TABLE OF CONTENTS
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5
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5
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Presentation of Financial and Other Information |
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8
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8
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8
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8
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A. Selected Financial Data
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B. Capitalization and Indebtedness
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C. Reasons for the Offer
and Use of Proceeds |
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D. Risk Factors |
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38
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A. History and Development of the Company
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38
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B. Business Overview
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39
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C. Organizational Structure
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50
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D. Property, Plants and Equipment
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51
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51
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51
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A. Operating Results |
51
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B. Liquidity And Capital
Resources |
54
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C. Research, Development,
Patents and Licenses, Etc. |
55
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D. Trend Information
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56
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E. Critical Accounting Estimates
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57
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59
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A. Directors and Senior Management
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59
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B. Compensation |
61
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C. Board Practices
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64
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D. Employees |
67
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E. Share Ownership
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68
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F. Disclosure of a Registrant’s Action
to Recover Erroneously Awarded Compensation |
69
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69
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A. Major Shareholders
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69
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B. Related Party Transactions
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71
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C. Interests of Experts and
Counsel |
71
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71
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A. Consolidated Statements
and Other Financial Information |
71
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B. Significant Changes |
72
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A. Offer and Listing Details
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72 |
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B. Plan of Distribution
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72 |
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C. Markets |
72 |
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D. Selling Shareholders
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72 |
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E. Dilution |
72 |
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F. Expenses of the Issue |
72 |
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72 |
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A. Share Capital |
72 |
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B. Memorandum and Articles
of Association |
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C. Material Contracts
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72 |
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D. Exchange Controls
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73
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E. Taxation |
73
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F. Dividends and Paying Agents
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81 |
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G. Statement by Experts
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H. Documents on Display
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81 |
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I. Subsidiary Information
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J. Annual Report to Security Holders
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81 |
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81
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82 |
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88
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F-1 |
INTRODUCTION
Terms
As used herein, and unless the context suggests otherwise, the
terms “Perion,” “Company,” “we,” “us” or “ours” refer to Perion Network Ltd.
and subsidiaries. References to “dollar” and “$” are to U.S. dollars, the lawful currency of the United States,
and references to “NIS” are to New Israeli Shekels, the lawful currency of the State of Israel. This annual report on Form
20-F contains translations of certain NIS amounts into U.S. dollars at specified rates solely for your convenience. These translations
should not be construed as representations by us that the NIS amounts actually represent such U.S. dollar amounts or could, at this time,
be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, we have translated NIS amounts into U.S. dollars at
an exchange rate of NIS 3.647 to $1.00, the representative exchange rate reported by the Bank of Israel on December 31, 2024.
This Annual Report contains estimates, projections and other information
concerning our industry and our business, as well as data regarding market research, estimates and forecasts prepared by our management.
Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties,
and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. The industry
in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those discussed under the
headings “Cautionary Statement Regarding Forward-Looking Statements” and Item 3.D. “Risk Factors” in this Annual
Report.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 20-F contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties
and other factors that may cause our, or our industries’ actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or achievements expressed, implied or inferred by these forward-looking
statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,”
“could,” “would,” “expects,” “plans,” “intends,” “anticipates,”
“believes,” “estimates,” “predicts,” “projects,” “potential” or “continue”
or the negative of such terms and other comparable terminology, such forward-looking statements are based on our current beliefs, expectations
and assumptions.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we do not know whether we can achieve positive future results, levels of activity, performance, or goals. Actual
events or results may differ materially from our current expectations. All forward-looking statements included in this report are based
on information available to us on the date of this report. Investors are cautioned not to place undue reliance on any such forward-looking
statements, which speak only as of the date they are made. Except as required by applicable law, we undertake no obligation to update
or revise any of the forward-looking statements after the date of this Annual Report on Form 20-F to conform those statements to reflect
the occurrence of unanticipated events, new information or otherwise.
You should read this annual report on Form 20-F and the documents
that we reference in this report completely and with the understanding that our actual future results, levels of activity, performance
and achievements may be materially different from what we currently expect.
Factors that could cause actual results to differ from our expectations
or projections include certain risks, including but not limited to the risks and uncertainties relating to our business, intellectual
property, industry and operations in Israel, as described in this Annual Report on Form 20-F, including, under Item 3.D. – “Key
Information – Risk Factors,” the information about us set forth under Item 4. – “Information on the Company,”
and information related to our financial condition under Item 5. – “Operating and Financial Review and Prospects.” Assumptions
relating to the foregoing, involve judgment with respect to, among other things, future economic, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. In
light of the significant uncertainties, inherent in the forward-looking information included herein, the inclusion of such information
should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. Moreover, we operate
in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to
predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks,
may cause actual results to differ from those contained in any forward-looking statements.
We obtained statistical data, market data and other industry data
and forecasts used in preparing this annual report from market research, publicly available information and industry publications. Industry
publications generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee
the accuracy and completeness of the information. Similarly, while we believe that the statistical data, industry data and forecasts and
market research are reliable, we have not independently verified the data, and we do not make any representation as to the accuracy of
the information.
Our estimates and forward-looking statements may be influenced
by factors including:
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Our search advertising solution depends highly upon revenue generated from our agreements with our search providers. Any adverse
change in those agreements could adversely affect our business, financial condition and results of operations. |
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The generation of search advertising revenue through publishers is subject to competition. If we cannot compete effectively in this
market, our revenue is likely to decline. |
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In order to receive advertising-generated revenue from our search providers, we depend, in part, on factors outside of our control.
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Should the methods used for the distribution of our search solution, be blocked, constrained, limited, materially changed, based
on a change of policies, technology or otherwise (as has happened in the past), or made redundant by any of our search engine providers,
our ability to generate revenue from our search activity could be significantly reduced. |
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• |
Should the providers of platforms, particularly browsers, further block, constrain or limit our ability to offer or change search
properties, or materially change their policies, technology or the way they operate, our ability to generate revenue from our search activity
could be significantly reduced. |
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Our advertising customers comprised of brands, advertising agencies, DSPs and SSPs 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, financial condition and results of operation. |
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Large and established internet and technology companies, such as Google, Meta, Apple and Amazon, play a substantial role in the
digital advertising market and may significantly harm our ability to operate in this industry. |
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If the demand for digital advertising does not continue to grow or customers do not embrace our solutions including our Perion One
platform, it could have a material adverse effect on our business and results of operation. |
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Due to our evolving business model and rapid changes in the industry in which we operate and the nature of services we provide,
it is difficult to accurately predict our future performance and may be difficult to increase revenue or profitability. |
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We depend on supply sources to provide us with advertising inventory in order for us to deliver advertising campaigns in a cost-effective
manner. We also depend on service providers or partners who provide us with critical products and services. |
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Non-compliance with industry self-regulation could negatively impact our Advertising Solutions business, brand and reputation.
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The advertising industry is highly competitive. If we cannot compete effectively and overcome the technological gaps in this market,
our revenue is likely to decline. |
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• |
If our campaigns are not able to reach certain performance goals or we are unable to measure certain metrics proving achievement
of those goals, it could have a material adverse effect on our business. |
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• |
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, financial condition and results of operations. |
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• |
Our business depends on our ability to collect, use, maintain and otherwise process data, including personal data, and any limitation
on the collection, use, maintenance and other processing of this data could significantly diminish the value of our solutions and cause
us to lose customers, revenue and profit. |
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• |
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. |
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Our growth depends in part on the success of our relationships with advertising agencies, and third-party DSPs and SSPs. |
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Our products are dependent on the platform terms of use and policies that are subject to changes out of our control. |
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Global economic and market conditions and actions taken by our customers, suppliers and other business partners in markets in which
we operate might materially adversely impact us. |
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A loss of the services of our senior management and other key personnel could adversely affect execution of our business strategy.
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We have acquired and may continue to acquire other businesses. These acquisitions divert a substantial part of our resources and
management attention and could in the future, adversely affect our financial results. |
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Our share price has fluctuated significantly and could continue to fluctuate significantly. |
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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. |
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Our business and financial performance may be materially adversely affected by information technology issues, data breaches, cyber-attacks
and other similar incidents, as well as insufficient cybersecurity and other business disruptions. |
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If we fail to detect or prevent fraudulent, suspicious 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. |
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• |
We depend on third-party service providers, suppliers and vendors, such as internet, telecommunication, data centers, cloud computing
and hosting providers, to operate our platforms, websites and services. Temporary failure of these services, including catastrophic or
technological interruptions, would materially reduce our revenue and damage our reputation, and securing alternate sources for these services
could significantly increase our expenses and be difficult to obtain. |
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• |
Our business depends on our ability to collect, use, maintain and otherwise process data, including personal data, to help our clients
deliver advertisements and to disclose data relating to the performance of advertisements. Any limitation imposed on our collection, use,
maintenance or other processing of this data could significantly diminish the value of our solution and cause us to lose sellers, buyers,
and revenue. Regulations, legislation or self-regulation relating to data protection, data privacy, cybersecurity, e-commerce and internet
advertising and uncertainties regarding the application or interpretation of existing or newly adopted laws and regulations threaten our
ability to collect, use, maintain and otherwise process this data, could harm our business and subject us to significant costs and legal
liability for non-compliance. |
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• |
Our proprietary information, technology and other intellectual property may not be adequately protected and thus our intellectual
property may be unlawfully copied by or disclosed to other third parties. |
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Our business relies significantly on the U.S. market. Any material adverse change in that market could have a material adverse effect
on our results of operations. |
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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. |
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• |
Political, economic and military instability in the Middle East and specifically in Israel, including Israel’s war with Hamas
and conflict with other parties in the region, may adversely affect our operations and limit our ability to market our products, which
would lead to a decrease in revenues. |
You should not rely on forward-looking statements as predictions
of future events. We have based the forward-looking statements contained in this Annual Report primarily on our current expectations and
projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome
of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described under Item
3.D. – “Key Information – Risk Factors” and in other parts of this Annual Report. Moreover, we operate in a very
competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict
all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report. The results,
events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances
could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar
statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the
date of this Annual Report. While we believe that information provides a reasonable basis for these statements, that information may be
limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of,
all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Annual Report relate
only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made
in this Annual Report to reflect events or circumstances after the date of this Annual Report or to reflect new information or the occurrence
of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our
forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements
do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
PART I
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ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
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ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
| A. |
SELECTED FINANCIAL DATA |
Reserved.
| B. |
CAPITALIZATION AND INDEBTEDNESS |
Not applicable.
| C. |
REASONS FOR OFFER AND USE OF PROCEEDS |
Not applicable.
An investment in our ordinary shares involves
a high degree of risk since 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. You should carefully consider risks described below, as well as the other information in this Annual
Report, before making an investment decision. We can give no assurance that we will successfully address any of these risks.
Risks Related to our Search Business
Our search advertising solution depends highly
upon revenue generated from our agreements with our search providers. Any adverse change in those agreements could adversely affect our
business, financial condition and results of operations.
Our search advertising business is highly dependent on search services agreements with
our search providers. There are only a few companies in the market that provide internet search and search advertising services, mainly Microsoft,
Google and Yahoo. Such companies are substantially the only participants in western markets, and their competitors do not offer as much
coverage through sponsored links or searches. If we fail to quickly locate, negotiate and finalize alternative arrangements or otherwise
expedite current operations we have with such alternative search providers, or if we do, but the alternatives do not provide for terms
that are as favorable as those currently provided and utilized, we would experience a material reduction in our revenue and, in turn,
our business, financial condition and results of operations would be adversely affected.
In previous years, we have been highly dependent on our agreement
with Microsoft Irelands Operations Limited. (“Microsoft”). We entered into our first agreement with Microsoft in 2010. In
November 2020, we entered into a renewed agreement with Microsoft which became effective on January 1, 2021 and expired on December 31,
2024 (the “Microsoft Agreement”), and which is now in its tail period. The Microsoft Agreement accounted for 35%, 34% and
23% of our revenue, in 2022, 2023 and 2024, respectively. In the first quarter of 2024, we experienced a decline in our search advertising
activity, attributable to changes in advertising pricing and mechanisms implemented by Microsoft in its search distribution marketplace.
These adjustments led to a reduction in Revenue Per Thousand Impressions (RPM) for both Perion and other Microsoft distribution partners.
In the second quarter of 2024, we experienced an additional decline in our search advertising activity attributable to Microsoft’s
exclusion of a number of publishers from its search distribution marketplace. These changes resulted in a material decrease in our search
advertising activity and results of operations. The Microsoft Agreement expired on December 31, 2024, and is now in its tail period.
In 2024, 23% of our revenue was generated from our agreement with Microsoft, and 10%
of our revenue was generated from our agreement with another search provider,
mostly in our search business.
If our agreements with our search providers are terminated, expire
or are substantially amended on terms not favorable to us, we would experience a material decrease in our business, which could result
in a material adverse effect on our business, financial condition and results of operations. In addition, we would be forced to seek additional
or alternative search provider services, which may be on less competitive terms or may need to accelerate the business we have with such
search providers.
The generation of search advertising revenue
through publishers is subject to competition. If we cannot compete effectively in this market, our revenue is likely to decline.
We obtain a significant portion of our revenue through the configuration
of our search service as the default search provider during the download and installation of our publishers’ products and/or use
by their services of our search offering and the subsequent searches performed by the users thereof. In 2023 and 2024 the top five publishers
distributing our search services accounted for approximately 11% and 15% of our revenue, respectively. There can be no assurance that
our current publishers will continue utilizing our revenue-generating monetization services at the levels they did in the past or at all
or on terms not less favorable to us. Additionally, traffic from low-quality sources, including websites with irrelevant content or poor
user engagement have impacted and may negatively impact the effectiveness of our search advertising. The loss of a substantial portion
of our relationships with our publishers, or a substantial reduction in their level of activity, could cause a material decline in our
revenue and profitability.
To achieve our business goals, we heavily rely on third-party publishers
to implement our search offering as a value-added component of their own offerings and/or distribute our owned & operated products
where the search component is added, at a price sufficient to drive acceptable margins. We are therefore constantly looking for more ways
to distribute our search offering through various channels, including through independent distribution efforts of our owned and operated
products and services. There are other companies that generate revenue from searches and some of them may have other monetization solutions.
The large search engine companies, including Google, Microsoft, Yahoo and others, have become increasingly aggressive in their own search
service offerings. In addition, we need to continuously maintain the technological advantage of our platform, products and other services
in order to attract publishers to our offerings. If the search engine companies engage in more direct relationships with publishers or
if we are unable to maintain the technological advantage to service our publishers, we may lose both current and potential new publishers
and our ability to generate revenue will be negatively impacted.
In order to receive advertising-generated revenue
from our search providers, we depend, in part, on factors outside of our control.
The amount of revenue we receive from search providers depends
upon a number of factors outside of our control, including the amount such search providers charge for advertisements, the efficiency
of the search providers’ systems in attracting advertisers and syndicating paid listings in response to search queries, and parameters
established by such search provider regarding the number and placement of paid listings displayed in response to search queries. In addition,
search providers analyze the relative attractiveness (to their 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 providers’
paid listings network, in their judgment, about the relative attractiveness of clicks on paid listings or in the parameters applicable
to the display of paid listings, which could come about for a number of reasons, including general market conditions, competition, inventory
availability or policy and operating decisions made by the search providers we work with (as happened in the past), have previously
materially impacted our business and could have an adverse effect on our business, financial condition and our results of operations.
In the first quarter of 2024, we experienced a decline in our search advertising activity, attributable to changes in advertising pricing
and mechanisms implemented by Microsoft in its search distribution marketplace. These adjustments led to a reduction in Revenue Per Thousand
Impressions (RPM) for both Perion and other Microsoft distribution partners. In the second quarter of 2024, we experienced an additional
decline in our search advertising activity attributable to Microsoft’s exclusion of a number of publishers from its search distribution
marketplace. These changes resulted in a material decrease in our search advertising activity and results of operations. The Microsoft
Agreement expired on December 31, 2024, and is now in its tail period. For additional information see also the Risk Factor titled - “Our
search advertising solution depends highly upon revenue generated from our agreements with our search providers. Any adverse change in
those agreements could adversely affect our business, financial condition and results of operations.”
Should the methods used for the distribution
of our search solution, be blocked, constrained, limited, materially changed, based on a change of policies, technology or otherwise (as
has happened in the past), or made redundant by any of our search engine providers, our ability to generate revenue from our search activity
could be significantly reduced.
Typically, agreements with search providers, such as our agreements
with Microsoft and Yahoo, require compliance with certain policies promulgated by them for the use of the respective brands and services,
including the manner in which paid listings are displayed within search results, as well as the establishment of policies to govern certain
activities of third parties to whom the search services are syndicated, including the manner in which those third parties can acquire
new users and drive search traffic. Subject to certain limitations, search partners may unilaterally update their policies (as has happened
in the past), which could, in turn, require modifications to, or prohibit and/or render obsolete certain of our search solutions, 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 the search partners’ policies, whether by us or by third parties to which we syndicate
paid listings, or by the publishers through whom we secure distribution arrangements 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, or the imposition of additional restrictions on our ability to syndicate paid listings or distribute our search solution or the
termination or expiration of the search distribution agreement by our search partners.
Our search providers have changed these policies, with respect
to methods of distribution, quality of traffic sources, homepage resets, and default search resets as well as other matters, numerous
times in the past, having negative revenue implications for us, and may continue changing the policies governing their relationship with
search partners like us. Should any of our large partnerships be deemed non-compliant, blocked or should choose to partner with different
providers, it could be difficult to replace the revenue generated by that partnership and we would experience a material reduction in
our revenue and, in turn, our business, financial condition and results of operations would be adversely affected.
Should the providers of platforms, particularly
browsers, further block, constrain or limit our ability to offer or change search properties, or materially change their policies, technology
or the way they operate, our ability to generate revenue from our search activity could be significantly reduced.
As we provide our services through the internet, we rely on our
ability to work with different internet browsers. The internet browser market is extremely concentrated with Google’s Chrome, Apple’s
Safari, Microsoft Edge and Mozilla’s Firefox, accounting for over 94% of the desktop browser market as of December 2024, with Google’s
Chrome alone accounting for over 65.54%, based on StatCounter reports as of February 2025. In the past years, internet browser providers
such as Google and Microsoft made changes and updated their policies and technology in general, and specifically those relating to changes
of search settings. Each such change limits and constrains our ability to offer or change search properties. In addition, the desktop
operating system market is very concentrated as well, with Microsoft Windows accounting for over 70.54% of the market in February 2025
and Apple MacOS accounting for more than 15.77% of the market, based on StatCounter reports as of February 2025. In June 2018, Google
limited the ability to install Chrome browser extensions exclusively through the Chrome Web Store. Some of these changes have adversely
affected our ability to ensure that users’ browser settings remain optimally compatible with our services. If Microsoft, Google,
Apple or other companies that provide internet browsers, operating systems, app stores or other platforms were to further restrict, discourage
or otherwise hamper companies, like us, from offering or changing search services, this would cause a material adverse effect on our revenue
and our financial results.
Additionally, changes in browser or platform policies, for instance,
increasing technical or contractual barriers, introducing proprietary alternatives, or promoting exclusive partnerships, may limit our
ability to innovate, access users, or ensure service compatibility. Such developments could increase user acquisition costs or reduce
service quality. There can be no assurance that our mitigation strategies, including monitoring these changes, adapting our practices
and exploring partnerships or technological workarounds, will fully address these risks. Any sustained incompatibilities or limitations
could undermine our competitiveness and financial performance and materially and adversely affect our results of operations.
Currently most users access the internet through
mobile devices, while a substantial part of our search revenue generation and services are currently not widely spread on mobile platforms.
Also, web-based software and similar solutions impact the attractiveness of downloadable software products.
Historically, the market for search services on desktop computers
has represented a significant portion of our search revenue. However, in recent years, there has been a shift in internet usage from desktop
computers to mobile devices, including smartphones and tablets.
In 2016, desktops accounted for 54.09% of global internet usage,
but this share has steadily declined over the years, reaching 35.73% as of December 2024, according to StatCounter reports. Conversely,
mobile devices, which had a 45.91% share in 2016, have experienced continuous growth, rising to 64.27% by December 2024.
If this trend of increasing mobile device usage continues and desktop
usage declines further, our search services could become less relevant in the marketplace, potentially impacting their ability to attract
publishers and sustain web traffic.
Web-(or “cloud-”) based software and similar solutions
do not require the user to download software to their device and thus provide a very portable and accessible alternative to downloadable
software. While there are advantages and disadvantages to each method and system and the markets for each of them remain large, the market
for web-based systems is growing at the expense of downloadable software. Should this trend accelerate faster than our partners’
ability to provide differentiating advantages in their downloadable solutions, this could result in fewer downloads of their products
and lower search revenue generated through the use of these products. See Item 4.B. “Business Overview—Competition”
for additional discussion of our competitive market.
Our software or provision of search services
or advertising is occasionally blocked by software or utilities designed to protect users’ computers, thereby causing our business
to suffer.
