 | ||||||
Balance at the end of the year | $ | 2,367 | $ | 3,429 |
h. | Tax loss carry-forwards |
i. | US Tax Reform: |
· | A corporate income tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017 (“Rate Reduction”); |
· | The transition of U.S international taxation from a worldwide tax system to a territorial system by providing a 100 percent deduction to an eligible U.S. shareholder on foreign sourced dividends received from a foreign subsidiary (“100% Dividend Received Deduction”); |
· | A one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017; and |
NOTE 15: | EARNINGS PER SHARE |
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Numerator: | ||||||||||||
Net income (Loss) attributable to ordinary shares - basic | $ | 49,310 | $ | (41,658 | ) | $ | 2,848 | |||||
Gains related to convertible debt, net | (2,100 | ) | - | - | ||||||||
Net income (Loss) from continuing operations - diluted | $ | 47,210 | $ | (41,658 | ) | $ | 2,848 | |||||
Net loss from discontinued operations – basic and diluted | $ | (6,484 | ) | $ | (26,999 | ) | $ | (2,647 | ) | |||
Denominator: | ||||||||||||
Number of ordinary shares outstanding during the year | 68,213,209 | 71,300,432 | 76,560,454 | |||||||||
Weighted average effect of dilutive securities: | ||||||||||||
Assumed conversion of convertible debt | 1,090,906 | - | - | |||||||||
Shares to be issued in connection with acquisition | 52,664 | - | - | |||||||||
Employee stock options and restricted stock units | 970,632 | - | 113,349 | |||||||||
Diluted number of ordinary shares outstanding - Continuing and discontinued operations | 70,327,411 | 71,300,432 | 76,673,803 | |||||||||
Basic net earnings (loss) per ordinary share | ||||||||||||
Continuing operations | $ | 0.72 | $ | (0.58 | ) | $ | 0.04 | |||||
Discontinued operations | $ | (0.09 | ) | $ | (0.38 | ) | $ | (0.04 | ) | |||
Net income (loss) | $ | 0.63 | $ | (0.96 | ) | $ | 0.00 | *) | ||||
Diluted net earnings (loss) per ordinary share | ||||||||||||
Continuing operations | $ | 0.67 | $ | (0.58 | ) | $ | 0.04 | |||||
Discontinued operations | $ | (0.09 | ) | $ | (0.38 | ) | $ | (0.04 | ) | |||
Net income (loss) | $ | 0.58 | $ | (0.96 | ) | $ | 0.00 | *) | ||||
Ordinary shares equivalents excluded because their effect would have been anti-dilutive | 3,766,080 | 14,179,439 | 10,700,363 |
Year ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Numerator: | ||||||||||||
Net income (Loss) attributable to ordinary shares - basic | $ | (41,658 | ) | $ | 2,848 | $ | (72,754 | ) | ||||
Net income (Loss) from continuing operations - diluted | $ | (41,658 | ) | $ | 2,848 | $ | (72,754 | ) | ||||
Net loss from discontinued operations – basic and diluted | $ | (26,999 | ) | $ | (2,647 | ) | $ | - | ||||
Denominator: | ||||||||||||
Number of ordinary shares outstanding during the year | 71,300,432 | 76,560,454 | 77,549,171 | |||||||||
Weighted average effect of dilutive securities: | ||||||||||||
Employee stock options and restricted stock units | - | 113,349 | - | |||||||||
Diluted number of ordinary shares outstanding - Continuing and discontinued operations | 71,300,432 | 76,673,803 | 77,549,171 | |||||||||
Basic net earnings (loss) per ordinary share | ||||||||||||
Continuing operations | (0.58 | ) | $ | 0.04 | $ | (0.94 | ) | |||||
Discontinued operations | (0.38 | ) | $ | (0.04 | ) | $ | - | |||||
Net income (loss) | (0.96 | ) | $ | 0.00 | *) | $ | (0.94 | ) | ||||
Diluted net earnings (loss) per ordinary share | ||||||||||||
Continuing operations | (0.58 | ) | $ | 0.04 | $ | (0.94 | ) | |||||
Discontinued operations | (0.38 | ) | $ | (0.04 | ) | $ | - | |||||
Net income (loss) | (0.96 | ) | $ | 0.00 | *) | $ | (0.94 | ) | ||||
Ordinary shares equivalents excluded because their effect would have been anti-dilutive | 14,179,439 | 10,700,363 | 16,224,618 | |||||||||
*) Less than $0.01 |
Payroll and share-based compensation expenses | $ | 1,993 | ||
Lease facilities and related expenses | 1,248 | |||
Property and equipment impairment | 632 | |||
Other | 108 | |||
Total restructuring costs | $ | 3,981 |
Severance and payroll related | $ | 1,022 | ||
Property and equipment impairment | 159 | |||
Write-off of prepaid royalties | 219 | |||
Other | (348 | ) | ||
Total restructuring costs | $ | 1,052 |
December 31, 2015 | Additional costs | Cash payments | Adjustments | December 31, 2016 | ||||||||||||||||