Some third parties, such as anti-virus software providers, categorize
some of our products and offerings as promoting or constituting “malware” or “spamming,” or unnecessarily changing
the user’s computer settings. As a result, our software, the software of our publishers, provision of search services or advertising
is occasionally blocked by software or utilities designed to detect such practices. If this problem increases or if we are unable to detect
and effectively reverse such categorization of our products and offerings, we may lose both existing and potential new users and our ability
to generate revenue will be negatively impacted.
Risks Related to our Business and Industry
Our advertising customers comprised of brands,
advertising agencies, DSPs and SSPs 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,
financial condition and results of operation.
We generally do not enter into long-term contracts with our advertising
customers, which include brands, demand side partners, advertising agencies, and supply side partners, and such customers do business
with us on a non-exclusive basis. 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, development of new
or more compelling offerings by our competitors and development by our advertising customers of in-house replacement services. Any reduction
in spending by, or loss of, existing or potential advertisers would negatively impact our business, financial conditions and results of
operation.
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
offer more favorable pricing or other advantageous terms. While we seek to diversify our offerings and, as part of our strategy, provide
our customers with different advertising solutions and constantly adapt our relationship with our customers to respond to their ever-changing
needs, there is no assurance that our strategy will successfully address these risks. As a result, we may be compelled to reduce our rates,
offer other incentives or other more compelling pricing models in order to maintain our current customers and attract new customers. If
a significant number of customers compel us to charge lower rates or provide rate concessions or incentives, there is no assurance that
we would be able to compensate for such price reductions or maintain our profit margins.
Large and established internet and technology
companies, such as Google, Meta, Apple and Amazon, play a substantial role in the digital advertising market and may significantly harm
our ability to operate in this industry.
Google, Meta, Apple and Amazon account for a large portion of the
digital advertising market and digital advertising budgets. The high concentration in the market subjects us to the risk of any unilateral
changes Google, Meta, Apple and Amazon may make with respect to advertising on their respective lucrative platforms. These changes may
significantly harm our ability to operate in this industry and we could be limited in our ability to respond and adjust to such changes.
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 ways that impact the entire digital advertising marketplace.
Google’s Chrome internet browser supports 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 (in which one of our US subsidiaries is also a member) and removes all ads from certain sites that
violate this standard. In addition, while Google announced in July 2024, that it reversed its plans to deprecate third-party cookies in
its Chrome browser, it also announced introducing of a new feature in Chrome providing users with a more informed choice regarding their
web browsing data. Furthermore, Google has announced an initiative known as “IP Protection,” to be introduced as a feature
in Chrome’s Incognito mode, which will allow to anonymize the user's IP address, to help protect it from being used by third parties
for web-wide cross-site tracking. If implemented, this could limit geo-targeting for advertisements for users of Chrome Incognito.
Moreover, the leading mobile operating systems, Apple iOS and Google Android have implemented and may plan to further implement, advertising
and targeting restrictions within applications running on their platforms, including the requirement to obtain user consent before permitting
access to Apple’s unique identifier and allowing users to opt-out of tracking across devices on Android.
These changes, together with other advertisement-blocking technologies
incorporated in or compatible with leading internet browsers and operating systems, could impact our (as well as those of our competitors)
advertising business. These changes could materially impact the way we do business, and if we or our advertisers and publishers are unable
to quickly and effectively adjust and provide solutions to those changes, there could be an adverse effect on our revenue and performance.
The concentration of large companies within
the industry and consolidation among participants within the digital advertising market could have a material adverse impact on our business,
financial condition and results of operations.
The digital advertising industry has experienced substantial evolution
and consolidation in the past 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. We are currently able
to serve, track and manage advertisements on a variety of networks and websites for our customers as well as for our own operations. The
consolidation trend could substantially harm our ability to operate if such larger companies decide not to permit us to serve, track or
manage advertisements on their websites and/or on our properties, if they develop ad placement systems that are incompatible with our
ad serving capabilities or if they use their market power to force their customers to use certain vendors on their networks or websites
and/or on our properties.
Certain of our primary advertisers and publishers are owned, affiliated
with or controlled by a small number of large holding companies. If any of these holding companies decide to reduce, amend or terminate
their business relationship with us for any reason, and/or in case there is a rapid and/or significant decline in inventory available
to us, it may lead to a material adverse impact on our business, financial conditions and results of operation.
If the demand for digital advertising
does not continue to grow or customers do not embrace our solutions including our Perion One platform, it could have a material adverse
effect on our business and results of operation.
A substantial portion of our advertising revenue is derived from
the sale of our digital advertising solutions and we have made significant investments in our ability to deliver different types of advertisements
on diverse digital channels, including high-impact display, CTV, Retail & Commerce, DOOH, search advertising, digital audio, advanced
audience segmentation - SORT®, social, and website publisher’s solutions, which are compatible on many devices and channels
as well as different content monetization solutions for which we partner with advertising networks to serve ads on our properties as well
properties of our publishers. Nonetheless, (i) customers may prefer other solutions than ours, (ii) our integration, including in particular
integration of our Perion One platform, with advertising networks may be unsuccessful, (iii) the implementation of our Perion One strategy
and platform may delay, fail or be less successful than planned; (iv) there may be a reduction in general demand for digital advertising
or in spend for certain channels or solutions, (v) advertising customers may pay less or exclude supply inventory on publishers websites
that are “Made for Advertising” or for other reasons, or (vi) the demand for our specific solutions and offerings may decrease,
as have impacted us in the past, and could lead to a material adverse impact on our business, financial conditions and results of operation.
Furthermore, in February 2025, we announced a transformation in
our strategy, by unifying our business units under the Perion brand. This strategy intends to unify our brands and technologies into one
advanced platform named Perion One, that will allow brands, agencies, and retailers navigating the complexities of modern advertising
via the platform. If we fail to design and implement the Perion One strategy and the platform in a manner compelling to our business partners,
if we fail to meet our technological goals in connection with the platform, or if the Perion One strategy and platform is not successful
for other reasons, we may not be able to attract brands, agencies and retailers, which will adversely impact our ability to grow or otherwise
adversely materially impact the results of our operations.
Due to our evolving business model and rapid
changes in the industry in which we operate and the nature of services we provide, it is difficult to accurately predict our future performance
and may be difficult to increase revenue or profitability.
As the digital advertising ecosystem is dynamic, seasonal and subject
to shifts in spending trends, it is hard to predict our future performance, particularly with regard to the effect of our efforts to increase
revenue and profitability. Although we diversify our business, there is no assurance that we will not be adversely affected by shifts
in advertisers’ spending. If we are unable to continuously improve our systems and processes, including in particular by the implementation
of our Perion One platform, adapt to the changing and dynamic needs of our customers or align our expenses with our revenue level, it
will impair our ability to be compelling and may adversely affect our business and profitability.
In addition, we may experience an overall decline in advertising
spending and demand for our solutions as a result of enhanced competition, decrease in market demand, macroeconomic conditions, higher
rates of global inflation and shifts in spending trends. If we are unable to respond to such changes and timely adapt our business model,
we may not be able to sustain growth, meet our business targets or achieve or sustain profitability and our business and results of operations
may be adversely affected.
We depend on supply sources to
provide us with advertising inventory in order for us to deliver advertising campaigns in a cost-effective manner. We
also depend on service providers or partners who provide us with critical products and services.
We rely on a diverse set of publishers including direct publishers,
advertising exchange platforms, media owners, social networks 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 maintain, expand and further develop successful business
relationships in order to increase the network of our supply sources.
Our supply sources typically make their advertising inventory available
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 or through real-time bidding. Supply sources often maintain relationships
with various demand partners that compete with us, and it is easy for such supply sources to quickly shift their advertising inventory
among these demand partners, or to shift inventory to new demand partners, without notice or accountability. Supply sources may also change
the terms on which they offer inventory to us, or they may allocate their advertising inventory to our competitors who may offer more
favorable economic terms, better solutions or more advanced technology. Supply sources may also elect to sell all, or a portion, of their
advertising inventory directly to advertisers and advertising agencies, or they may develop their own offerings competitive to ours, 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 provide us with sufficient amounts of high-quality digital advertising inventory in order for us to fulfill the demands
of our advertising customers. Some of the supply inventory is known as “Made for Advertising” and is less attractive to our
advertising customers who may pay less for such inventory or exclude it from their business. Restrictions from advertisers, DSPs or SSPs
regarding usage of this inventory source have impacted us and could materially adversely impact our operations and revenue.
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:
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Supply sources may impose significant restrictions on the advertising inventory they sell or may impose other unfavorable terms and
conditions on the advertisers using their sites or platforms. For example, these restrictions may include frequency caps, prohibitions
on advertisements from specific advertisers or specific industries, or restrictions on the use of specific creative content or advertising
formats as well as content adjacent restrictions, which would restrain our supply of available inventory. |
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Supply sources that offer online content and mobile applications may shift from an advertising-based monetization method to a pay-for-content/services
model, allowing users of services to pay a subscription in exchange for not to be shown advertisements. If they elect not to pay, then
in order to use the service, the user consents to the processing of their data for advertising purposes. This may reduce available inventory.
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Social media platforms, such as Meta’s Facebook or Instagram or Tik Tok, are “walled gardens” and may be successful
in keeping users within their sites, which may be competitive to our offerings and solutions. If, as a result, users are not on the open
web, online advertising inventory outside of such platforms (including our publishers’ and our owned and operated sites) may be
reduced or may become less attractive to our advertising customers. |
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Supply sources may be reluctant or unable to adopt certain of our proprietary and unique high-impact display, CTV, Open Web,
and website publisher’s solutions for a variety of reasons (such as changes in user preference making such ad formats less desirable,
or technological limitations, such as in connection with header bidding or the ability to transact programmatically), resulting in limited
advertising inventory supply for such formats and inhibiting our ability to scale such formats. |
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The DOOH industry is highly concentrated and characterized by intense competition among media owners. A withdrawal of a DOOH media
by a large supplier could have material adverse impacts on our business. |
Similarly, our service providers or partners which provide us with
services that are critical to our business could terminate their relationship with us at any time or with minimal notice. Our digital
advertising business relies on a number of third-party data, measurement and verification vendors as well as cloud computing and API services.
Should any of these vendors choose to terminate or modify on less favorable terms their relationships with us, and/or if we were to fail
to identify and contract with acceptable substitute vendors, we may not be able to offer those of our services that depend on such vendors
at the level of quality our customers expect or at all.
Because of these factors, we seek to expand and diversify our supply
sources; nonetheless, if we fail to diversify our sources or if our supply sources terminate or reduce our access to their advertising
inventory or services, increase the price of inventory or services or place significant restrictions on the sale of their advertising
inventory or services, or if platforms or exchanges terminate our access to them and we are unsuccessful in establishing or maintaining
our relationships with supply sources on commercially reasonable terms, we may not be able to replace these sources with inventory from
other supply sources that satisfy our quality requirements as well as other requirements in a timely and cost-effective manner. If any
of these happens, our revenue could decline or our cost of acquiring inventory could increase, which, in turn, could lower our operating
margins and materially adversely affect our advertising business. For additional information see also the Risk Factor titled - “The
concentration of large companies within the industry and consolidation among participants within the digital advertising market could
have a material adverse impact on our business, financial condition and results of operations.”
Our Advertising Solutions 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 brands is an important aspect of
our efforts to attract and expand demand from brands, advertising agencies, demand side partners (which include third-party DSPs) and
supply side partners (which include third-party SSPs). We have spent, and expect to continue spending, considerable sums and other resources
on the establishment, building and maintenance of our brands, as well as on enhancing market awareness of them. Our brands, however, may
be negatively impacted by a number of factors, including but not limited to, fraudulent, inappropriate or misleading content on our own
sites and those we operate, as well as on publishers’ inventory on which we serve ads, service outages, product malfunctions, data
protection, data privacy and cybersecurity issues, and exploitation of our trademarks by others without our permission. We have recently
announced the launch of our Perion One strategy, aimed to unify the Company’s brands and technologies into one advanced platform
named Perion One, aiming to enhance the brand Perion over other brands used by our Company. If we are unable to maintain or enhance our
brands in a cost-effective manner or if our Perion One strategy is not successful in achieving its goals, our business and operating results
could be materially adversely affected.
Non-compliance with industry self-regulation
could negatively impact our Advertising Solutions business, brand and reputation.
In addition to compliance with applicable laws and regulations,
we voluntarily participate in industry self-regulatory bodies which promulgate best practices or codes of conduct addressing, among other
things, data protection, data privacy, cybersecurity, brand safety and other aspects pertaining the delivery of digital advertising. Some
of our subsidiaries voluntarily participate in several such trade associations and industry self-regulatory groups, such as the Network
Advertising Initiative (NAI), and the Digital Advertising Alliance (DAA), the Interactive Advertising Bureau (IAB) and TAG Certified Against
Fraud. If we or our subsidiaries are unable to follow and abide by the rules and principles provided by such self-regulatory bodies or
align the conduct of our business and practices with changes to such rules and principles, we may be subject to investigations by such
self-regulatory bodies or other accountability groups, or by our customers and partners as well as users. Handling such actions may require
us to devote financial and managerial resources, require us to change our business practices, or cause damage to our brand, which in turn
could materially adversely affect our business, financial condition and results of operations. We also 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, Canada, 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 data protection, data privacy, cybersecurity,
brand safety or other aspects pertaining the delivery of digital advertising, our reputation may suffer and we could lose relationships
with both buyers and sellers which may adversely affect our business and results of operations.
We may be unable to deliver advertising in a
brand-safe environment or protect inventory from receiving unsafe advertising or content, which could harm our reputation and cause our
business to suffer.
It is important for 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. It is equally important for publishers not to have inappropriate content placed within their inventory.
While we strive to have all of our advertisements appear in a brand-safe environment and all inventory free from inappropriate content,
we cannot guarantee that they will be delivered in such an environment. If we are not successful in doing so, we may experience reputational
damage that could impede our ability to attract new business and additionally could decrease business affairs with existing advertisers
and publishers, or our customers may seek to avoid payment or demand refunds, any of which could harm our business, financial condition
and results of operations.
The advertising industry is highly competitive.
If we cannot compete effectively and overcome the technological gaps in this market, our revenue is likely to decline.
We face intense competition in the advertising industry. We operate
in a dynamic market that is subject to rapid development and the introduction of new technologies, products and solutions, changing branding
objectives, evolving customer demands rules, regulations and industry guidelines, all of which affect our ability to remain competitive.
There is a large number of digital media companies and advertising technology companies that offer products or services similar to or
more compelling than ours that compete with us for finite advertising budgets and for limited inventory from publishers. Additionally,
companies that do not currently compete with us in this space may change their strategy and the services they provide to be competitive
if there is a revenue opportunity, and new or stronger competitors may emerge through consolidations or acquisitions in the market. Additionally,
the advertising spends of large advertisers and agencies seeking to consolidate their technology partners may continue to migrate towards
large technology platforms, including both social and walled-gardens players, which may harm our ability to operate in this industry and
decrease our results of operations. If our digital advertising platforms and solutions, including our Perion One strategy which is aimed
to unify our brands and technologies into one advanced platform, are not perceived as competitively differentiated, or if we fail to develop
adequately to meet market evolution, or fail to acquire companies to help us overcome the technological gaps in a timely manner and meet
the market demands, we could lose customers and market share or be compelled to reduce our prices and harm our operational results.
Our reputation is a key factor in our ability to compete successfully.
There can be no assurances that our ability to compete effectively in the future may not be affected by negative market perception. Because
of these factors, we continuously seek to diversify our product suite to respond to the changing needs and interests of our customers
to benefit from a variety of different offerings, however, we cannot guarantee that we will always be able to accommodate such needs,
that such efforts will yield the expected revenue or that we will adapt quickly enough (or in a cost-effective manner) to evolving changes
in the industry in which we operate and related regulations, technologies, applications and devices, which could adversely impact our
reputation, and, in turn, our business, financial condition and results of operations.
Our advertising business is susceptible to seasonality,
unexpected changes in campaign size and prolonged cycle time, which could affect our business and results of operations.
The revenue from our advertising business is affected by a number
of factors, including:
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Historically, our advertising business has experienced the lowest revenue levels in the first quarter and
highest revenue levels in the fourth quarter, with the second and third quarters being slightly stronger than the first quarter;
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Our advertising solutions revenue are influenced by political advertising in the US, which generally occurs every two years;
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In any single period, our advertising solutions revenue and delivery costs are subject to significant variation based on changes
in the volume and mix of deliveries performed during such period; |
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Revenue is subject to the changes of brand marketing trends, including when and where brands choose to spend their money in a given
year; |
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Advertising customers generally retain the right to supplement, extend, or cancel existing advertising orders at any time prior to
their delivery, and we have no control over the timing or magnitude of these revenue changes; |
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Relative complexity of individual advertising formats, and the length of the creative design process; and |
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A prolonged cycle time for entering into transactions with retail media networks (RMNs) or other advertising customers. |
As a result, in most cases, our profit from these operations is
seasonal, with the fourth quarter being the major contributor to our profits and the first quarter resulting in the lowest profit. There
can be no assurance that we will correctly predict the results of these and other factors on our business and that we will be successful
in mitigating any negative impact resulting from these factors.
If our campaigns are not able to reach certain
performance goals or we are unable to measure certain metrics proving achievement of those goals, it 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 in our online business, user engagement, view ability, clicks or
conversions; or, in our DOOH business, brand awareness, foot traffic, and sales lift to validate their value proposition, particularly
as we offer costlier premium advertising services to clients. We may have difficulty achieving or proving these performance levels for
a variety of reasons (for example, it may be difficult to track viewability on our proprietary high-impact ad units, either directly or
through a third-party vendor), which could cause clients to cancel campaigns, not provide repeat business or request make-goods or refunds,
which could have a material adverse effect on our business and results of operations.
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, financial condition and results of operations.
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, tablet 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 support in Google Chrome for blocking advertisements from web sites that violate the “Better
Ads Standards” established by the Coalition for Better Ads (in which one of our U.S. subsidiaries is a member). Furthermore, users
can employ their own advertisement-blocking client-based technology or use a browser that blocks advertisements. As such technologies
or practices continue to become widespread, this could have a material adverse effect on our business, financial condition and results
of operations.
Our business depends on our ability to collect,
use, maintain and otherwise process data, including personal data, and any limitation on the collection, use, maintenance and other processing
of this data could significantly diminish the value of our solutions and cause us to lose customers, revenue and profit.
In many cases, when we deliver an advertisement, we are able to
collect certain data, including personal data, about the content and placement of the ad, the relevancy of such ad to a user and the interaction
of the user with the ad, such as whether the user viewed or clicked on the ad or watched a video. As we collect and aggregate data provided
by billions of ad impressions and third-party providers, we analyze the data in order to measure and optimize the placement and delivery
of our advertising inventory and provide cross-channel advertising capabilities. Our ability to collect, use, maintain and otherwise process
such data is crucial.
Our publishers or advertisers may decide not to allow us to collect
some or all of this data or may limit our use, maintenance or other processing of this data. Additional details regarding limitations
on the collection, use, maintenance and other processing of this data due to current and potential future laws and regulations are provided
below under the Risk Factor titled – “Our business depends on our ability to collect, use,
maintain and otherwise process data, including personal data, to help our clients deliver advertisements, and to disclose data relating
to the performance of advertisements. Any limitation imposed on our collection, use, maintenance or other processing of this data could
significantly diminish the value of our solution and cause us to lose sellers, buyers, and revenue. Regulations, legislation or self-regulation
relating to data protection, data privacy, cybersecurity, e-commerce and internet advertising and uncertainties regarding the application
or interpretation of existing or newly adopted laws and regulations threaten our ability to collect, use, maintain and otherwise process
this data, could harm our business and subject us to significant costs and legal liability for non-compliance.”
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, laws, rules and regulations 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. Further, the competitive landscape of advertising technologies requires us to continue to invest and rely on artificial
intelligence (“AI”) – both as a mechanism for efficiency as well as for generative purposes. Our investments in
AI technologies may not be successful, may not produce the desired outcomes, or may be insufficient in order to remain competitive. In
order to be innovative and competitive, we rely on AI based technology for our solutions and products. We spend substantial amounts of
time and money researching and developing AI based products and enhanced versions of existing products. There is no assurance that our
enhancements to our platform or our new products, capabilities, or offerings, will, either individually or in the aggregate, be compelling,
successful in achieving its goals, gain market acceptance, or have a positive or material impact on our business, financial condition,
or results of operations, in each case in a timely or cost-effective manner. While developments in AI in our industry may present significant
opportunities to our business, at the same time, such developments may raise unexpected challenges, legal, reputational, ethical or technological,
or may not function as expected. For more information on AI-related risks, see the Risk Factor titled – “The
development and use of AI and any actual or perceived failure to comply with evolving legal and regulatory frameworks related thereto
could adversely affect our business, results of operations, and financial condition. Additionally, AI could increase competition in the
advertising technology industry.”
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
or do not respond properly to the ever-changing technological landscape, we may damage our brand and our ability to retain or attract
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 to 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, through a variety of distribution channels and methods,
or if the advertising we deliver does not generate the desired results, or if we fail to meet customer expectations including but not
limited to platform quality, reliability, costs, or execution efficiency. In addition, advertising customers may find that content made
available through our properties is not suitable for their advertising requirements or that our competitors offer content which is more
lucrative and relevant to their advertising needs, resulting in reduction of their advertising spend with us. If we are unable to meet
these challenges, our business, financial condition and results of operations could be materially adversely affected.
The development
and use of AI, and any actual or perceived failure to comply with evolving legal and regulatory frameworks related thereto could adversely
affect our business, results of operations, and financial condition. Additionally, AI could increase competition in the advertising technology
industry.
We leverage new technologies and platforms to improve our products
and business effectiveness, including use of AI technologies. We leverage machine learning for campaign delivery and optimization, using
real-time predictions and algorithms to deliver the most effective advertisements for specific target audiences, in conjunction with our
creative platform. In 2023 we launched WAVE, our Waveform Audio Voice Engine, a generative AI-powered dynamic audio solution that enables
advertisers to generate personalized audio advertising messages at scale. SORT®, our Smart Optimization of Responsive Traits technology,
is a pre-bid technology solution that analyzes all of the non-personal data signals present when a user lands on a page in our advertising
solutions networks and uses our proprietary AI technology to classify such signals into intent groups. The solution then serves the most
relevant ad for that intent group.
Our search business model relies significantly on third-party search
engine results, predominantly those provided by Microsoft Bing and Yahoo. This dependence exposes our operations to the evolving landscape
of AI technologies, including OpenAI’s ChatGPT, Microsoft’s Copilot and Google’s Gemini, which are and increasingly
becoming integral to search engines. The introduction of ChatGPT in November 2022, along with the launch of other AI platforms such as
Gemini (formerly known as Bard) by Alphabet Inc., Google’s parent company, Claude by Anthropic, and Grok by X, are anticipated to
result in the development of tools that could enhance competition in the advertising technology industry and reduce barriers to entry.
These technologies, while holding significant potential for search result accuracy and efficiency, introduce uncertainties that could
have negative impacts on our business.
There are significant risks involved in utilizing AI and no assurances
can be provided that our use will enhance our solutions or services or produce the intended results. For example, AI algorithms may be
flawed, insufficient, of poor quality, reflect unwanted forms of bias or contain other errors or inadequacies, any of which may not be
easily detectable; AI has been known to produce false or “hallucinatory” inferences or outputs. AI can also present ethical
issues and may subject us to new or heightened legal, regulatory, ethical or other challenges and inappropriate or controversial data
practices by developers and end-users, or other factors adversely affecting public opinion of AI, could impair the acceptance of AI technologies,
including those incorporated into our solutions and services. If the AI tools that we create or use, including the content, analyses or
recommendations such AI tools assist in producing and the data or algorithms such AI tools rely on, are or are alleged to be deficient,
inaccurate, biased or controversial, we could incur operational inefficiencies, competitive harm, legal liability, brand or reputational
harm, or other adverse impacts on our business and financial results. Furthermore, our use or integration of third-party AI models with
our products may rely on such third-party's model inherent features aimed to provide a certain safeguard relating to the output, which
may be insufficient in achieving their goals. Additionally, our employees, contractors, vendors or service providers use or
may use third-party AI tools in connection with our business or the services they provide to us. This may involve additional risks which
may include, without limitation, outputs obtained from such third-party AI tools containing copyrighted content and disclosure of our
sensitive, proprietary, confidential or personal information into publicly available or third-party training sets. If we do not have sufficient
rights to use the data or other material or content on which the AI tools we use rely, or to use the output of such AI tools, we also
may incur liability through the violation of applicable laws and regulations, third-party intellectual property, data protection, data
privacy or other rights, or contracts to which we are a party.
The technologies underlying AI and its uses are subject to a variety
of laws and regulations, including those related to intellectual property, data protection, data privacy, cybersecurity, consumer protection,
competition and equal opportunity, and are expected to be subject to increased regulation and new laws or new applications of existing
laws and regulations. The AI legal and regulatory landscape is rapidly evolving, and we are or may become subject to numerous state, federal
and foreign laws and regulations governing the use of AI. Implementation standards and enforcement practices are likely to remain uncertain
for the foreseeable future, and we cannot yet determine the impact future laws and regulations may have on our business.
In the United States and internationally, AI is the subject of
evolving review by various governmental and regulatory agencies, including the SEC and the Federal Trade Commission (the “FTC”),
and changes in laws and regulations governing the use of AI may adversely affect the ability of our business to use or rely on AI and
our ability to provide and to improve our solutions and services, may require additional compliance measures and changes to our operations
and processes, and may result in increased compliance costs and potential increases in civil claims against us. Many federal, state
and foreign government bodies and agencies have introduced or are currently considering additional laws and regulations governing the
use of such technologies. For example, in March 2024, Utah enacted the Artificial Intelligence Policy Act, which imposes certain disclosure
obligations and consumer protection responsibilities on companies that use generative AI. In May 2024, Colorado enacted the Colorado AI
Act, which creates duties for developers and for those that deploy AI with a specific focus on preventing bias and discrimination. In
September 2024, California enacted the California AI Transparency Act, which imposes transparency obligations on companies that develop
or substantially modify AI models. Federal AI legislation has also been introduced in the U.S. Congress. Furthermore, in October
2023, President Biden issued the Executive Order on Safe, Secure and Trustworthy Artificial Intelligence (“The AI Order”)
with the goal of promoting the “safe, secure, and trustworthy development and use of artificial intelligence in the United States.”
The AI Order established certain new standards for the training, testing and cybersecurity of sophisticated AI models, and instructed
other federal agencies to promulgate additional regulations. Even though the AI Order was rescinded by President Trump on January 20,
2025, it may still indicate the eventual direction of federal AI regulation, which could increase our potential liability and adversely
affect our business.
The most comprehensive legislation passed in the area of AI in
the European Union is the EU Artificial Intelligence Act (the “EU AI Act”), under which the first set of provisions became
effective on February 2, 2025, with additional provisions becoming gradually applicable on later dates. The EU AI Act contains a list
of prohibited practices, classifies certain AI systems as high risk, depending on the level of risk they pose, includes transparency obligations
for providers and deployers of certain AI systems, and includes obligations and requirements around general-purpose AI models and general-purpose
AI systems. For example, fines for noncompliance include fines of up to the higher of €35,000,000 or 7 percent of a company’s
total worldwide annual turnover for noncompliance with prohibited AI practices, fines of up to the higher of €15,000,000 or 3 percent
of a company’s total worldwide annual turnover for noncompliance with the requirements for “high” risk AI systems, and
fines of up to the higher of €7,500,000 or 1 percent of a company’s total worldwide annual turnover for the supply of incorrect,
incomplete, or misleading information to notified bodies and national competent authorities in certain contexts. The foregoing laws and
regulations, and any additional laws and regulations that have been, or may in the future be, enacted, may have an impact on our ability
to develop, use and commercialize AI technologies in the future. Noncompliance with the EU AI ACT could also result in other consequences
such as loss of business opportunities or reputational damage.
Our use and development of proprietary AI technologies and our
use of third-party AI tools could result in the risks mentioned above and additional risks to our business deriving from, or associated
with, existing or upcoming AI-related laws and regulations such as legislation in the U.S., the EU AI Act, enforcement actions related
to AI, or court precedents involving AI. We may not be able to anticipate how to respond to these rapidly evolving laws and regulations,
and we may need to expend resources to adjust our offerings in certain jurisdictions if the legal and regulatory frameworks are inconsistent
across jurisdictions. Furthermore, because AI itself is highly complex and rapidly developing, it is not possible to predict all of the
legal or regulatory risks that may arise relating to the use of AI. If laws and regulations relating to AI are implemented, interpreted
or applied in a manner inconsistent with our current practices or policies, such laws and regulations may adversely affect our use of
AI and our ability to provide and to improve our services, require additional compliance measures and changes to our operations and processes,
result in increased compliance costs and potential increases in civil claims against us, and could adversely affect our business, operations
and financial condition.
Sales efforts with advertisers and advertising
agencies require significant time and expense and may ultimately be unsuccessful.
Contracting with new advertisers and advertising agencies requires
substantial time and expenses, 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. In addition, there has been commoditization
of services provided in digital advertising, resulting in margin pressure. 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 present 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 revenue.
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.
Our growth depends in part on the success of
our relationships with advertising agencies, and third-party DSPs and SSPs.
While we work with some brand advertisers directly, our primary
advertising customers are advertising agencies, third-party DSPs and SSPs who are paid by their brand or other advertiser customers to
develop their media plans. Such agencies, DSPs and SSPs 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, third-party DSPs and SSPs.
Identifying advertising agencies, third-party DSPs and SSPs, engaging
in sales efforts, and negotiating and documenting our agreements with advertising agencies, DSPs and SSPs require significant time and
resources. These relationships may not result in additional brand or other advertiser customers or campaigns for our business, and may
not ultimately enable us to generate significant revenue. Our contracts with advertising agencies, DSPs and SSPs are typically non-exclusive
and they often work with our competitors or offer competing services or solutions.
When working with advertising agencies, third-party DSPs and SSPs
to deliver campaigns on behalf of their brand and other advertiser customers, we generally bill the agency, DSP and SSP for our products
and services, and in most cases, the brand has no direct contractual commitment to us to make any payments. While we have benefited from
our relationships with the advertising agencies, DSPs and SSPs we work with, there is no assurance that these circumstances do not result
in the future in longer collection 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 advertising agencies,
DSPs and SSPs on commercially reasonable terms or if the advertising agencies are unable to effectively collect corresponding payments
from the brands, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results could suffer.
Our products are dependent on the platform terms
of use and policies that are subject to changes out of our control.
Most of our products depend upon the platforms’ terms of
use and policies (e.g., Google Chrome, Edge, Mozilla, Apple, and Microsoft) which could also affect the terms of use of other platforms
in the industry. We do not control these platforms and cannot anticipate changes made to their policies, and as a result, we are subject
to risks and uncertainties. These policies, guidelines and terms of service govern the promotion, distribution, content and operation
generally of applications and content available through such platforms. Each platform has broad and usually absolute discretion to revise
its terms of service, guidelines and policies, and those changes may have an adverse effect on us or our partners’ ability to use
and distribute our products.
A platform may also limit the use of personal information and other
data for advertising purposes or restrict how users can share information on their platform or across other platforms. If we or our customers
were to violate the terms of service, guidelines, certifications or policies, or if a platform believes that we or our customers have
violated, its terms of service, guidelines, certifications or policies, then that platform could limit or discontinue our or our customers’
access. In some cases, these requirements may not be clear and our interpretation of the requirements may not align with that of the platform,
which could lead to inconsistent enforcement of these terms of service or policies against us or our customers and could also result in
limiting or discontinuing access to such platform.
Further, these platforms frequently introduce new technology. Our
reliance on their technology reduces our control over quality of service and exposes us to potential service outages.
Global economic and market conditions
and actions taken by our customers, suppliers and other business partners in markets in which we operate might
materially adversely impact us.
Negative conditions in the general economy, including conditions
resulting from changes in gross domestic product growth, labor shortages, supply chain disruptions, inflationary pressures, rising interest
rates, financial and credit market fluctuations, international trade relations and/or the imposition of trade tariffs, changes to fiscal
and monetary policy, political turmoil, natural disasters, regional or global outbreaks of contagious diseases, such as a pandemic or
an epidemic, warfare and terrorist attacks, could cause a decrease in business investments, including spending on advertising, disrupt
the timing and cadence of key industry events and otherwise could materially and adversely affect the growth of our business.
Geopolitical risks, including those arising from trade tension
and/or the imposition of trade tariffs, terrorist activity or acts of civil or international hostility, such as the wars between Israel
and its neighboring countries and regions. are increasing. Similarly, the ongoing military conflict between Russia and Ukraine has
had negative impacts on the global economy, including by contributing to rapidly rising costs of living (driven largely by higher energy
prices) and creating uncertainty in the global capital markets and is expected to have further global economic consequences, including
disruptions of the global supply chain and energy markets. Further, other events outside of our control, including natural disasters,
climate change-related events, pandemics, or health, crises may arise from time to time and be accompanied by governmental actions that
may increase international tension. Any such events and responses, including regulatory developments, may cause significant volatility
and declines in the global markets, disproportionate impacts to certain industries or sectors, disruptions to commerce (including economic
activity, travel and supply chains), loss of life and property damage, and may materially and adversely affect the global economy or capital
markets, as well as our business and results of operations.
Additionally, the global economy, including credit and financial
markets, has experienced extreme volatility and disruptions, and may continue to experience such disruptions in the future, including
severely diminished liquidity and credit availability, difficulties in collection of funds related to accounts receivable, declines in
consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates, higher interest rates
and uncertainty about economic stability. As a result of these factors, our revenue may be affected by both decreased customer acquisition
and lower than anticipated revenue growth from existing customers. For example, a pandemic resulted in widespread unemployment, economic
slowdown and extreme volatility. Similarly, the ongoing military conflict between Russia and Ukraine has created extreme volatility in
the global capital markets and has caused and could continue to cause disruptions of the global supply chain and energy markets. While
the portion of our revenue directly associated with Russia, Ukraine and Israel is not material to our consolidated financial results,
our business may be affected by broader economic factors caused or intensified due to the wars.
As a result of recent revisions in U.S. administration’s
policy, there have been changes to existing trade agreements, greater restrictions on free trade, and significant increases in tariffs
on goods imported into the United States. Consequently, there is ongoing uncertainty about the future relationship between the U.S. and
other countries regarding trade policies, taxes, government regulations, and tariffs. The U.S. has signaled its intention to modify trade
policies, potentially renegotiating or terminating existing agreements and leveraging tariffs. For example, the U.S. has recently imposed
additional tariffs on imports from China and has taken actions regarding tariffs on imports from Canada and Mexico. These developments,
along with retaliatory measures and further potential retaliatory measures by other governments, have introduced significant uncertainty
into the market. Future actions by both the U.S. administration and foreign governments, regarding tariffs and international trade agreements
may impact our industry and our business.
Any such volatility and disruptions may have material and adverse
consequences on us and our customers. Increased inflation and/or interest rates can adversely affect us by increasing our costs, including
labor and employee benefit costs and any significant increases in inflation and related increase in interest rates could have a material
and adverse effect on our business, financial condition or results of operations.
Further, to the extent there is a sustained general economic downturn
and if there is a reduction in general demand and spending for digital advertising, our revenue may be disproportionately affected. Competitors,
many of whom are larger and more established than we are, may respond to market conditions by lowering prices and attempting to lure away
our customers and partners. We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally
or within any particular industry. If the economic conditions of the general economy or markets in which we operate worsen from present
levels, our business, results of operations and financial condition could be materially and adversely affected.
Additionally, our financial condition and results of operations
may vary and continue to fluctuate as a result of a number of other factors, many of which may be outside of our control or difficult
to predict, including our ability to successfully expand our business globally, our ability to successfully integrate any newly acquired
business or company, the introduction of new accounting pronouncements or changes in our accounting policies or practices, and geopolitical,
economic, or regional instability. For more information on the effect of the war in Gaza and elsewhere in the region see Item 3.D “Key
Information—Risk Factors – Political, economic and military instability in the Middle East and specifically in Israel may
impede our ability to operate and harm our financial results.” Any of these factors may result in significant fluctuations in our
financial condition and operating results, which could result in our failure to meet our operating plan or the expectations of investors
or analysts for any given period, causing the market price of our ordinary shares to be negatively impacted.
Risks related to our Financial
and Corporate Structure
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. In
August 2023, Tal Jacobson, former General Manager of our search advertising business, was promoted to Chief Executive Officer. Following
Jacobson’s promotion, our previous Chief Executive Officer, Doron Gerstel, stepped down from the executive team and later also from
our Board of Directors (when Mr. Jacobson replaced him as a director).
Further, our ability to execute our business strategy also depends
on our ability to continue to attract, retain and motivate qualified, skilled and creative key personnel and management, in technical
marketing and sales and other positions, and in addition to attract third-party technology vendors and other consultants and contractors.
We operate out of different locations around the globe and 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
and qualified key employees, which can be difficult, expensive and time-consuming. If we cannot attract and retain additional experienced
key employees or if we lose one or more of our current key employees, our ability to implement our strategy, develop or market our products
and attract or acquire new users and partners 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 and develop our solutions or that we will be able
to attract new employees in the future who are capable of making significant contributions and we may face challenges in adequately or
appropriately integrating them into our workforce and organizational culture. See Item 6. “Directors, Senior Management and Employees.”
Competition for highly skilled technical and
other personnel mainly in Israel, the United States and Canada is intense, and as a result we may fail to attract, recruit, retain and
develop qualified employees, which could materially and adversely impact our business, financial condition and results of operations.
We compete in a market marked by rapidly changing technologies
and an evolving competitive landscape. In order for us to successfully compete and grow, we must attract, recruit, retain and develop
personnel with requisite qualifications to provide expertise across the entire spectrum of our intellectual capital and business needs.
Our principal research and development, certain sales and marketing
as well as significant elements of our general and administrative activities are conducted at our headquarters in Israel, in the United
States, Canada and Europe, and we face significant competition for suitably skilled employees in these places. There has been intense
competition for qualified human resources in the high-tech industry, which may intensify in times of sharp growth of the industry, as
was the case in 2021-2022, which resulted in high employee attrition. While layoffs carried out from time to time by large companies may
present good recruitment opportunities to our company, our industry is still characterized by high competition between employers. Many
of the companies with which we compete for qualified personnel have greater resources than we do, and we may not succeed in recruiting
additional experienced or professional personnel, retaining personnel or effectively replacing current personnel who may depart with qualified
or effective successors.
In addition, as a result of the intense competition for qualified
human resources, the Israeli, American and Canadian high-tech markets as well as other markets have also experienced and may continue
to experience significant wage inflation. Accordingly, our efforts to attract, retain and develop personnel may also result in significant
additional expenses, which could adversely affect our profitability. Furthermore, in making employment decisions, particularly in the
high-technology industry, job candidates often consider the value of the equity they are to receive in connection with their employment.
While we offer competitive equity and compensation terms with our employees as a means of improving our employee retention, those terms
and agreements may not be effective towards that goal in particular if the price of our ordinary shares significantly declines.
In light of the foregoing, there can be no assurance that qualified
employees will remain in our employ or that we will be able to attract and retain qualified personnel in the future. Failure to retain
or attract qualified personnel could have a material adverse effect on our business, financial condition and results of operations.
We have acquired and may continue to acquire
other businesses. These acquisitions divert a substantial part of our resources and management attention and could in the future, adversely
affect our financial results.
We acquired Content IQ LLC, in January 2020, Pub Ocean Media UK
Limited in July 2020, Vidazoo Ltd., in October 2021 and Hivestack Technologies Inc. (“Hivestack”), in December 2023 and we
may continue to acquire complementary products, technologies or businesses. These acquisitions and integration of the acquired businesses
divert a substantial part of our resources and management attention, which could, adversely affect our financial results. Seeking and
negotiating potential acquisitions to a certain extent diverts our management’s attention from other business concerns and is expensive
and time-consuming. It is not certain that the negotiations with respect to potential acquisition may lead to the consummation of such
acquisition. 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 revenue 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
be required to pay additional funds for earn-outs based on achievement of milestones, or 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 result in losses, in
unwanted results and wasting valuable resources, time and money.
In past years, we have recognized impairments
in the carrying value of goodwill and purchased intangible assets. Additional such charges in the future could negatively affect our results
of operations and shareholders’ equity.
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 excess of the purchase price in a business combination over the fair value of identifiable tangible and intangible assets acquired.
The carrying value of intangible assets with identifiable useful lives represents the fair value of customer relationships, content, domain
names and acquired technology, among other things, as of the acquisition date, and are amortized based on their economic or useful lives.
Goodwill that is expected to contribute indefinitely to our cash flows is not amortized but must be tested 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. Impairment indicators
include any significant changes in the manner of our use of the assets or the strategy of our overall business, significant negative
industry or economic trends, a significant decline in our share price for a sustained period 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 share 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. As disclosed elsewhere in this report, our share price has fluctuated significantly
in the past and a decline in the price for our ordinary shares for a sustained period of time would likely impact the results of our impairment
testing in the future.
We will continue to conduct impairment analyses of our goodwill
as required. Further impairment charges with respect to our goodwill could have a material adverse effect on our results of operations
and shareholders’ equity in future periods.
Shareholders may be able to control us.
As of March 5, 2025, three shareholders beneficially held more
than 5% of our outstanding shares. See Item 7.A. “Major Shareholders and Related Party Transactions—Major Shareholders”
for more information. To our knowledge, those shareholders are not party to a voting agreement with respect to our shares. However, should
any of these shareholders or any other shareholders decide to act together, they may have the power to control the outcome of proposals
submitted for the vote of shareholders. In addition, such share ownership may make certain transactions more difficult and result in delaying
or preventing a change in control of the Company, unless approved by such shareholders.