2015 Restructuring Plan: | ||||||||||||||||||||
Severance and Payroll related | $ | 752 | $ | 272 | $ | (1,065 | ) | $ | 41 | $ | - | |||||||||
Rent and related expenses | - | 456 | - | (456 | ) | - | ||||||||||||||
Restructuring accrual assumed | ||||||||||||||||||||
upon acquisition | 1,004 | - | (566 | ) | (438 | ) | - | |||||||||||||
$ | 1,756 | $ | 728 | $ | (1,631 | ) | $ | (853 | ) | $ | - |
Year ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Customer A | 81 | % | 49 | % | 46 | % |
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Customer A | 74 | % | 81 | % | 49 | % |
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2015 | 2016 | 2017 | |||||||||||||||||||
North America (mainly U.S.) | $ | 292,409 | $ | 173,424 | $ | 253,960 | $ | 173,424 | $ | 253,960 | $ | 213,471 | ||||||||||||
Europe | 69,281 | 40,612 | 47,012 | 40,612 | 47,012 | 48,146 | ||||||||||||||||||
Other | 27,041 | 6,914 | 11,822 | 6,914 | 11,822 | 12,369 | ||||||||||||||||||
$ | 388,731 | $ | 220,950 | $ | 312,794 | $ | 220,950 | $ | 312,794 | $ | 273,986 |
December 31, | ||||||||
2016 | 2017 | |||||||
Israel | $ | 9,108 | $ | 12,229 | ||||
U.S. | 4,402 | 4,064 | ||||||
Europe | 695 | 1,183 | ||||||
14,205 | $ | 17,476 |
December 31, | ||||||||
2015 | 2016 | |||||||
Israel | $ | 9,161 | $ | 9,108 | ||||
U.S. | 3,071 | 4,402 | ||||||
Europe | 482 | 695 | ||||||
$ | 12,714 | $ | 14,205 |
NOTE 20: | SUBSEQUENT EVENTS |
a. | In January 2018, the Company executed a repricing of 8,050,176 stock options of the Company's employees, directors, and executive officers, previously granted. As part of the repricing, the options' exercise price was adjusted to $1.08 (determined based on the weighted average price of the Company's ordinary shares on Nasdaq in the last 90 days prior to the repricing). In addition, the vesting period was adjusted as follows – (i) grants issued prior to January 1, 2015, shall vest over a twelve months period in quarterly installments whether or not currently vested or would have been vested by that time; (ii) grants issued after January 1, 2015 will be subject to the following vesting schedule: one third shall vest over twelve months in equal quarterly installments, and the remaining two-thirds shall vest over twenty four months in equal quarterly installments whether or not currently vested or would have been vested by that time. The expiration date of the adjusted options shall be seven years from the date hereof. The total incremental fair value of these options amounted to $1,471, and was determined based on the binomial pricing options model using the following assumptions: early exercise multiple: 250% - 300%, risk free interest rate of 1.7% - 2.3%, expected volatility of 51% - 57%, forfeiture rate post vesting of 17% - 23%, and dividend yield of: 0%. |
b. | In January 2018, the Company initiated a restructuring plan mainly to reduce workforce, close certain facilities, as well as other cost saving measures. Pursuant to this restructuring plan, in 2018, the Company incurred cumulative charges of $2,270 as follows: |
Payroll and share-based compensation expenses | $ | 1,418 | ||
Lease facilities and related expenses | 852 | |||
Total restructuring costs | $ | 2,270 |
4.8 |
4.16 |
101 |
(1) | Previously filed with the SEC on April 10, 2014 as an exhibit to our annual report on Form 20-F, and incorporated herein by |
(2) | Previously filed with the SEC on April 16, 2015 as an exhibit to our annual report on Form 20-F, and incorporated herein by |
(3) | Previously filed with the SEC on April 29, 2013 as an exhibit to our annual report on Form 20-F, and incorporated herein by |
(4) | Previously filed with the SEC on October 15, 2013 as an exhibit to our Report on Form 6-K, and incorporated herein by |
(5) | Previously filed with the SEC on July 29, 2014 as an exhibit to our annual report on Form 20-F/A, and incorporated herein by |
(6) | Previously filed with the SEC on March 24, 2016 as an exhibit to our annual report on Form 20-F, and incorporated herein by |
* | Confidential treatment was granted with respect to certain portions of this exhibit pursuant to 17.C.F.R. §240.24b-2. Omitted portions were filed separately with the |
PERION NETWORK LTD. | |||
By: | /s/ Doron Gerstel | ||
Name: Doron Gerstel | |||
Title: Chief Executive Officer | |||