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 1, 2024, and March 5, 2025, our share price on Nasdaq has fluctuated
from a low of $7.70 to a high of $31.20, and the daily average trading volume in that period was 595,068 shares (and for the period of
January 1, 2024, and until December 31, 2024, was 622,055 shares). The following factors may cause significant fluctuations in the market
price of our ordinary shares:
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negative fluctuations in our quarterly revenue and earnings or those of our competitors; |
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pending sales into the market due to the sale of large blocks of shares, due to, among other reasons, the expiration of any tax-related
or contractual lock–ups with respect to significant amounts of our ordinary shares; |
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shortfalls in our operating results compared to levels forecast by us or by securities analysts; |
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changes in our senior management; |
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changes in regulations or in policies of search engine companies or other industry conditions; |
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mergers and acquisitions by us or our competitors; |
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technological innovations; |
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the introduction of new products; |
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the conditions of the securities markets, particularly in the internet and Israeli sectors; and |
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political, economic and other developments in Israel (including the recent war between Israel and Hamas hostilities with Hezbollah
in Lebanon, Iran, and other proxies like the Houthi movement in Yemen and armed groups in Iraq) and worldwide. |
In addition, we were, and may be in the future, the subject of
unfavorable allegations made by short sellers, who hope to profit from a decline in the value of our shares. Any such allegations may
be followed by periods of instability or decrease in the market price of our ordinary shares and negative publicity.
Further, 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.
We are currently subject to putative securities
class actions and a putative derivative action and may be subject to similar or other litigation in the future, which could cause us to
incur substantial costs and divert our management’s attention and resources.
Historically, public companies listed on U.S. exchanges 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. We are, and may in
the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business.
In April 2024, a putative class action complaint was filed, alleging
violations of U.S. federal securities laws against the Company and certain of its officers in the United States District Court for the
Southern District of New York (the: “SDNY”). In the Complaint, the Plaintiffs assert claims under Sections 10(b) and 20(a)
of the Exchange Act and alleges that the defendants materially misrepresented and/or omitted facts in various public disclosures concerning
the Company’s search advertising business and its partnership with Microsoft Bing. In April 2024, a complaint and a motion to certify
a class action was filed with the Financial Department of the District Court of Tel Aviv against the Company and certain of its officers,
and a putative derivative complaint was filed in February 2025 in the SDNY, both surrounding the same events. For more information,
see Item 8.A. – “Legal Proceedings.”
Any such litigation could result in substantial costs defending
the lawsuits and a diversion of management’s attention and resources and/or, if we are not successful in defending any such litigation,
could result in judgments against us. Any of the foregoing could harm our business and financial condition as well as our reputation.
Future sales of our ordinary shares could reduce
our stock price.
As of March 5, 2025, there was an aggregate of 4,095,196 outstanding
options to purchase our ordinary shares and restricted share units (“RSUs”). As these securities vest, the holders thereof
could sell the underlying shares without restrictions, except for the volume limitations under Rule 144 applicable to our affiliates.
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.
We cannot guarantee that we will repurchase
any of our ordinary shares pursuant to our announced repurchase program or that our repurchase program will enhance long-term shareholder
value.
In 2024, our board of directors authorized our repurchase program
under which an amount of $75 million was made available to purchase our ordinary shares. In March 2025, our board of directors authorized
a $50 million expansion of the previously authorized share repurchase program to a total of $125 million. The expansion of the program
is subject to the issuance of the Company’s audited annual financial report for the year 2024, which is part of this annual report.
The repurchase program, as authorized by our board of directors, provides the Company with the authority to make repurchases of our ordinary
shares. The specific timing and amount of repurchases under the repurchase program will depend upon several factors, including but not
limited to market and business conditions, the trading price of our ordinary shares, regulatory requirements and capital availability.
The program does not require the purchase of any minimum dollar amount or number of shares, and the program may be modified, suspended
or discontinued at any time. As of December 31, 2024, the Company has repurchased 5.2 million of our ordinary shares in an aggregate amount
of $46.9 million.
Repurchases of our ordinary shares pursuant to our repurchase program
could affect the market price of our ordinary shares or its volatility. Additionally, our repurchase program could diminish our cash reserves,
which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. There is
no assurance that our repurchase program will enhance long-term shareholder value, and short-term share price fluctuations could reduce
the repurchase program’s effectiveness.
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 salary and other
personnel related expenses, are incurred in NIS and, following the acquisition of Hivestack in December 2023, in Canadian Dollars as well.
Inflation in Israel or in Canada may have the effect of increasing the U.S. dollar cost of our operations in Israel or in Canada, respectively.
Further, whenever the U.S. dollar declines in value in relation to the NIS or Canadian Dollar, it will become more expensive for us to
fund our operations in Israel or in Canada, respectively. Based on our estimation, without an effective hedging, a revaluation of one
percent of the NIS as compared to the U.S. dollar or a revaluation of one percent of the Canadian Dollar as compared to the U.S. dollar
could impact our income before taxes by approximately $0.4 million, in each case. The exchange rate of the U.S. dollar to the NIS has
been volatile in the past, increased by approximately 3% and 1% in 2023 and 2024, respectively. The exchange rate of the Canadian Dollar
was also volatile during 2024 and ended the year almost 9% lower than its level at the beginning of the year. As of December 31, 2024,
we had a foreign currency net asset of approximately $39.8 million (which number includes approximately $19.0 million in NIS denominated
to the right of use liability relates to our offices in Israel), and our total foreign exchange loss was approximately $1.0 million for
the year ended December 31, 2024. To assist us in assessing whether, and how to, hedge risks associated with fluctuations in currency
exchange rates, we have contracted a consulting firm proficient in this area. We may incur losses from unfavorable fluctuations in foreign
currency exchange rates.
We do not intend to pay cash dividends in the
foreseeable future.
Although we have paid cash dividends in the past, we have not adopted
a policy regarding the distribution of dividends in the foreseeable future. Our current policy is to retain future earnings, if any, for
funding growth as well as for our plan for repurchase of our shares. 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.
Any future dividend distributions are subject to the discretion
of our board of directors and will depend on various factors, including our operating results, future earnings, capital requirements,
financial condition, and tax implications of dividend distributions on our income, future prospects and any other factors deemed relevant
by our board of directors. The distribution of dividends is also limited by Israeli law, which permits the distribution of dividends by
an Israeli corporation only out of its retained earnings as defined in the Israeli Companies Law, 5759-1999, or the Companies Law, provided
that there is no reasonable concern that such payment will cause us to fail to meet our current and expected liabilities as they become
due, or otherwise with the court’s approval. See Item 8.A “Consolidated Statements and Other Financial Information—Policy
on Dividend Distribution” for additional information regarding the payment of dividends.
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 public company reporting, 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 and SEC regulations, the provisions of the Israeli Securities Law applicable to
companies listed on both the Tel Aviv Stock Exchange Ltd. (“TASE”) and another recognized stock exchange outside of Israel
and the provisions of the Companies Law that apply to us. We have also contracted an internal auditor and a consultant to implement and
comply with the Sarbanes-Oxley Act requirements. Section 404 of the Sarbanes-Oxley Act requires an annual assessment by our management
of our internal control over financial reporting and of the effectiveness of these controls as of year-end. In connection with our efforts
to comply with Section 404 and the other applicable provisions of the Sarbanes-Oxley Act, our management and other personnel devote a
substantial amount of time, and we have hired, and may need to hire, additional accounting and financial staff to assure that we comply
with these requirements. We are also required to have our independent registered public accounting firm issue an opinion on the effectiveness
of our internal control over financial reporting on an annual basis. During the evaluation and testing process, if we identify one or
more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over
financial reporting is effective. If we are unable to assert that our internal control over financial reporting is effective, or if our
independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial
reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of
our common stock to decline, and we may be subject to investigation or sanctions by the SEC. The additional management attention and costs
relating to compliance with the foregoing requirements could adversely affect our financial results. See Item 5.A “Operating and
Financial Review and Prospects—Operating Results—General and Administrative Expenses” for a discussion of our increased
expenses as a result of being a public company.
If we lose our foreign private issuer status
under U.S. federal securities laws, we would incur additional expenses and reporting and other requirements 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.
There can be no assurances that we will not
be a passive foreign investment company (“PFIC”) for any taxable year, which could subject U.S. Shareholders to significant
adverse U.S. federal income tax consequences.
In general, a non-U.S. corporation is a PFIC for any taxable year
in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the value of its assets (generally determined
on an average quarterly basis) consists of assets that produce, or are held for the production of, passive income. For purposes of the
above calculations, a non-U.S. corporation that owns (or is treated as owning for U.S. federal income tax purposes), directly or indirectly,
at least 25% by value of the shares or equity interests of another corporation is treated as if it held its proportionate share of the
assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally
includes dividends, interest, rents, royalties and certain gains. Cash and marketable securities are generally passive assets for these
purposes. Goodwill and other intangible assets are generally characterized as non-passive or passive assets based on the nature of the
income produced in the activity to which the goodwill and other intangible assets relate.
Because we hold a substantial amount of cash and other passive
assets, our PFIC status for any taxable year generally will depend on the average value of our goodwill and other intangible assets (as
well as the value of our other active assets). If the value of our assets were determined by reference to the sum of our market
capitalization and liabilities, we would likely be a PFIC for 2024 due to the low average value of our market capitalization during 2024.
However, because, among other considerations, the market price of our ordinary shares was significantly volatile throughout 2024, we believe
that alternative valuation methods are appropriate. Specifically, we believe that if our assets were valued based on the discounted cash
flows or revenue multiples methods, our enterprise value for 2024 would be significantly larger than the value derived from using the
market capitalization method. Accordingly, we believe that we were likely not a PFIC for 2024. However, our position is not binding on
the U.S. Internal Revenue Service and there can be no assurance that it will agree with our valuation approach.
In addition, we may also be a PFIC for any future taxable year
if the portion of our financial income out of our gross income were to increase to 75% or more for any taxable year. Our PFIC status for
any taxable year is an annual factual determination that can be made only after the end of that taxable year and will depend on the composition
of our income and assets and the value of our assets from time to time (including the value of our goodwill and other intangible assets).
For the reasons described above, we cannot express any expectation regarding our PFIC status for any future taxable year.
If we are a PFIC for any taxable year during which a U.S. investor
owns our ordinary shares, we will generally continue to be a PFIC with respect to that investor for all succeeding taxable years, even
if we cease to meet the threshold requirements for PFIC status, unless certain elections are timely made by the investor. In addition,
a U.S. investor could be subject to adverse U.S. federal income tax consequences and reporting obligations with respect to its ownership
of PFIC stock. See “Taxation – U.S. Federal Income Tax Considerations – Passive Foreign Investment Company Rules.”
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 issuers listed on U.S. exchanges, including
our Company, have faced governance-related and other 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 plans. 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 adversely affect the market price and volatility of our securities.
The rights and responsibilities of our shareholders
are governed by Israeli law and differ in several key respects from the rights and responsibilities of shareholders under U.S. laws, including
the duty to act in good faith and the lack of extensive case law.
We are incorporated in accordance with the Israeli Companies Law.
The rights and responsibilities of holders of our ordinary shares are governed by our memorandum of association, articles of association
and by applicable Israeli law. These rights and responsibilities differ in several key respects from the rights and responsibilities of
shareholders of 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 a company and the 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. This duty
to act in good faith is a significant difference from U.S. law. 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. Another key difference is that there is little case law available to assist in understanding
the implications of these provisions that govern shareholder behavior, making the interpretation of these duties less predictable compared
to U.S. law.
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 (as such term is defined in Rule 3b-4
under the Exchange Act), 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 Item 16.G. “Corporate Governance”
in this Annual Report on Form 20-F for a more complete discussion of the Nasdaq Listing Rules and the home country practices we follow.
As a foreign private issuer listed on Nasdaq, we may also elect in the future to follow home country practice with regard to other matters
as well. Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq’s corporate governance rules
to the shareholders of U.S. domestic companies.
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 Exhibit 2.1 to this annual
report on Form 20-F, which is incorporated by reference into this annual report on Form 20-F, and Item 10.E. “Taxation—Israeli
Taxation” for additional discussion about some anti-takeover effects of Israeli law.
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.
We must meet the Nasdaq Global Select Market’s
continued listing requirements and comply with the other Nasdaq rules, or we may risk delisting. Delisting could negatively affect the
price of our ordinary shares, which could make it more difficult for us to sell securities in a financing and for you to sell your ordinary
shares.
We are required to meet the continued listing requirements of the
Nasdaq Global Select and comply with the other Nasdaq rules, including those regarding minimum shareholders’ equity, minimum share
price and certain other corporate governance requirements. Delisting of our ordinary shares from the Nasdaq Global Select would cause
us to pursue eligibility for trading on other markets or exchanges, or on the pink sheets. In such case, our shareholders’ ability
to trade, or obtain quotations of the market value of, our ordinary shares would be severely limited because of lower trading volumes
and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities.
There can be no assurance that our ordinary shares, if delisted from the Nasdaq Global Select in the future, would be listed on a national
securities exchange or quoted on a national quotation service, the OTCQB or OTC Pink. Delisting from the Nasdaq Global Select Market,
or even the issuance of a notice of potential delisting, would also result in negative publicity, make it more difficult for us to raise
additional capital, adversely affect the market liquidity of our ordinary shares, reduce security analysts’ coverage of us and diminish
investor, supplier and employee confidence. In addition, as a consequence of any such delisting, our share price could be negatively affected
and our shareholders would likely find it more difficult to sell, or to obtain accurate quotations as to the prices of, our ordinary shares.
Our ordinary shares are traded on more than
one market and this may result in price variations.
Our ordinary shares are traded on both the Nasdaq Global Select
Market and on TASE. Trading in our ordinary shares on these markets is affected in different currencies (U.S. dollars on Nasdaq and NIS
on TASE) and at different times (resulting from different time zones, different trading days per week and different public holidays in
the United States and Israel). Consequently, the trading prices of our ordinary shares on these two markets often differ, resulting from
the factors described above as well as differences in exchange rates and from political events and economic conditions in the United States
and Israel. Any decrease in the trading price of our ordinary shares on one of these markets could cause a decrease in the trading price
of our ordinary shares on the other market.
Increasing scrutiny from investors, customers
and other market participants with respect to our Environmental, Social and Governance (“ESG”), policies could negatively
affect the price of our shares or impose additional costs on us.
In recent years, increasing attention has been given to ESG policies
of corporations across all industries, including with respect to climate change and diversity, equity and inclusion matters. We may be
affected by market or regulatory responses to climate change. Growing public concern about climate change has resulted in the increased
focus of local, state, regional, national and international regulatory bodies on greenhouse gas, or GHG, emissions and climate change
issues. We may also incur additional expenses, such as costs related to data collection, reporting, auditing, and compliance systems,
as a result of U.S. and international regulators requiring additional disclosures regarding GHG emissions or climate-related risks. Compliance
with such regulations and the associated potential cost is complicated by the fact that various countries and regions are following different
approaches to the regulation of climate change. These differing approaches can include variations in emission reduction targets, reporting
requirements, timelines for implementation, and enforcement mechanisms. For instance, while some countries may mandate rigorous reporting
standards and the adoption of commitments and targets to reduce GHG emissions, others might adopt more lenient policies or guidelines.
Additionally, recently in the U.S., there is an increasing number of state-level initiatives aimed at discouraging or penalizing the adoption
of ESG or sustainability policies and the potential for similar initiatives at the federal level that may conflict with other regulatory
requirements or our various stakeholders' expectations. This lack of uniformity and consistency can lead to increased complexity and cost
for multinational corporations, as they must navigate and comply with a patchwork of regulations, potentially requiring tailored strategies
and systems for each jurisdiction. We could fail to achieve, or be perceived to fail to achieve expectations, standards, and regulations
on ESG matters as they continue to evolve, or may be perceived by investors, customers and other market participants to have not responded
appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so. As a result, we may
experience reputational damage and the business, financial condition and price our company’s shares could be materially and adversely
affected.
Our cash, cash equivalents, Marketable Securities
and short-term deposits are subject to risks that may cause losses and affect the liquidity of these investments.
As of December 31, 2024, we had $373.3 million in cash, cash equivalents,
marketable securities and short-term deposits. We regularly maintain cash, cash equivalent, marketable securities and short-term deposits
at third-party financial institutions. We maintain and invest our cash and cash equivalents based on an investment policy approved by
our Investment Committee of the board and by our board of directors. Our investment policy set various principles for managing our cash,
including the rating level of third-party financial institutions in which we keep our cash, diversified portfolio and diversified countries
of incorporation of the relevant financial institutions. These deposits and investments are subject to general credit, liquidity, market
and interest rate risks. Further, we may be adversely affected by a crisis in the banking industry. For example, on March 10, 2023, the
Federal Deposit Insurance Corporation, took control and was appointed receiver of Silicon Valley Bank, or SVB. We have not held funds
at SVB other than a negligible amount. If banks and financial institutions enter receivership or become insolvent in the future and a
portion of our cash, cash equivalents, marketable securities or short-term deposits is held in such banks and financial institutions,
our ability to access our existing cash, cash equivalents and investments may be impacted and could have a material adverse effect on
our business and financial condition.
Risks Related to Our Technological Environment
Our business and financial performance may be
materially adversely affected by information technology issues, data breaches, cyber-attacks and other similar incidents, as well as insufficient
cybersecurity and other business disruptions.
We rely on information technology systems and networks to operate
and manage our business and to collect, use, maintain and otherwise process information, including information related to our business,
customers, partners, and personnel. This information is stored and managed within our internal information technology infrastructure or,
in certain instances, on platforms maintained by third-party service providers, suppliers and vendors. These systems and networks, whether
operated internally or externally, may be subject to information technology issues, data breaches, cyber-attacks and other similar incidents.
Our business is constantly challenged and may be impacted by information technology issues, data breaches, cyber-attacks and other similar
incidents, as well as insufficient cybersecurity and other business disruptions experienced by us or our third-party service providers,
suppliers and vendors. Data breaches, cyber-attacks, and other similar incidents in particular are a growing and evolving risk and often
are difficult or impossible to detect for long periods of time or to successfully defend against. Such incidents may include, but are
not limited to software bugs, server malfunctions, software or hardware failure, service outages, malicious software or activity, computer
viruses, ransomware attacks, denial-of-service attacks, social engineering, domain name spoofing, fraud, phishing attacks, worms/trojan
horses, insider threats, human error, attempts to gain unauthorized access to data, and other cybersecurity breaches that could lead to
disruptions in systems and networks, denial of services, remote code execution, unauthorized access to or release of sensitive, proprietary,
confidential, personal or otherwise protected information corruption of data, telecommunications failures, terrorist attacks, natural
disasters, power loss, war, physical security breaches, or other events that may harm our systems and networks, or those of our third-party
service providers, suppliers and vendors. Such incidents are increasing in frequency, levels of persistence, sophistication and intensity,
are evolving in nature, and are conducted by organized groups and individuals with a wide range of motives and expertise, including organized
criminal groups, “hacktivists,” terrorists, nation states, nation state-supported actors, and others, any of whom may see
their effectiveness enhanced by the use of AI. Unidentified groups continuously target numerous internet websites and servers, including
our own, for various reasons, political, commercial and other. High-profile data breaches, cyber-attacks and other similar incidents at
other companies and in government agencies have increased in frequency and sophistication in recent years. Moreover, geopolitical tensions,
particularly the Hamas-Israel and the Russia-Ukraine conflicts, have contributed to a surge in cyber-attacks targeting Israeli companies
and products globally, posing a threat to critical infrastructure. Any data breach, cyber-attack or other similar incident impacting us
or our third-party service providers, suppliers and vendors, or any failure to make adequate or timely disclosures to the public, regulators,
or law enforcement agencies following any such incident, could subject us 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 sensitive, proprietary, confidential,
personal or otherwise protected information, the destruction or corruption of data, other manipulation or improper use of our systems
and networks, violations of applicable data protection, data privacy and cybersecurity laws and regulations or notification obligations,
violation of contracts, legal claims, regulatory scrutiny or enforcement actions, investigations, 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.
Given the unpredictability of the timing, nature and scope of such
incidents, and because techniques used to obtain unauthorized access to or sabotage systems and networks change frequently and generally
are not identified until they are launched against a target, there can be no assurance that such incidents can be prevented, that such
incidents are not occurring currently without our knowledge, or that any such incidents will not have a material adverse effect on us
in the future.
As cybersecurity threats continue to evolve, we expect to continue
to expend significant additional resources to continue to maintain, modify or enhance our protective measures or to investigate or remediate
any information technology issues, business interruptions, data breaches, cyber-attacks or other similar incidents. However, we may not
be able to anticipate such incidents, and such measures, as well as our response process, may not be adequate, may fail to detect or react
to such incidents in a timely manner, may fail to identify or accurately assess the severity of an incident, may not respond quickly enough,
or may fail to sufficiently remediate an incident. As a result, we may suffer significant legal, reputational, or financial exposure,
which could harm our business, financial condition, and operating results.
With respect to our third-party risk management processes, while
we generally seek to impose certain cybersecurity requirements on critical third parties with whom we do business, for example, by employing
due diligence and onboarding procedures, our ability to monitor such practices is limited, we do not control their cyber risk management
and there can be no assurance that we will detect, prevent, mitigate, or remediate the risk of any weakness, compromise, or failure in
the systems, networks, and information owned or controlled by such third parties. Due to applicable laws and regulations or contractual
obligations, we may be held responsible for business interruptions, data breaches, cyber-attacks or other similar incidents attributed
to such third parties as they relate to the information we share with them. In addition, if we suffer a highly publicized business interruption,
data breach, cyber-attack or other similar incident, even if our platforms and solutions perform effectively, such an incident could have
an adverse effect and cause us to suffer reputational harm, lose existing commercial relationships and customers or deter existing customers
from purchasing additional solutions and prevent new customers from purchasing our solutions.
We cannot ensure that any indemnification or limitation of liability
provisions in our agreements with customers, service providers, suppliers, vendors and other third parties with which we do business would
be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim in connection
with a business interruption, data breach, cyber-attack or other similar incident. Additionally, we cannot be certain that our insurance
coverage will be adequate for cybersecurity liabilities actually incurred, that insurance will continue to be available to us on economically
reasonable terms, or at all, or that our insurer will not deny coverage as to any future claim.
We have contractual, legal and regulatory obligations to notify
relevant stakeholders of certain data breaches, cyber-attacks or similar incidents, as defined in the relevant laws, regulations or respective
contracts. Most jurisdictions have enacted laws and regulations requiring companies to notify individuals, regulatory authorities and
others of data breaches, cyber-attacks or similar incidents involving certain types of data. In addition, our agreements with certain
customers and third-party partners may require us to notify them in the event of a data breach, cyber-attack or similar incident. Such
mandatory disclosures are costly, could lead to negative publicity and may cause our customers to lose confidence in the effectiveness
of our security measures. If we fail to make such notification within the mandatory time frames, we may be subject to penalties and legal
actions.
Although we have implemented administrative, technical and organizational
safeguards to comply with applicable data protection, data privacy and cybersecurity laws and regulations in connection with the collection,
use, retention, disclosure and other processing of personal information, if a significant failure of such safeguards were to occur, our
business and reputation could be materially adversely affected. A business interruption, data breach, cyber-attack or other similar incident
could lead to claims by our customers, data subjects or other relevant parties that we have failed to comply with applicable laws, regulations
or contractual obligations to implement specified security measures. As a result, we could be subject to legal action or our customers,
data providers or other relevant parties could end their relationships with us.
Data protection, data privacy and cybersecurity laws and regulations
in certain jurisdictions may require us to notify individuals and government or regulatory authorities of data breaches, cyber-attacks
or other similar incidents involving certain types of personal data. Pursuant to certain data protection, data privacy and cybersecurity
laws and regulations, including the California Consumer Privacy Act (as amended by the California Privacy Rights Act, the “CCPA”),
if we experience a data breach, cyber-attack or other similar incident, affected individuals could, under certain circumstances relating
to such incidents, bring a private action claiming the breach was the result of our violation of the duty to implement and maintain reasonable
security procedures and practices and recover civil damages, which could be costly, impact the operation of our business and cause reputational
harm. Similarly, there is a risk of class actions in the United Kingdom (the “U.K.”) and Europe. In Canada, there has been
an increase in tort claims and related civil litigation. Data breaches, cyber-attacks or other similar incidents could also result in
enforcement actions, including significant penalties and fines, by government or regulatory authorities alleging that we have violated
applicable laws or regulations that require us to maintain reasonable security measures and comply with mandatory disclosure requirements.
In the coming years, we expect further regulation regarding data protection, data privacy and cybersecurity in the U.S./Canada and abroad
that will likely apply to our business. These laws, regulations and other obligations may create additional regulatory, liability, and
reputational risks and may increase financial costs to mitigate such risks. For more information, see the Risk Factor titled – “Our
business depends on our ability to collect, use, maintain and otherwise process data, including personal data, to help our clients deliver
advertisements, and to disclose data relating to the performance of advertisements. Any limitation imposed on our collection, use, maintenance
or other processing of this data could significantly diminish the value of our solution and cause us to lose sellers, buyers, and revenue.
Regulations, legislation or self-regulation relating to data protection, data privacy, cybersecurity, e-commerce and internet advertising
and uncertainties regarding the application or interpretation of existing or newly adopted laws and regulations threaten our ability to
collect, use, maintain and otherwise process this data, could harm our business and subject us to significant costs and legal liability
for non-compliance.”
If we fail to detect or prevent fraudulent,
suspicious 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, suspicious or other invalid traffic, impressions, clicks, conversions,
or other ad engagements that advertisers may perceive as undesirable. Such fraudulent, suspicious or other invalid 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 a single machine or on tens of thousands of machines,
making them difficult to detect and filter.
We implement and use proprietary and third-party technologies designed
to identify fraudulent, suspicious or other invalid traffic, impressions, clicks, conversions or other ad engagements. Despite our efforts,
it can be difficult to detect fraudulent, suspicious or other invalid activity for different reasons. If we are unable to detect and prevent
fraudulent, suspicious or other invalid activity, the affected advertisers may experience or perceive a reduced return on their investment.
High levels of fraudulent, suspicious or other invalid 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 revenue.
We may not be able to enhance our platforms
and solutions 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, including our Perion One platform
and ensure compatibility with evolving industry standards, we will need to regularly enhance our platform and solutions as well as develop
and introduce new services on a timely basis, including our Perion One platform. We also must update our software to reflect changes in
advertising networks’ application programming interfaces (“APIs”), technological integration, data protection, data
privacy, cybersecurity and terms of use. The success of any enhancement or new solution depends on several factors, including timely completion,
adequate quality testing, appropriate introduction and market acceptance. Our inability, for technological, business or other reasons,
to timely enhance, develop, introduce and deliver compelling advertising services in response to changing market conditions and technologies
or evolving expectations of advertisers or consumers could hurt our ability to grow our advertising business. For additional information
see also the Risk Factor titled - “If the demand for digital advertising does not continue to grow
or customers do not embrace our solutions including our Perion One platform, it could have a material adverse effect on our business and
results of operation.”
Our products operate in a variety of computer
and device configurations and could contain undetected errors, failures or defects that could result in product failures, lost revenue
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, failures or defects
in our products. In addition, despite testing, errors, failures or defects may not be found in our products and new versions of our products.
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 revenue during the period required to correct these errors, failures and defects.
Errors, failures or defects in our products could result in negative
publicity, 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.
We depend on third-party service providers, suppliers
and vendors, such as internet, telecommunication, data centers, cloud computing and hosting providers as
well as data providers, to operate our platforms, websites and services. Temporary failure of these services, including catastrophic or
technological interruptions, would materially reduce our revenue and damage our reputation, and securing alternate sources for these services
could significantly increase our expenses and be difficult to obtain.
The availability of our products and services and fulfillment of our customer contracts
depend on the continuing operation of our information technology and communications systems and networks, and those of our third-party
service providers, suppliers and vendors. Our products’ operation as well as our internal conduct and daily management are supported
by third-party internet, hosting, SaaS services, telecommunication providers as well as data providers and others. Such third-party service
providers, suppliers and vendors may experience disruptions, which would reduce our revenue and increase our costs. We own servers located
in Israel, Europe and the United States and we also rent the services of thousands of servers located around the world. Our servers mainly
include web servers, application servers, data collection servers, data storage servers, data processing servers and database servers.
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, supplier or vendor could be substantial. Furthermore, although we maintain back-up systems
and networks for most aspects of our operations, we could still experience deterioration in performance or interruption in our systems
and networks, delays, and loss of critical data and registered users and revenue. Our systems and networks, and those of our third-party
service providers, suppliers and vendors, are vulnerable to damage, interference, or interruption from modifications or upgrades, terrorist
attacks, war, natural disasters, fires, epidemics and pandemics, the effects of climate change (such as sea level rise, drought, flooding,
wildfires, and increased storm severity), power loss, telecommunications failures, cyber-attacks, computer viruses, ransomware attacks,
denial-of-service attacks, phishing schemes, break-ins, sabotage, intentional acts of vandalism, misconduct or similar events. Such events,
a decision to close third-party facilities on which we rely without adequate notice, or other unanticipated problems, could result in
lengthy interruptions to our services.
Our systems and networks 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 the services of our providers or their inability to provide us the services or data
or meet the service capacity we require, could result in interruptions in the availability or functionality of our solutions or materially
impede our ability to attract and onboard new customers to services and to maintain relationships with current customers. Difficulties
of this kind could damage our reputation, be expensive to remedy, curtail our growth and materially adversely impact our business operations.
For more information, see the Risk Factor titled – “Our business and financial performance
may be materially adversely affected by information technology issues, data breaches, cyber-attacks and other similar incidents, as well
as insufficient cybersecurity and other business disruptions.” Additionally, should some of our third-party service providers,
suppliers and 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. Any of the foregoing could materially adversely affect our business, financial condition, and operating results.
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 while 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 revenue that we anticipate from our users and result in a decline in our
user base. Should we not be able to timely respond to such changes or in the event that the search solutions offered by vendors would
offer better user experience than the one offered by us, this could have an adverse effect on our business, financial condition and our
results of operations. 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 Data Protection, Data Privacy
and Cybersecurity Laws and Regulations
Our business depends on our ability to collect,
use, maintain and otherwise process data, including personal data, to help our clients deliver advertisements and to disclose data relating
to the performance of advertisements. Any limitation imposed on our collection, use, maintenance or other processing of this data could
significantly diminish the value of our solution and cause us to lose sellers, buyers, and revenue. Regulations, legislation or self-regulation
relating to data protection, data privacy, cybersecurity, e-commerce and internet advertising and uncertainties regarding the application
or interpretation of existing or newly adopted laws and regulations threaten our ability to collect, use, maintain and otherwise process
this data, could harm our business and subject us to significant costs and legal liability for non-compliance.
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
or otherwise adversely impact our business. These laws and regulations cover data protection, data privacy, data protection, cybersecurity,
e-commerce, content, use of “cookies,” pricing, advertising, distribution of “spam,” copyright and other intellectual
property, libel, marketing, distribution of products, protection of minors, consumer protection, accessibility, taxation and online payment
services. Many areas of laws and regulations affecting the internet remain largely unsettled, even in areas where there has been some
legislative or regulatory action.
We collect, use, maintain and otherwise process certain data, including
personal data, about our customers (including, without limitation, customers’ clients or users), partners, candidates and employees,
consultants, leads and consumers. Our ability to collect, use, maintain or otherwise process personal data has been, and could be further,
restricted by existing and new laws and regulations relating to data protection, data privacy and cybersecurity, including the EU
General Data Protection Regulation 2016/679 (the “GDPR”), the U.K.’s General Data Protection Regulation (“U.K.
GDPR”), the rules and regulations promulgated under the authority of the FTC, the CCPA and privacy laws of various U.S. states,
the Israeli Privacy Protection Law, 1981 and the regulations thereunder (“Israeli Privacy Law”), Canada’s federal Personal
Information Protection and Electronic Documents Act (the “PIPEDA”), the Quebec Privacy Act and other laws such as Quebec’s
new Privacy Legislation Modernization Act (“Quebec’s Law 25” and together with the PIPEDA
and the Quebec Privacy Act, “Canadian Privacy Law”), and the EU ePrivacy Directive (“ePD”),a. These laws and regulations
generally define personal data to include location data and online identifiers, which are commonly used and collected parameters in digital
advertising and, among other things, impose stringent user consent requirements and permit data subjects to request that we discontinue
using certain data. The obligations imposed under data protection, data privacy and cybersecurity laws and regulations could increase
our potential liability and adversely affect our business.
In the European Economic Area (“EEA”), the U.K. and
Canada, we are subject to the GDPR, the U.K. GDPR and Canadian Privacy Law, respectively, which, among other things, impose requirements
to provide detailed and transparent disclosures about how personal data is collected and processed, grant rights for data subjects to
access, delete or object to the processing of their personal data, provide for a mandatory breach notification to supervisory authorities
(and in certain cases, affected individuals) of certain data breaches, set limitations on the retention of personal data and outline significant
documentary requirements to demonstrate compliance through policies, procedures, training and audits. In the EEA and the U.K., failure
to comply with the GDPR and the U.K. GDPR can result in significant fines and other liability under applicable law. In particular, under
the GDPR, fines of up to EUR 20 million (or GBP 17.5 million under the U.K. GDPR) or up to 4% of the annual global revenue of the noncompliant
company, whichever is greater, could be imposed for violations of certain of the GDPR’s requirements. European data protection authorities
have already imposed fines for GDPR violations, in some cases, of hundreds of millions of euros.
In Canada, the data privacy landscape is made up of different provincial
data privacy laws (including the Quebec Privacy Act and Quebec’s Law 25), Canadian federal data privacy laws as well as sector-specific
data privacy laws. In 2021, Quebec passed Quebec’s Law 25 overhauling the Quebec Privacy Act. Quebec’s Law 25 imposes strict
controller requirements, such as privacy policies; enhanced consent requirements when collecting, using or disclosing personal data; risk
assessments and data breach notification. Quebec’s Law 25 also granted individuals certain data privacy rights including a right
to erasure, right to restrict processing and, as of September 22, 2024, a right to data portability. Also under Quebec’s Law 25,
organizations must provide, by default, the parameters ensuring the highest level of confidentiality of a technological product or service
offered to the public. Canadian Privacy Law applies not only to third-party transactions, but also to transfers of information between
us and our subsidiaries, and under Quebec’s Law 25, personal data would include employee information. Failure to comply with Canadian
Privacy Law and other data privacy laws within Canada may expose us to administrative fines, litigation or enforcement actions brought
by data subjects and regulatory authorities, class actions and even punitive damages. Canadian federal data privacy law is currently being
overhauled and we expect that data privacy legislation across Canada will continue to evolve in the coming months and years.
In the U.S., both federal and state laws and regulations govern the collection, use,
maintenance and other processing of personal data, and the advertising industry has been subject to review by the FTC, U.S. Congress,
and individual states. For example, at the U.S. federal level, we are subject to the rules and regulations promulgated under the authority
of the FTC, which regulates unfair or deceptive acts or practices, including with respect to data protection, data privacy and cybersecurity,
and has taken an increasingly active approach to enforcing such regulations against companies that handle personal data that is considered
by the FTC a sensitive data for advertising purposes, including location data brokers and companies that process health-related data.
These enforcement actions by the FTC signal an increased regulatory scrutiny of advertising practices that involve such data processing
activities, which could adversely impact our ads business. Moreover, the U.S. Congress has recently considered, and is currently considering
various proposals for more comprehensive data privacy and cybersecurity legislation, to which we may be subject if passed. Additionally,
at the U.S. state level, we are subject to, among other things, the CCPA which provides data privacy rights for California residents and
operational requirements for covered companies. Among other things, companies covered by the CCPA must provide certain disclosures to
California residents and afford such residents the ability to opt-out of certain sales of personal data. The CCPA provides for civil penalties
for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. In addition,
the California Privacy Rights Act, which took effect in January 2023, has expanded the rights granted under the CCPA and imposed additional
notice and opt out-obligations, including an obligation to provide California residents with the ability to opt-out of the processing
of personal data for purposes of behavioral advertising and restrictions on the “sale” or “share” of personal
data (which it defines broadly under the CCPA), with significant enforcement penalties for non-compliance. Many other U.S. states also
have implemented, or are in the process of implementing, similar new laws or regulations. reflecting a trend toward more stringent
U.S. federal and state data privacy legislation, which could increase our potential liability and adversely affect our business. As of
January 2025, there are at least eleven comprehensive US state data privacy laws taking effect between 2025 and 2026, including in Delaware,
Indiana, Iowa, New Jersey, Tennessee and Maryland. These laws and regulations often make it easier for certain individuals to opt-out
of having their personal data processed and disclosed to third parties through various opt-out mechanisms, which could result in an increase
to our operational costs to ensure compliance with such legal and regulatory changes. Further, laws in all 50 states, under certain circumstances,
require businesses to provide notice to consumers whose certain types of personal data has been disclosed as a result of a data breach.
Additionally, tracking technology litigation—including lawsuits brought under the California Invasion of Privacy Act — continues
to create risk for organizations, prompting many companies to adopt an opt-in approach to placement of tracking technologies, such as
cookies, on their websites. Such litigation can be brought against any website using tracking technologies, advertisers placing such cookies
tracking technologies on publishers’ websites or other intermediaries placing tracking technologies on advertisers or publishers’
websites or platforms. Such litigation may be costly, result in civil damages, could be costly, impact the operation of our business and
cause reputational harm. The U.S. Department of Justice issued rules restricting the transfer of certain personal data to countries
of concerns, i.e., China, Russia, Iran, North Korea, Cuba and Venezuela, which could limit our ability to share such data and subject
us to liability in case of noncompliance.
Certain U.S. states (including Vermont, California, Texas, and
Oregon) have enacted data broker laws and regulations imposing certain requirements on data brokers, including, without limitation, requirements
relating to registration, consent, disclosure, and/or cybersecurity. California also amended its data broker law to impose additional
requirements applicable to companies that are registered there as data brokers (such as our subsidiary Hivestack Technologies Inc.), effective
on August 1, 2026, to honor requests by California residents to delete such residents’ personal information submitted through a
universal deletion mechanism (to be developed by the state),In addition, the FTC has increasingly issued orders restricting data brokers
from selling certain location data obtained by tracking individuals’ mobile devices. Other countries and jurisdictions have enacted
and may further enact similar or related laws or regulations, and/or their authorities may reach similar decisions. These laws, regulations,
and decisions and any additional laws, regulations and decisions that may be enacted or issued in the future, may result in significantly
larger numbers of consumers opting out of having their personal data used for targeted advertising purposes relative to historical averages.
This could result in reduced access to consumer’s personal data, impacting performance of our services or resulting in loss of business,
and may require us to develop complex and expensive compliance tools and procedures. Moreover, there has been an increase in laws and
regulation for data privacy in specific sectors. For example, laws and regulations specific to consumer health data have been enacted
in certain U.S. states, with an expectation that more states will follow. Such laws and regulations include Washington’s My Health
My Data Act which imposes certain requirements and obligations regarding the collection, sharing and sale of “consumer health data”
– broadly defined as personal information that is linked or reasonably linkable to a consumer and that identifies the consumer’s
past, present, or future physical or mental health status. The Washington My Health My Data Act provides a private right of action and,
together with the broad definition and scope, is likely to trigger a wave of related litigation. As such, we may be limited with the advertising
services we can provide to customers in certain sectors in jurisdictions with such data privacy laws and regulations.
The Israeli Privacy Law and its regulations, including but not
limited to the Israeli Privacy Protection Regulations (Data Security) 2017 impose obligations regarding processing, transferring and securing
of personal data. In addition, in 2023, the Privacy Protection Regulations (Provisions Regarding Information Transferred to Israel from
the European Economic Area), 2023 were enacted and consequently provide, in certain cases, additional rights to data subjects from the
EEA and Israel. Therefore, significant changes to the PPL and its regulations may necessitate adjustments to our data protection and security
practices. Lack of compliance with the PPL and its regulations could result in enforcement actions, litigation (including class actions),
fines and penalties. Material amendment to the PPL was approved by the Israeli Parliament in August 2024 and will take effect on August
14, 2025 (“Amendment 13”). Among other things, Amendment 13 expands the Privacy Protection Authority investigation authority
and the monetary sanctions that can be imposed for breach of the PPL and its regulations, to substantial amounts that may reach in certain
cases millions of NIS.
Most of our products and services are provided without direct relationships
with users/consumers, therefore, we rely on our data providers, customers or publishers to establish a legal basis required under the
applicable data protection and data privacy laws and regulations (for example, to obtain the consent from the user) on our behalf to process
their data and to implement any notice or choice mechanisms required under applicable data protection and data privacy laws and regulations,
but if our data providers, customers or publishers do not follow this process (and in any event, as the legal requirements in this area
continue to evolve and develop), we could be subject to liability.
The uncertainty created by these laws and regulations can be compounded
when services hosted in one jurisdiction are directed at users in another jurisdiction. For instance, certain data protection and data
privacy laws (including the GDPR and Canadian Privacy Law) have an extra-territorial scope causing such laws to potentially govern activities
conducted by organizations established in jurisdictions outside of, in the case of the GDPR, the EEA and, in the case of PIPEDA and Quebec’s
Law 25, Canada and Quebec, respectively. These laws contain significant penalties for non-compliance. Additionally, under the GDPR, supervisory
authorities in the EU member states have some flexibility when implementing European Directives and certain aspects of the GDPR, which
can lead to diverging national rules. In addition, following the withdrawal of the U.K. from the EU, we are subject to the U.K. GDPR.
While the U.K. GDPR current imposes substantially the same obligations as the GDPR, the U.K. GDPR will not automatically incorporate changes
to the GDPR going forward (which would need to be specifically incorporated by the U.K. government). Moreover, the U.K. government has
publicly announced plans to reform the U.K. GDPR in ways that, if formalized, are likely to deviate from the GDPR, all of which exposes
us to two parallel regimes (GDPR and U.K. GDPR), each of which authorizes similar fines and may subject us to increased compliance risk
based on differing, and potentially inconsistent or conflicting, interpretation and enforcement by regulators and authorities (particularly,
if the laws are amended in the future in divergent ways).
Additionally, some countries are considering or have enacted legislation
requiring local storage and processing of data or otherwise restricting cross-border transfers of personal data that could increase the
cost and complexity of delivering our services. For example, as of September 22, 2023, Quebec’s Law 25 requires organizations
to conduct a privacy impact assessment (“PIA”) in certain circumstances, such as when transferring personal data from Quebec
to other jurisdictions (including to other provinces in Canada) as well as when acquiring, developing, or overhauling an information system
or electronic service delivery system that involves the collection, use, release, keeping, or destruction of personal data. Such PIAs
can be time consuming and costly and may impact our ability to attract/retain customers and service providers. Additionally, the GDPR
and the U.K. GDPR generally prohibit the transfer of personal data from the EEA and the U.K. to the United States and most other countries,
unless the transfer is to a country deemed to provide adequate protection (such as Israel, Canada or the U.K.) or the parties to the transfer
have implemented specific safeguards to protect the transferred personal data. The GDPR and the U.K. GDPR requirements apply not only
to third-party transactions, but also to transfers of information between us and our subsidiaries, including employee information.
Where we transfer personal data outside the EEA or the U.K. to
a country that is not deemed to be “adequate,” we rely on transfer mechanisms available under the relevant laws and regulations,
and the efficacy and longevity of such mechanisms remains uncertain. In some jurisdictions like the EU, U.K., Canada and Israel, the law
and guidance on data transfers is rapidly developing and recent developments will require us to review and may require us to amend or
supplement the legal mechanisms by which we make and/or receive personal data transfers. Additional costs may need to be incurred in order
to implement necessary safeguards to comply with the GDPR and the U.K. GDPR and potential new rules and restrictions on cross-border transfers
of personal data could increase the cost and complexity of conducting business in some markets. If our policies and practices, or those
of third parties who process personal data on our behalf, are, or are perceived to be, insufficient, or if individuals have concerns regarding
the transfer of personal data from the EEA or the U.K. to the U.S., we could be subject to enforcement actions or investigations by individual
EU or U.K. data protection authorities or lawsuits by private parties.
European supervisory authorities have also been very active in
terms of enforcing data protection rules. EU national laws that implement the ePD, which concerns the processing of personal data
and the protection of privacy in the electronic communications sector, continue to be subject to uncertainty in light of the European
Commission’s withdrawal of the ePrivacy Regulation, which was expected to alter rules on cookies and other tracking technologies,
impose burdensome requirements surrounding obtaining consent and significantly increase fines for non-compliance in February 2025. A European
court decision, regulatory guidance, and campaigns by privacy activists are continuing to draw attention to cookies and other tracking
technologies under existing laws and regulations. Increased regulation of cookies and similar technologies in the EEA and the U.K., in
addition to certain other jurisdictions such as Canada and the U.S., and any decline of cookies or similar online tracking technologies
as a means to identify and potentially target individuals, may lead to broader restrictions and impairments on our business activities
and negatively impact our efforts to understand users. Industry participants in the advertising technology ecosystem have taken or may
take action to eliminate or restrict the use of cookies and other identifiers. Google had announced plans to fully eliminate support for
third-party cookies in the Chrome browser but has cancelled such plans instead opting to allow users to choose whether to retain third-party
cookies rather than completely removing them, and Apple has already implemented further restrictions on the use of mobile identifiers
on its devices. Such changes require us to take adaptive measures, which may include substantial development and commercial changes. While
we are taking measures to shift away from third-party cookies-based solutions, for example, by using our proprietary cookieless solution,
SORT®, which enables advertisers to reach their audience in real time without storing any personally identifiable data, we generally
rely on third-party cookies-based solutions. If the use of cookies is substantially limited or if regulators start to enforce an increasingly
strict approach, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our solutions and
services, divert the attention of our personnel, adversely affect our business, and subject us to additional liabilities.
The increase in attention to and regulation of data protection,
data privacy and cybersecurity across the globe in recent years will require us to further devote resources and incur additional costs
associated with compliance, as well as impose additional restrictions on our and our partners’ operations. Although we strive to
comply with applicable laws and regulations regarding data protection, data privacy and cybersecurity and to 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 and regulations may
be interpreted and applied in a manner that is inconsistent with our data collection, use, maintenance and other processing practices
or that it may be argued that our practices do not comply with certain countries’ data protection, data privacy and cybersecurity
laws and regulations. Due to rapid changes in technology and the inconsistent interpretations of privacy and data collection and protection
laws and regulations, we may be required to materially change the way we do business. The challenges imposed by the ongoing need to remain
compliant with such laws and regulations, as well as the need to implement any changes due to newly introduced laws and regulations, may
slow our growth, and if we are not able to cope with these challenges as effectively as other companies, we will be competitively disadvantaged.
Any limitation on our ability to collect and utilize data, including personal data, would make it more difficult for us to be able to
optimize ad placement for the benefit of our advertisers and publishers, which could render our solutions less valuable and potentially
result in loss of clients and a decline in revenue. For example, we need to adapt our advertising solutions that rely on third-party cookies
to a “cookie-less” environment and introduce alternative solutions which may not provide the targeting capabilities provided
by cookies. In addition, 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. Further, 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 privacy, data collection and processing and cybersecurity laws and regulations, document retention requirements, and other standards
of accountability. Compliance with such existing and new laws and regulations can be costly and can delay or impede the development of
new products.
In November 2022, the EU’s Digital Services Act (the “DSA”)
came into force in the EEA, and the majority of its substantive provisions took effect on February 17, 2024. The DSA imposes new content
moderation obligations, notice obligations, advertising restrictions and other requirements on online intermediaries and platforms, including
providers of intermediary services, hosting services and social media services. Additionally, the DSA may indirectly impact additional
players in the advertising technology industry by subjecting them to the DSA’s transparency requirements concerning online advertising.
Although we do not expect the DSA to have a material impact on our operations, there could be indirect consequences that adversely affect
the advertising technology industry and our business.
Any failure or perceived failure to comply with the foregoing
laws and regulations could result in negative publicity, increase our operating costs, require significant management time and attention
and subject us to inquiries or investigations, litigation (including class actions), claims, or other remedies, including penalties, fines,
sanctions and criminal and civil liabilities, or demands or orders that we modify or cease existing business practices, each of which
could materially adversely affect our operating results and our business. Further, any failure or perceived failure to comply with our
public privacy policies and other public statements about privacy and cybersecurity could potentially subject us to regulatory investigations,
enforcement or legal actions, and harm to our reputation and, if such policies or statements are found to be deceptive, unfair or misrepresentative
of our actual practices, fines, monetary or other penalties, and other damage to our business, financial condition and results of operations.
Moreover, concerns about our collection, use, maintenance and other processing of personal data or other data protection-, data privacy-
or cybersecurity-related matters, even if unfounded, could harm our reputation and operating results. For more information regarding government
regulations to which we are subject, see Item 4.B. “Business Overview— Government Regulation.”
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.
While in some states we are subject to sales tax, 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.
Following a U.S. Supreme Court decision regarding the rights of
individual states to tax out-of-state suppliers, certain states have adapted their statutes to expand taxation on out-of-state suppliers
of goods and services. 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 could result in a material adverse effect on our revenue.
For example, since 2021, the State of Maryland enacted legislation
to tax digital advertising revenues, which is currently under review by the relevant courts. Similar bills have been introduced in several
other states. Certain countries in the European Union and elsewhere have recently adopted taxation on digital services including digital
advertising, in various forms, such enacted and proposed taxes may have an impact on us.
Under current Israeli, U.S., Canada,
U.K. and Ukrainian law, as well as other laws, 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. and Ukrainian law, as well as other laws, and further under proposed legislation such as Senate Bill S3100A
in New York, 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 such 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, technology and
other intellectual property may not be adequately protected and thus our intellectual property may be unlawfully copied by or disclosed
to other third parties.
We regard the protection of our proprietary information, 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, trademark, copyright and patent laws 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, technology and other intellectual property. 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 would not prevent or deter independent development of similar intellectual
property by others.
In addition, there is no assurance that any existing or future
trade secrets, patents, copyrights or trademarks will afford adequate protection against competitors and similar technologies. Our intellectual
property rights may be misappropriated, infringed, reverse-engineered, circumvented, or otherwise violated by others, or challenged and
invalidated through administrative processes or litigation. Effective trade secret, trademark and patent protections are expensive to
develop and maintain, as are the costs of defending or enforcing our rights. Further, we cannot provide any assurances that competitors
will not challenge, invalidate, misappropriate, infringe, reverse-engineer, circumvent or otherwise violate our intellectual property
rights, or that we will have adequate resources to defend or enforce our rights. In addition, the laws of some countries do not
provide the same level of intellectual property protection as U.S. or Israeli laws and courts.
Claims of misappropriation, infringement
or other violation of third-party intellectual property rights or other third-party 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 third-party
intellectual property misappropriation, infringement, or other violation and subsequent litigation. We have been, and in the future may
be, the subject of claims that our solutions and underlying technology misappropriate, infringe or otherwise violate the intellectual
property rights of others. Regardless of whether such claims have any merit, they 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 claims of third-party intellectual
property misappropriation infringement or other violation without major financial expenditures or adverse consequences.
We may seek to obtain licenses to third-party intellectual property
rights that we desire to use, which we would be allegedly misappropriating, infringing or otherwise violating or may misappropriate, infringe
or otherwise violate, without such licenses. Although holders of intellectual property rights often offer these licenses, we cannot provide
any assurances that such licenses will be offered on acceptable terms or at all. Our failure to obtain a license for key intellectual
property rights from a third party for technology, content, sound, or graphics we use could cause us to incur substantial liabilities
or to suspend the development or sale of our products. Alternatively, we could be required to expend significant resources to redesign
our products or develop non-infringing technology, content, sound, or graphics. If we are unable to redesign our products or develop non-infringing
technology, content, sound, or graphics, our revenue could decrease and we may not be able to execute our business strategy.
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. Third parties may claim that our Company name, our brand
names, or product names infringe their trademark rights. If we will need to change the name of our Company or any of our subsidiaries,
brands or products, we may experience a loss in goodwill associated with such name, customer confusion or a loss of sales. Any lawsuit
involving such name, regardless of its merit, would likely be time-consuming, expensive to resolve, and divert our management’s
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 (the “Israeli 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 Israeli Patent Law also provides that if there is no such agreement between an employer and
an employee, the Israeli Compensation and Royalties Committee (the “Israeli Royalties Committee”), a body constituted under
the Israeli Patent Law, shall determine whether the employee is entitled to remuneration for his or her inventions. An employee may waive
the right to receive remuneration for “service inventions” and case law has held that in certain circumstances, such waiver
does not necessarily have to be explicit. The Israeli Royalties Committee will examine, on a case-by-case basis, the general contractual
framework between the parties in accordance with general Israeli contract law. Further, there is no specific formula for calculating this
remuneration. Under Canadian law, employees benefit from a presumption that they are entitled to ownership of a patent of any invention
they created in the course of their employment unless there is an express contract to the contrary or the employer can prove that the
employee was employed for the express purpose of inventing. Although we generally enter into invention assignment 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 still face claims demanding ownership rights or remuneration in consideration for such 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 “open-source”
software tools that may be subject to intellectual property infringement claims or that may subject derivative works of such open-source
software to unintended consequences, which may impair our product development plans, interfere
with our ability to provide services to our clients, require us to allow access to the source code of our products or necessitate that
we pay licensing fees.
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 embedded in our products contains open-source code. Open-source
code is computer 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 such users and modifiers abide by certain requirements. The original developers of the open-source code provide
no warranties on such code.
As a result of our 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 claims alleging non-compliance with, or seeking
to enforce, certain open-source code license terms. 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 purchase a costly license or re-engineer our software products to
remove the open-source code from our products, which may be a costly and time-consuming process, and we may not be able to complete such
re-engineering process successfully. Such events could disrupt our operations and the sales of our products, which would negatively impact
our revenue and cash flow.
Moreover, under certain conditions, we may be obligated to make
derivative works of open-source 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 code license, our previously proprietary software
products may be made available to others at no charge. As a result, our customers and our competitors may have access to our products
at no cost to them which could harm our business. Certain open-source code licenses require, as a condition to use, modify and/or distribute
such open-source code, that proprietary software incorporated into, derived from or distributed with such open-source code 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
requirements may under certain conditions be interpreted to apply to our software, depending upon the use of the open-source code and
the interpretation of the applicable open-source code licenses. The terms of many open-source code licenses to which we may be subject
have not been interpreted by U.S. or foreign courts, and there is a risk that open-source code licenses could be construed in a manner
that imposes unanticipated conditions or restrictions on our ability to provide or distribute our products or services. The use of open-source
code 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 and have a material adverse effect on our business, financial condition and results of operation.
In addition, third-party software licensors generally do not provide
warranties or controls on the origin of software or other contractual protections regarding infringement claims or the quality of the
code with respect to the open-source components of their products and would not indemnify us in the event that we or our customers are
held liable for intellectual property infringement or other software-related claims in respect of the open-source components contained
in such third-party software. Further, some open-source code is known to have security risks and other vulnerabilities and architectural
instabilities or are otherwise subject to security breaches due to their wide availability, and are provided on an “as-is”
basis. There is typically no support available for open-source code, and we cannot ensure that the authors of such open-source code will
implement or push updates to address security risks or will not abandon further development and maintenance. Many of the risks associated
with the use of open-source code, such as the lack of warranties or assurances of title or performance, cannot be eliminated, and could,
if not properly addressed, have a material adverse effect on our business, financial condition and results of operation.
Risks Related to the Geographical Location
of our Operations
Our business relies significantly on the U.S.
market. Any material adverse change in that market could have a material adverse effect on our results of operations.
Our revenue has been concentrated within the U.S. market, accounting
for approximately 75% of our revenue in 2024. A recession that causes a reduction in advertising expenditures generally or other circumstances
that cause a decrease in our U.S. revenue could have a material adverse effect on our results of operations. Recent fluctuations
in prevailing interest rates due to higher-than-average inflation materially increase the likelihood of such circumstances and present
significant potential challenges to our U.S. business.
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’s Inclusive Framework (“BEPS”)).
The members of the OECD’s Inclusive Framework on BEPS have
agreed in October 2021 on certain recommendations, informally known as BEPS 2.0 or Pillar Two, which aim to modify international taxation
norms with the introduction of a 15% minimum tax applicable to in-scope multinational enterprises (with revenue in excess of Euro 750
million). The UK and the EU member countries as well as additional countries have already enacted legislation to implement the recommendations
which have come into effect gradually in 2024 and 2025. Israel has agreed in principle to the adoption of the global minimum tax rate,
however, it has not yet announced any proposed legislation for its implementation. Our effective tax rate and cash tax payments could
increase in future years as a result of these changes. Further, the OECD’s Inclusive Framework on BEPS known as Pillar One which
deals with the allocation of taxing rights with respect to multinational enterprises with revenue in excess of Euro 20 billion and profitability
of more than 10%, focusing mostly on the digital economy, has made some progress, however, an updated proposed multilateral convention
was not yet issued. While we are not subject to the foregoing, we could be indirectly impacted.
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.
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 revenue from customers and 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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potential loss of proprietary information, technology and other intellectual property due to piracy, misappropriation, infringement,
or other violation or laws that may be less protective of our intellectual property rights than those of the United States; |
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costs and delays associated with translating and supporting our products in multiple languages; |
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foreign exchange rate fluctuations and economic instability, such as higher interest rates and inflation, which could make our products
more expensive in those countries; |
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costs of compliance with a variety of laws and regulations; |
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restrictive governmental actions such as trade restrictions and trade wars; |
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limitations on the transfer and repatriation of funds and foreign currency exchange restrictions; |
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compliance with different consumer, data protection, data privacy and cybersecurity laws and regulations, and restrictions on pricing
or discounts; |
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lower levels of adoption or use of the internet and other technologies vital to our business and the lack of appropriate infrastructure
to support widespread internet usage; |
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lower levels of consumer spending on a per capita basis and fewer opportunities for growth in certain foreign market segments compared
to the United States; |
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lower levels of credit card usage and increased payment risk; |
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changes in domestic and international tax regulations; and |
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geopolitical events, including war and terrorism. |
Political, economic and military instability
in the Middle East and specifically in Israel, including Israel’s war with Hamas and conflict with other parties in the region,
may adversely affect our operations and limit our ability to market our products, which would lead to a decrease in revenues.
We are incorporated under Israeli law, and many of our employees,
including our Chief Executive Officer, our Chief Financial Officer, and other senior members of our management team, operate from our
headquarters located in Israel. In addition, many of our officers and directors are residents of Israel. Accordingly, our business and
operations are directly affected by economic, political, geopolitical, and military conditions in Israel.
Since the establishment of the State of Israel in 1948 and in recent
years, armed conflicts between Israel and its neighboring countries and terrorist organizations active in the region have involved missile
strikes, hostile infiltrations, terrorism against civilian targets in various parts of Israel, and recently abduction of soldiers and
citizens.
Following the October 7, 2023 attacks by Hamas terrorists around Israel’s southwestern
border, Israel declared that it is in war against Hamas and since then, Israel has been involved in military conflicts with Hamas, Hezbollah,
a terrorist organization based in Lebanon, and Iran, both directly and through proxies like the Houthi movement in Yemen and armed groups
in Iraq and other terrorist organizations. Additionally, following the fall of the Assad regime in Syria, Israel has conducted limited
preventive military operations targeting the Syrian army assets, Iranian military assets and infrastructure linked to Hezbollah and other
Iran-supported groups. Although certain ceasefire agreements have been reached, these agreements failed to upheld and military activity
and hostilities continue to exist at varying levels of intensity, and the situation remains volatile, with the potential for escalation
into a broader regional conflict involving additional terrorist organizations and possibly other countries (including Hezbollah and Lebanon).
Also, the fall of the Assad regime in Syria may create geopolitical instability in the region.
While our facilities have not been damaged during the current war,
the hostilities with Hamas, Hezbollah, Iran and its proxies and others have caused and may continue to cause damage to private and public
facilities, infrastructure, utilities, and telecommunication networks, and potentially disrupting our operations and supply chains. In
addition, Israeli organizations, government agencies and companies have been subject to extensive cyber-attacks. This could lead to increased
costs, risks to employee safety, and challenges to business continuity, with potential financial losses.
The continuation of the war has also led to a deterioration of
certain indicators of Israel’s economic standing, for instance, a downgrade in Israel’s credit rating by international rating
agencies (such as by Moody’s, S&P Global, and Fitch).
In connection with the ongoing war, several hundred thousand Israeli
military reservists were drafted to perform immediate military service, and military reservists are expected to perform long reserve duty
service in the coming years. As of the date of this annual report, only several of our employees are called to active military duty. The
absence of our employees due to their military service in the current or future wars or other armed conflicts may materially adversely
affect our ability to conduct our operations.
Our commercial insurance does not cover losses that may occur
as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of certain
direct physical damages that are caused by terrorist attacks or acts of war in Israel, we cannot assure you that such government coverage
will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material
adverse effect on our business.
The global perception of Israel and Israeli companies, influenced
by actions by international judicial bodies, may lead to increased sanctions and other negative measures against Israel, as well as Israeli
companies and academic institutions. There is also a growing movement among countries, activists, and organizations to boycott Israeli
goods, services and academic research or restrict business with Israel, which could affect business operations. If these efforts become
widespread, along with any future rulings from international tribunals against Israel, they could significantly and negatively impact
business operations.
Prior to the October 2023 war, the Israeli government pursued changes
to Israel’s judicial system and has recently renewed its efforts to effect such changes. In response to the foregoing developments,
certain individuals, organizations and institutions, both within and outside of Israel, voiced concerns that such proposed changes may
negatively impact the business environment in Israel. Such proposed changes may also lead to political instability or civil unrest. If
such changes to Israel’s judicial system are pursued by the government and approved by the parliament, this may have an adverse
effect on our business, results of operations, and ability to raise additional funds, if deemed necessary by our management and board
of directors.
We are exposed to the risk of natural disasters,
political events, war, terrorism and pandemics, each of which could disrupt our business and adversely affect our results of operations.
Events beyond our control could have an adverse effect on our business,
financial condition, results of operations and cash flows. Disruption to our business resulting from natural disasters, political events,
war, terrorism, pandemics or other reasons could impair our ability to continue to provide uninterrupted service to our advertisers and
partners. For example, tensions between Russia and Ukraine, resulting in Russia’s invasion of Ukraine, and the possibility of retaliatory
measures taken by the United States and NATO have created global security concerns that could have a lasting adverse impact on regional
and global economies, and in turn, may lead to reduced spending on advertising and adversely affect our results of operations. Similarly,
disruptions in the operations of our key third-parties, such as data centers, servers or other technology providers, could have a material
adverse effect on our business.
While we have disaster recovery and wartime resilience plan for
power and communication continuity arrangements in place, they have not been tested under actual disasters or similar events and may not
effectively permit us to continue to provide our services. If any of these events were to occur, our business, results of operations,
or financial condition could be materially adversely affected.
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 on
Form 20-F, substantially all of whom reside outside of the United States, may be difficult to obtain within the United States.
Furthermore, because a significant portion of our assets and investments,
and most 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:
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subject to limited exceptions, the judgment is final and non-appealable; |
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the judgment was given by a court competent under the laws of the state of the court and is otherwise enforceable in such state;
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the judgment was rendered by a court competent under the rules of private international law applicable in Israel; |
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the laws of the state in which the judgment was given provide for the enforcement of judgments of Israeli courts; |
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adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence;
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the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel;
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the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties;
and |
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an action between the same parties in the same matter was not pending in any Israeli court at the time the lawsuit was instituted
in the U.S. court. |
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
including interest and linkage to the Israeli consumer price index. Any of the following could have a material effect on our overall effective
tax rate:
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we may be unable to meet the requirements for continuing to qualify for some programs; |
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these programs and tax benefits may be unavailable at their current levels; or |
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we may be required to refund previously recognized tax benefits if we are found to be in violation of the stipulated conditions.
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Additional details are provided in Item 5.A “Operating Results”
under the caption “Taxes on Income”, in Item 10.E. “Taxation” under the caption “Israeli Taxation”
and in Note 15 to our Financial Statements.
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ITEM 4. |
INFORMATION ON THE COMPANY |
| 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 2 Leonardo Da Vinci Street, 24th
floor, Tel Aviv 6473309, Israel. Our phone number is 972-73-398-1000. 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 one of our US subsidiaries,
Intercept Interactive Inc. d/b/a Perion, which is located at One World Trade Center, 71st Floor,
Suite J, New York, NY 10007.
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 TASE.
In the recent years, we completed several acquisitions, including
the acquisition of Content IQ LLC in January 2020, the acquisition of Pub Ocean Media UK Limited, in July 2020, the acquisition of Vidazoo
Ltd. in October 2021 and the acquisition of Hivestack Technologies Inc., in December 2023.
Our SEC filings are available to you on the SEC’s website
at http://www.sec.gov. This site contains reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The information on that website is not part of this annual report on Form 20-F and is not incorporated
by reference herein.
For a description of our principal capital expenditures and divestitures,
see Item 5. “Operating and Financial Review and Prospects - Liquidity and Capital Resources.”
Perion is a global technology leader in connecting advertisers
to consumers across digital advertising channels, including display, Connected TV (CTV), Open Web, Digital Out of Home (DOOH), search,
social and digital audio. According to eMarketer, total digital advertising represents an addressable market of $777 billion in 2025,
which is expected to grow to $1 trillion by 2028 globally.
Our goal at Perion is to help brands, retailers and agencies to
get better results with their marketing investments. To achieve that, we are focused on making digital advertising more effective by building
adaptable technologies that continuously connect the dots between people, places and creativity across the digital advertising ecosystem.
As we operate in a highly competitive market, we continuously seek new innovative products and solutions that address current and future
advertiser needs. To help brands, agencies, and retailers navigate the complexities of modern advertising, Perion has introduced its Perion
One strategy, which aims to unify all our technologies and solutions into one advanced platform.
We develop, enhance, acquire, and aggregate tools and solutions
that are relevant in an ever-evolving market. We have a strategic footprint across channels, formats, and geographies, and we keep expanding
it, organically and inorganically through acquisitions.
Industry Overview
The digital advertising industry continues to evolve at a rapid
pace, undergoing a transformative shift, driven by AI, data privacy regulations, and evolving consumer behavior. As advertisers are prioritizing
performance-driven, measurable, and multichannel strategies to maximize engagement and return on ad spend (ROAS), digital advertising
has solidified its position as the dominant force in global marketing strategies, as it takes over traditional, non-digital, advertising.
Advertisers once navigated a few key media channels to build brand
awareness and drive performance. Over the past decade, advertising has transformed from a simpler, channel-focused approach to a vast,
complex ecosystem. This complexity has driven vast amounts of waste in spend.
Today’s advertising landscape is defined by speed, complexity
and uncertainty, driven by the ever-changing nature of people’s behavior and platforms. Technology has become integrated into people's
daily lives-from mobile phones, tablets, TVs, gaming consoles to outdoors in our cars, favorite stores, event venues and local airports.
This creates millions of daily moments for advertisers to make a connection.
Each new channel brings its own data, creative, and brand alignment
challenges, adding layers of complexity as advertisers strive to craft campaigns that fit naturally and connect with audiences while optimizing
for ROAS. Compounding this, consumers demand personalized experiences that are both relevant and respectful of their privacy, a balancing
act that has become even more challenging with data privacy and data collection regulations that are becoming more stringent.
According to eMarketer reports, digital advertising spending will
account for 75% of total worldwide media advertising in 2025, reaching approximately $777 billion and is expected to increase to approximately
$1 trillion and 79% of total media advertising spend by 2028.
With the surge in digital ad spending, technology's role in targeting,
delivering, and measuring advertising campaigns is becoming more crucial across diversified platforms and screens.
Below are some of the key trends and opportunities in the industry:
The Shift Towards Premium
Video and Connected TV (CTV)
As viewership increasingly shifts from conventional broadcast and
cable TV to connected TV platforms, advertisers can leverage advanced data analytics and targeting capabilities inherent to digital platforms.
Advertisers are increasingly moving budgets from traditional TV and website’s video to CTV, YouTube, and social video formats, capitalizing
on cord-cutting trends and streaming dominance. According to eMarketer, CTV ad spending in the U.S. accounted for $28.8 billion in 2024,
or 9.3% of total U.S. digital ad spending, and is expected to grow to $46.9 billion in 2028, representing 10.2% of total U.S. digital
ad spending for that year, taking a growing share of linear TV ad spending.
The granular audience insights available through CTV and Over-The-Top
(OTT) platforms enable advertisers to optimize campaigns for a better ROAS and expand their reach to additional audiences by tapping into
viewer preferences and behaviors. Consequently, the CTV space is not just expanding the reach for advertisers, it is also enhancing the
effectiveness of advertising by making it more relevant and interactive, opening innovative options for ad tech evolution and future growth.
Growth of Commerce and Retail
Media
According to eMarketer, worldwide retail media ad-spend accounted
for $148.2 billion in 2024, or 21.5% of total digital ad spending, a 17.9% year-over-year increase, positioning Retail Media as one of
the fastest-growing market segments in digital advertising. In the U.S., Omnichannel Retail Media ad spending accounted for $52.3 billion
representing 13.2% of total U.S. digital ad spending in 2024 and is expected to reach $62.9 billion by 2025 and $99.0 billion by 2028,
representing 14.8% and 18.7% of total U.S. digital ad spending, respectively.
Retail media can also harness first-party data with technological
solutions to create a powerful business opportunity through delivering ads that resonate with consumers, potentially transforming advertising
into immediate purchases. The synergetic combination of advertising technologies and commerce platforms create a consumer experience that
is localized and personalized, while generating a new revenue stream for retailers and profitable advertising venues for advertisers.
Multichannel Advertising
and Cross-Platform Engagement
The modern consumer journey is more fragmented than ever, spanning
multiple devices, platforms, and formats. Consumers today interact with brands across multiple platforms such as social media, search
engines, websites, streaming services, retail media and more, before making a purchasing decision. To maximize reach and engagement, advertisers
are shifting toward multichannel advertising strategies, ensuring a seamless and consistent brand experience across all digital touchpoints.
DOOH
Digital out-of-home (DOOH) refers to digital media used for advertising
outside of the consumer's home in the public domain. Unlike traditional out-of-home advertising, such as billboards with printed posters,
DOOH utilizes digital technology to display advertisements on a variety of digital screens powered by advanced algorithms and enriched
by multiple dynamic data sets, transforming ordinary public spaces into dynamic experiences, engaging audiences with eye-catching, contextually
relevant content.
The transition from traditional out-of-home advertising to digital
out-of-home and further to programmatic out-of-home (pDOOH), signifies an industry-wide shift towards embracing digital technology and
data-driven approaches. This evolution is driven by the need for more engaging, interactive, and measurable advertising methods. Programmatic
advertising technology enables advertisers to automate the buying, placement, and optimization of DOOH advertising in real-time. This
offers more targeted advertising, efficient spending, and detailed analytics, providing insights into ad performance and audience engagement.
According to Statista, worldwide DOOH ad spending is expected to
increase from US$17.3 billion in 2024 to US$26.5 billion in 2030, reflecting a 53.3% growth. In the U.S., eMarketer expects DOOH to grow
from $3.2 billion in 2024 to $4.5 in 2028.
Search Advertising
Search advertising is characterized by its targeted approach and
effectiveness in reaching potential customers who are actively searching for specific products or services online. As technologies
advance and user behaviors shift, search advertising continues to offer a powerful tool for businesses to reach high-intent audiences,
driving both online and offline conversions.
According to eMarketer, U.S. search advertising spend accounted
for $128.4 billion in 2024, representing 32.5% of total U.S. media ad spending, and is expected to grow to $189.5 billion in 2028 or 35.8%
of total media ad spend.
Digital Audio
Digital audio advertising is witnessing steady growth. According
to eMarketer, digital audio ad spending accounted for $7.1 billion in 2024, and is expected to reach $8.7 billion in 2028.
As consumers increasingly engage with digital audio platforms,
advertisers are leveraging this medium to more effectively reach targeted audiences. With the evolving landscape of media consumption,
the digital audio advertising channel offers a unique and intimate way for brands to connect with listeners, thus driving incremental
growth.
The rise of
AI in Digital Advertising
The digital advertising landscape is continually reshaped by artificial
intelligence (AI) and machine learning (ML) which drive enhancements in targeted advertising, optimization, and performance measurement.
These advancements are pivotal not just in campaign execution but also in creative development, and significantly accelerate the campaign
lifecycle. Leveraging AI, advertisers can generate a wide array of creative variations quickly, for images, text, video, and audio ads,
and optimize campaigns in real-time, thereby achieving greater scale and impact. The integration of AI technologies adds the ability to
analyze vast datasets which in turn enables more precise targeting and personalization, and subsequently enhancing the relevance of ads
to individual users. Furthermore, AI-driven automation streamlines the advertising workflow by reducing manual tasks and increasing efficiency.
Continued Focus on user privacy
In July 2024, Google
reversed its decision to phase out third-party cookies in its Chrome browser. Instead of deprecating these cookies, Google announced plans
to introduce a new user experience in Chrome, allowing individuals to make informed choices about their web browsing and adjust their
preferences at any time. This decision came after multiple delays and significant industry feedback, highlighting concerns over the proposed
alternatives to third-party cookies.
Despite Google's reversal of its decision to phase out third-party
cookies, the digital advertising industry continues to prepare for a cookieless future. Advertisers, publishers, and AdTech companies
have already invested heavily in alternative identity solutions, first-party data strategies, and AI-driven contextual targeting to adapt
to evolving privacy expectations. Leading industry players, including major DSPs and SSPs, remain committed to privacy-first advertising
models, ensuring they are not solely reliant on Google's policy shifts. The growing adoption of Retail Media Networks, clean rooms, and
universal ID frameworks (such as UID 2.0 and Google's Privacy Sandbox) further underscores the industry's shift toward a more sustainable,
privacy-conscious advertising ecosystem.
Regulators, particularly in the U.S. and Europe, remain firm on
enforcing stricter data privacy laws and consumer protections, reinforcing the need for long-term alternatives. The U.S. Federal Trade
Commission (FTC), the U.K.’s Competition and Markets Authority (CMA) and the European Commission continue to scrutinize the manner
Big Tech handles user data, ensuring competition remains fair and consumer privacy is safeguarded. Similarly, the California Privacy Rights
Act (CPRA) and GDPR set clear compliance requirements that push advertisers to adopt privacy-centric approaches regardless of Google’s
stance. As a result, companies cannot afford to revert to past practices and must continue to innovate in a world where user privacy and
transparency are paramount.
Our Strengths
Strategy for Unified Multichannel
Platform
On February 3, 2025, we introduced our Perion
One strategy, designed to unify our technologies into one multichannel platform for brands, retailers and agencies. By gradually
consolidating our diverse advertising channels under one platform, Perion One, which is intended to eliminate silos, enhance efficiency,
and provide advertisers with a seamless way to execute and optimize cross-channel campaigns. This unification is aimed to allow brands
to increase audience reach, improve engagement, and drive measurable performance across the entire digital landscape.
Perion One’s AI-powered platform and real-time data intelligence
aims to empower advertisers with precise targeting, campaign optimization, and cross-channel attribution insights. Additionally, the centralized
nature of Perion One is designed to streamline operations, reduce complexity, and enhance cost efficiency, to make it a powerful competitive
advantage in a fragmented digital advertising industry. As brands demand more integrated, data-driven, and performance-focused advertising
solutions, Perion One is aimed to position Perion as a leader in the future of digital advertising.
Focus on Technology
Technology and innovation are core drivers of our culture and operations,
and are essential for our growth. We invest in research and development to develop new solutions, applications and services, improve our
core technologies, and enhance our technology infrastructure and capabilities.
Our research and development activities are primarily conducted
in Israel, Canada and Europe, focusing on the development of new products, services and platform solutions that will offer our customers
a full comprehensive solution for their advertising needs and a higher return on investment (ROI).
Market Agility
Rapid shifts in media spending are the new normal, as brands gained
the insights and internal capabilities to allocate media on a near real-time basis. Advertisers are shifting their digital advertising
budgets from awareness to performance, using different advertising channels, in accordance with macroeconomic impacts on consumer spending.
Advertisers are also following consumer trends that often demonstrate dynamic behavior by optimizing the media mix to match the consumer
journey.
Perion’s ability to rapidly shift and reallocate resources
between different channels allows us to capitalize on these shifts in spending and budget allocation in a timely and efficient manner.
Efficient Operations
Over the past year, Perion has been successfully implementing cross-company
efficiency measures through headcount reductions and implementation of AI-driven automation processes and operations. Our Perion One strategy,
which includes the transition to the Perion One platform, is designed to further drive cross-company efficiency through the unification
of brands, operations and the unification of multiple departments globally.
Strong Balance Sheet
Perion prides itself in its decade-long generation of positive
cash flow from operations. Throughout the years, the Company built a strong cash position, focusing on profitable growth, and has accumulated
net cash that stands at over $373 million as of December 31, 2024, with no debt. The Company’s capital allocation strategy strikes
a balance between organic growth, a share repurchase program that was initially announced on February 20, 2024, and its expansion announced
on April 8, 2024, and inorganic growth through acquisitions.
Business Strategy
Perion One represents a fundamental evolution in our business strategy,
intended to transition from a siloed operational model to an integrated, AI-driven platform. Our business units have operated independently,
leading to inefficiencies, redundant efforts, and a fragmented approach. The Perion One strategy is designed to unify our offerings into
a single, multi-channel solution that enhances efficiency, improves advertiser outcomes, and strengthens our competitive positioning in
the evolving digital advertising landscape.
Strategic Differentiation and Customer Benefits
Our Perion One strategy aims to address the growing industry demand
for integrated advertising solutions that simplify execution across multiple channels. By consolidating our technologies and brands into
a single AI-powered platform, we plan to provide brands, agencies, and retailers with a streamlined solution that enhances campaign effectiveness
and operational efficiency. This shift is designed to allow brands and agencies to work with fewer partners while achieving a more comprehensive,
data-driven approach to media buying.
Our Perion One strategy aims to achieve the following Key benefits:
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Unified Multi-Channel Advertising – Perion One is designed to enable advertisers to
plan, execute, measure, and optimize campaigns seamlessly across Open Web, Connected TV (CTV), Digital Out of Home (DOOH), Social and
Digital Audio and is planned to gradually add more digital channels. This holistic approach is aimed to allow greater consistency in messaging
and better audience engagement across the consumer journey. |
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Operational and Organizational Efficiencies – The integration of our business units
under one cohesive structure is expected to improve internal alignment, enhance collaboration, and lead to more effective marketing investments
by promoting a singular brand identity. These efficiencies drive cost savings and improve overall agility in responding to market shifts.
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AI-Driven Optimization – Perion One platform is planned to leverage AI to enhance campaign
performance through real-time optimization, personalized messaging, and automated decision-making. We believe that this technological
advantage differentiates us from competitors by improving the effectiveness of media investments to deliver attractive ROAS for advertisers.
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Simplified Vendor Management – Agencies and brands to benefit from a consolidated platform
that reduces the complexity of managing multiple vendors. We expect this to result in lower operational friction, faster execution, and
improved campaign results. |
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Financial Growth and Profitability – The transition to a unified solution is intended
to gradually drive increased client spending, higher retention rates, and improved margins. By sunsetting less efficient technologies
and focusing on high-value, AI-enhanced solutions, we anticipate a stronger financial trajectory with sustainable long-term growth.
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Perion One is more than just an operational shift — it is
a gradual strategic transformation which is intended to align with the evolving needs of advertisers in a fragmented media landscape.
By integrating multiple channels into a cohesive platform, we strive to empower advertisers to engage audiences more effectively throughout
the consumer journey, with more relevancy at every stage—from awareness to consideration to conversion or purchase. This evolution
is intended to position Perion as a leader in delivering intelligent, data-driven advertising solutions, ultimately increasing value for
our customers.
Growth Strategy
Perion’s growth strategy is built on a foundation of its
Perion One strategy, global expansion, and leveraging innovative technological advertising solutions across digital channels, naturally
existing on advertising properties along the consumer journey. This approach aims to enhance every stage of the advertising funnel - from
awareness to purchase - leveraging the presence of our solutions on a multitude of advertising properties while propelling our future
growth
Our strategy encompasses a multichannel approach, including CTV,
Open web, DOOH, search advertising ,social and digital audio, among others, that allows us to quickly adapt to market shifts and
to ensure advertisers can build meaningful immersive relationships with their audiences in brand-safe environments.
While our multichannel approach offers advertisers a wide array
of advertising channels, we have been investing heavily in identifying and developing our core growth engines which include the CTV and
DOOH channels, as well as the Retail Media market vertical, all of which have outperformed market growth in 2024.
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B. |
Leveraging the Growth of Commerce and Retail Media |
Investments in developing solutions for Commerce and Retail Media
are another cornerstone of our strategy, tapping into a rapidly growing revenue stream utilizing our Retail Media-tailored technological
solutions. Retail Media is expanding beyond traditional boundaries to attract new customers, distributing personalized offers across all
screens, including Digital Out of Home (DOOH) and CTV. As stated above, according to eMarketer, worldwide retail media ad spend accounted
for $148.2 billion in 2024, a 17.9% year-over-year increase, and is expected to grow at a CAGR of 15.2% to $260.7 billion by 2028, positioning
it as one of the fastest-growing market segments in digital advertising.
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C. |
Investments in technology |
Technological innovation remains at the heart of our growth, and
we plan to continue to make investments in new technologies, tools, and partnerships that enhance our offerings and accelerate operational
efficiency.
Our investments in technology include significant investments in
AI through our dedicated AI Lab which houses our AI-based R&D pipeline. Our AI Lab developed and launched several products such as
SORT® - our AI-based audience segmentation technology - which is now also available for CTV, WAVE – our Generative AI dynamic
audio ads technology, our DCO - Dynamic Creative Optimization that renders creative based on data points, and our in-ad AI Chatbot for
better engagement.
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D. |
Geographical expansion |
Geographical expansion is another key driver for our business's
growth. The acquisition of Hivestack, a programmatic Digital Out of Home advertising company, has immediately extended our global footprint
to more than 34 markets. In February 2024 we announced the launch of a new partnership in Brazil with Eletromidia, one of the largest
media companies in the country, through our Hivestack division. We also announced a new partnership with Way.io, a domestic Demand Side
Platform (DSP) in China - the world’s largest DOOH market. These partnerships not only give us access to the fast-growing APAC and
South American markets but also allow us to connect with major players within the local media landscape.
The synergetic nature of our multichannel strategy allows us to
approach customers in new markets with a holistic solution, covering a wide array of digital advertising possibilities and establishing
our position in the global markets.
Perion’s growth strategy consists of both organic and inorganic
growth through acquisitions and partnerships. Our net cash position provides us with sufficient financial resources to acquire companies
that align with our strategic goals and will accelerate our growth either through expanding digital ad channels, expanding our customer
reach, geographical footprint, or through new and advanced technology that would shorten our time to market and expand our market share.
Perion follows a strict screening and evaluation process that includes
several well-defined criteria, including but not limited to clear synergies with our existing businesses, ability to co-exist along with
our existing solutions on a unified platform, companies that display growth in high-growth categories (such as CTV, Retail Media, and
DOOH), profitable or with a clear path to profitability, and a high level of technological and cultural match.
Our Solutions
We believe that Perion is well positioned to benefit from the overall
growth of the digital marketplace.
In the rapidly evolving digital advertising space, we continue
to innovate and offer a suite of diversified business solutions. Our solutions span across key domains such as high-impact display, CTV,
Retail & Commerce, DOOH, digital audio, advanced audience segmentation - SORT®, search advertising, social, and website publisher’s
solutions.
With a commitment to driving growth and diversifying our market
share, Perion's solutions are designed to meet the complex needs of today's digital advertising landscape, while maintaining privacy compliance
through proprietary and industry-leading solutions using technology integrations.
Our solutions are designed to help publishers optimize the value
of their digital properties while enabling advertisers to engage audiences through relevant and impactful advertising. By leveraging our
proprietary technology, we aim to support brands in delivering advertising experiences across multiple digital touchpoints throughout
the consumer journey.
Furthermore, advertisers can choose between programmatic or managed
executions, all underpinned by data-driven insights and optimizations. Aiming to deliver measurable results, Perion implements full-funnel
measurement to refine and advance campaign performance from inception to conclusion. Together, these integrated solutions drive digital
engagement, aiming to enable brands not only to maintain but amplify their presence in a competitive market.
In 2024, U.S. display advertising spend, including banners, rich
media, video and social, was $174.4 billion and, according to eMarketer, is expected to increase by 51% and reach $263.7 billion in 2028.
Perion's High Impact Advertising Suite transforms the way
brands engage with consumers in an ever-evolving digital landscape. eMarketer reports that rich media, including high-impact ad formats,
as well as outstream and instream video accounted for $122.4 billion of U.S. digital display ad spend in 2024 and is expected to increase
by 64.8%, reaching approximately $201.6 billion in 2028.
Leveraging the growth in digital media consumption, Perion’s
advanced technology solutions are designed to deliver immersive, high-impact experiences across desktop, mobile, and tablet. Our AI-driven
dynamic creative technology, combined with a powerful in-house design and AI teams, is designed to enable personalized, visually striking
ads that captivate audiences and drive engagement. One of our innovations is our in-ad AI Chatbot, allowing consumers to interact with
advertisers in real time, enhancing user experience and brand connection. With premium inventory and both cookie-based and cookieless
targeting solutions, Perion offers by-design seamless, high-quality ad placements that meet the evolving industry demands. Proven partnerships
with premium brands, agencies and retailers further showcase our ability to deliver measurable marketing success.
Perion’s CTV business continued to gain traction, growing
by 30% year-over-year in 2024, representing 13% of our total display advertising revenue.
Perion’s High Impact CTV Solution Suite is engineered to
captivate audiences punctuating the traditional commercial break with storytelling precision and interactive elements. Perion harnesses
the power of the TV screen to allow brands to make an indelible impression during prime moments—whether it's during a gripping live
sports event, the intermission of favorite shows, or even during a paused screen scenario.
This comprehensive suite encompasses a wide array of formats designed
to engage and interact with viewers. From Branded CTV, which integrates branding elements and custom animations, to Dynamic CTV, which
personalizes content in real-time; each format is crafted for maximum impact. The Stay-Live CTV provides a picture-and-picture experience,
keeping viewers connected during live events, while Interactive CTV overlays extend the advertisement's reach with additional interactive
features.
Notably, the Live CTV with the LBar format maintains brand visibility
with a non-intrusive 'L' shaped banner during live content—an innovation that sustains brand presence without the conventional video
asset. Moreover, a strategic partnership with DirectTV for Pause Ads offers brands a novel avenue to occupy the screen during a user's
reflective pause moments, providing another layer to the advertising experience.
Towards the end of 2024, we launched Anyplace TV, a global, cross-channel
video advertising solution that extends CTV and video campaigns beyond traditional screens to one-to-many Digital Out-of-Home (DOOH) environments.
By leveraging Perion’s DOOH impression multiplier methodology via the DOOH platform, Anyplace TV is designed to allow advertisers
to achieve greater scale, efficiency, and guaranteed Media Ratings Council (MRC)-accredited viewability, and to streamline campaign execution
by unifying CTV and DOOH, making it easier for brands to increase reach and impact. Key benefits include non-skippable ads with 100% viewability,
access to 1M+ DOOH screens globally, creative flexibility for various video formats, and real-time optimization for dynamic content updates—aimed
to drive advertisers’ engagement while maintaining cost efficiency.
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C. |
Retail Media & Commerce |
Retail Media is another important sector for advertising, as retailer
data is highly leveraged to create advertising opportunities to drive more sales for retailers both online and at physical stores. According
to eMarketer research from Oct 2024, 87% of US grocery sales will still come from physical stores this year. Our Retail Media solution
aims to help both online and physical retail stores drive more sales through our advanced Retail Media solutions.
We provide a range of solutions for retailers, designed to leverage
their first-party data, as well as Perion’s know-how and technology, to increase sales, loyalty, and ROAS. This includes digitizing
traditional circulars into dynamic, localized, and personalized ads, as well as offering various ad formats to maximize the impact of
their data. For Consumer Packaged Goods (CPG) brands, we offer dynamic, personalized, and localized ads with functionalities like Add
to Cart from the creative. This is aimed to enable CPGs to create highly targeted campaigns that drive conversions and enhance the shopping
experience.
In 2024, Perion’s Retail Media revenue stream stood out,
and was among the top growth drivers for us, with a year-over-year revenue increase of 62% to over $80 million.
With the acquisition of Hivestack, a programmatic DOOH technology
innovator since 2017, Perion entered an exciting market at its nascent stage, positioning us to capitalize on the anticipated growth of
DOOH.
Our global full stack DOOH platform offers media owners an array
of purpose-built software like the DOOH Ad Server, supply-side platform (SSP), and Header Bidder, designed to manage, deliver, and optimize
advertising campaigns and revenue for out-of-home digital screens, enhancing yield and diversifying demand sources.
Our curation solutions provide advertisers with a centralized marketplace
to create and manage programmatic DOOH campaigns efficiently. It consolidates inventory from our 390 media owners across 34 markets under
a single Deal ID, simplifying planning and activation. With integrated audience data, it helps optimize reach and engagement and an integration
with Scope3 for Green PMPs supports more sustainable advertising practices.
For media buyers, our DOOH demand-side platform (DSP), along with
its unique smart tools for campaign planning, delivery and measurement, provides robust capabilities for audience geolocation and contextual
targeting, sourcing optimal inventory and maximizing the effectiveness and ROI of DOOH advertising campaigns.
This platform is used by many of the world's largest brands, agencies,
media owners, and partners including Uber, Colgate, Lego, InterContinental Hotel Group, Doordash, GroupM, Dentsu, The Trade Desk, Xandr,
Clear Channel, Lamar, Stroër, and many more.
According to Statista, worldwide DOOH ad spending is expected to
increase from US$17.3 billion in 2024 to US$26.5 billion in 2030, reflecting a 53.3% growth while in the U.S., eMarketer expects DOOH
to grow from $3.2 billion in 2024 to $4.5 in 2028.
The U.S. Digital Audio Advertising Market is on a significant upward
trajectory, with projections indicating that advertising budgets will approach $8.7 billion by 2028. This rapidly growing sector represents
a substantial opportunity for innovative advertising solutions.
Responding to this market demand, Perion introduced WAVE, a generative
AI cutting-edge addition to our advertiser solution suite. WAVE leverages Generative AI to produce dynamic audio ads, generating hundreds
of thousands of tailored audio messages. This solution adapts in real-time to a variety of factors such as context, behavior, geography,
and demographics, employing advanced AI algorithms designed to significantly enhance consumer engagement and impact.
SORT® is a product of Perion’s AI Lab, a proprietary,
privacy-focused targeting technology enabling the ability for advertisers to find the consumers most interested in their brand in that
moment across all browsers and devices. This solution helps brands reach optimal performance by predicting how consumer groups will respond
to an ad without privacy-invasive practices or legacy third-party cookie-based targeting tactics.
SORT® technology utilizes real-time, cookieless data signals
to identify users with shared traits and behaviors, then classifies them into addressable and anonymous Smart Groups using a sophisticated,
proprietary AI algorithm. SORT® - which stands for “Smart Optimization of Responsive Traits” – not only eliminates
the need for cookies, but is being demonstrated by actual, real-time comparison tests made by Neutronian, a respected third-party research
firm, to outperform third party cookies. In May 2024, we unveiled an upgraded version of SORT®, which now has more web capabilities
and is also available for CTV advertising. Due to its strong performance, SORT® is currently used by the majority of our eligible
customers.
Further, SORT® does not collect or store any user data, as
many other cookieless solutions do, which positions it as a competitively advantaged replacement for third-party cookies. While cookies
are currently an essential part of the targeting infrastructure of the digital advertising market, they are under increasing pressure
for the manner in which they are perceived to violate user privacy. SORT® provides a competitive solution that should help Perion
capture additional revenue as brands and advertisers move away from traditional methods such as cookies.
Finally, thanks to a proprietary “Privacy Shield” graphic
logo that is incorporated into every ad unit utilizing the technology, SORT® consumers are able to recognize when an advertisement
they are interested in is utilizing SORT®, which is a cookieless offering which does not track their behavior online.
Capturing consumers at their moment of highest intent has been
well-established as the most ROI-positive advertising channel. Leading advertisers to increasingly allocate budgets to search advertising.
Our Search monetization solution is comprised of the following
two offerings:
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App Monetization - using intent-based search signals to monetize publishers' desktop and mobile apps. |
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Search Mediation - enables media traders to monetize search demand and achieve higher yields by leveraging the machine learning that
drives our mediation platform. |
Searching is a fundamental digital behavior that generally signals
the consumer has a high intent to complete a purchase of a product or service. We are continuously innovating and advancing our solutions
to provide more value in this dynamic environment. We deploy advanced AI and machine learning to optimize yield for our publishers and
transform search into revenue. According to eMarketer reports, advertisers will increase their investment in search through 2027. The
U.S. search advertising market is expected to reach $189.5 billion in 2028, representing 41.2% of U.S. digital ad spending.
Microsoft Advertising has been our partner since 2010. We entered
into our first agreement with Microsoft in 2010. In November 2020, we entered into a renewed agreement with Microsoft which became effective
on January 1, 2021 and expired on December 31, 2024, and which is now in its tail period. In the first quarter of 2024, we experienced
a decline in our search advertising activity, attributable to changes in advertising pricing and mechanisms implemented by Microsoft in
its search distribution marketplace. These adjustments led to a reduction in Revenue Per Thousand Impressions (RPM) for both Perion and
other Microsoft distribution partners. In the second quarter of 2024, we experienced an additional decline in our search advertising activity
attributable to Microsoft’s exclusion of a number of publishers from its search distribution marketplace. For additional information
see also the Risk Factor titled - “Our search advertising solution depends heavily upon revenue generated from our agreement with
Microsoft, and any adverse change in that agreement could adversely affect our business, financial condition and results of operations.”
The Perion Social platform supports the various phases of campaign
management across different channels, integrated with the major social channels such as Meta, LinkedIn, Snapchat, X and Pinterest.
The platform manages each of the planning, execution, optimization and measurement phases and is designed to simplify the complexity of
cross channel advertising for brands and agencies while optimizing performance through AI in one unified, actionable, holistic and intuitive
dashboard.
Perion also developed sophisticated capabilities to buy media on
social channels such as Meta, X, and TikTok and others. The uniqueness is in the optimization process which runs in real-time, connecting
the monetization data flow and the cost of buying, per session. The service is a mix of manually managed service and machine learning
algorithms that run dedicated buying rules.
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I. |
Website Publisher’s Solution |
The nature of today’s digital ecosystem makes audience growth and engagement challenging
for publishers. Perion’s Website Publisher Solutions provide publishers with monetization technology tools, including an Online
Video Player, Ad Server, Display Monetization, and Yield Ad Management Platform.
Perion helps connect publishers to the right demand sources, intended
to maximize revenue potential and enhance ad performance with advanced AI- technology to capture every revenue moment.
Enhancing its robust capabilities, our Website Publisher’s
Solutions platform now integrates seamlessly with Amazon's Transparent Ad Marketplace (TAM) and Unified Ad Marketplace (UAM), offering
publishers access to our monetization capabilities and marketplace with ease.
As part of our Website Publisher Solutions Platform, our machine
learning employs AI analysis and deploys tens of thousands of signals to achieve maximum user engagement and publisher profitability.
Our Technology
Perion’s strong technology moat is embedded in the core of
our products and solutions described above. Our advanced technological solutions are applied throughout the consumer journey and marketing
funnel, and include the following capabilities:
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The ability to meet advertiser demand for higher sustained user engagement with our sophisticated high-impact Ad suite; |
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The ability to monetize the fast-growing Retail Media business, reflected in 62% year-over-year revenue growth we achieved in 2024;
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The ability to innovate in sectors that matter most to brands, such as: |
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SORT®, our proprietary cookieless targeting technology, which was developed in response to advertisers’ growing recognition
of user privacy matters and the planned deprecation of cookies by Google. SORT® displays the result of our ability to analyze the
complex data signals that are derived from our assets that flow through our technology. |
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The introduction of WAVE, a generative AI-powered dynamic audio solution that creates personalized audio advertising messages at
scale; |
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The introduction of Anyplace TV, a cross-channel video advertising solution that extends CTV and video campaigns to Digital Out-of-Home
(DOOH) environments |
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The ability to integrate programmatic DOOH advertising using cutting-edge technologies to target, deliver, and measure unforgettable,
immersive ads that connect brands with people on the go; |
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Our AI Lab, which houses our AI-based R&D pipeline, has launched several products such as SORT® - our AI-based audience
segmentation technology - which is now also available for CTV, dynamic audio ads technology WAVE, Dynamic Creative Optimization (DCO)
and our in-ad AI Chatbot |
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The ability to monetize search traffic through our partnerships with search engines through innovative publisher-centric solutions
and online quality control and monitoring systems. |
The technology backbone behind our solutions
is designed to connect brands with consumers via meaningful digital interactions and experiences. This is done through these key components:
On February 3, 2025, we introduced Perion One, our unified multichannel platform strategy.
Perion One is both an advanced technology framework and a strategic consolidation of Perion’s existing capabilities, designed to
enhance the efficiency and effectiveness of our solutions. By integrating and reimagining multiple technologies, Perion One will allow
a seamless, streamlined experience for both supply and demand-side customers, making it easier to access, explore, and optimize our products
and services.
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b. |
Supply Management Technologies |
The Supply Management set of technologies designed to facilitate
relationships with our publishers by treating every impression in an optimal manner. Our platform is driven by business requirements and
agreed upon monetary expectations, which in turn determine which ads are allowed, what prices are expected, and the allowable frequency.
The optimization in our supply management platform is based on proprietary technology and our specific needs and use cases.
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c. |
Demand Management Technologies |
The Demand Management set of technologies is designed to assist
advertisers with campaign planning, design, and activation by providing data-driven recommendations aligned with their specific objectives.
It suggests advertising channels, audience targeting strategies, and ad product mixes based on benchmarks and past campaign data. Once
a plan is developed, the platform facilitates execution by relaying instructions to the campaign management system, incorporating parameters
such as dates, volume levels, supply sources, and campaign goals.
Our Analytics Layer provides information and performance metrics
and insights for our customers for both pre and post campaign purposes. It reports all the required data, including total budget; the
delivery of reach and impressions; engagement metrics, etc. The Analytics Layer supports our data driven operations, providing advertisers
full visibility of KPIs on key processes while facilitating data and reporting in a self-service manner, with pre-built dashboards and
reports as well as self-serve operational interfaces.
Perion’s DCO - high-impact Dynamic Creative Optimization
Platform is a key component of our solutions. Our proprietary creative technology platform enables the automation of High Impact ad unit
production across all formats (Display, Video, CTV and DOOH). Our consolidated technology workflow touches every aspect of campaign flow,
including ad building, tag creation, creative optimizations & post-campaign performance. We learn, adjust, and continually iterate
- allowing us to create engaging, high-performing user experiences that perform across all stages of the funnel. Available for use in
fully managed campaigns or in programmatic channels, our platform delivers superior results for advertisers and agencies looking to take
their creativity to the next level.
In conjunction with
our creative platform, Perion leverages Machine Learning for campaign delivery and optimization, using real-time analysis to determine
the most effective advertisements for specific target audiences, leading to improved campaign performance. Our AI-based creative platform
has the ability to create hundreds and thousands of different ad permutations, targeted at different audiences. We also employ Generative
AI for voice and audio advertising and utilize our proprietary SORT® targeting technology, which utilizes AI without using personally
identifiable information data to find interested audiences across devices and browsers, based on real-time signals such as weather and
user intent groups.
Our AI Technologies and machine learning bring deep intelligence
to the various phases of campaigns: planning, activation and reporting, utilizing models built on top of our data platforms. Based on
campaign-to-campaign learnings and complex problem solving methodologies, these technologies are leveraged to build products that generate
better performance for our customers and improved efficiency by providing rules-based and budget optimizations. Among the products leveraging
AI are our SORT cookieless solution, WAVE audio ads, and more products in the pipeline.
Our AI Technologies are also in use to improve the efficiency of
the machinery powering the Supply and Demand Management Technologies. The efficiency gains result in a leaner technology footprint and
lower costs without sacrificing performance, as well as benefits partners on both sides of transactions via SPO/DPO (Supply Path Optimization
/ Demand Path Optimization).
Our proprietary Online Video Player (OVP), which integrates a full,
comprehensive suite of services, including an ad server, allows publishers and brands to upload, manage and stream video content to targeted
audiences. Perion’s OVP is certified with the major advertising platforms and compatible with all devices and video formats. The
OVP is integrated with a proprietary ad server, ensuring a consistent user experience by reducing latency and errors, adding to its inherent
power and efficiency.
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h. |
Search Advertising Technology |
The technology behind our search solution is composed of the following
systems:
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Publisher management system that provides publishers access to an online dashboard providing analytics and performance optimization
tools, as well as reports that enable them to maximize their distribution and monetization. |
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Search demand management system that integrates and onboards demand vendors to our monetization products. The integration supports
multiple vendors according to predefined configurations and rules, enabling various business models and offerings, and making it possible
for Perion’s R&D team to innovate on the “search stack.” |
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Monetization products designed to deliver algorithmic search results concurrently with sponsored listings, both served for the same
search queries. They can be operationalized in different ways, including the transmission of search queries to search engines, search
Feed APIs operated on publishers’ domains and an enriched and optimized hosted search results page which offers an enhanced user
experience. |
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AI technology, which powers our search solutions, optimizes the various phases of the funnel including intent detection and demand
optimization to drive performance optimization and enhance the consumer experience. |
Competition
The advertising technology industry is highly competitive. There
are several digital media and advertising technology companies that offer services similar to our advertising solutions and compete for
finite advertiser/agency budgets and publisher inventory. There are also several niche companies that compete with our advertising solutions,
providing a subset of services similar to those we provide.
Among our competitors, both on the supply side and on the demand
side, are companies that are not public such as Kargo, GumGum, and public companies such as The Trade Desk, Pubmatic, Nexxen, Magnite,
Teads and others.
Some of our competitors, including Google, Meta, Amazon, and Microsoft,
are significantly larger and possess greater financial and technological resources than we do. Microsoft serves as both a partner and
a competitor, as Microsoft Bing generates organic traffic independently of our publisher network while also contributing to our search
monetization efforts.
Beyond traditional search engines, we also face competition from
alternative search solutions that allow consumers to discover content outside of conventional search engines. These include companies
such as IAC, System1, and other emerging platforms that leverage AI-driven discovery tools, browser integrations, and contextual search
models.
As we introduce new solutions, and as our competitors do the same,
we may be subject to additional competition. 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.
In addition, the launch of ChatGPT, along with the launch of other
AI platforms such as Copilot, Gemini (formerly known as Bard) by Google, Claude by Anthropic, and Grok by X, are likely to result in the
creation of tools that could increase competition in the advertising technology industry and lower barriers to entry.
Intellectual Property
Our proprietary technology, including our platforms, products and
related algorithms, are critical to our operations and competitive advantage. We strive to protect our intellectual property rights
by relying on confidentiality and invention assignment agreements, trade secret, trademark, copyright, and patent laws in the United States
and other countries as well as technical measures to establish and protect our intellectual property. Our portfolio includes registered
trademarks and domain names in various countries as well as approximately 10 patents registered mainly in the U.S.
Some components of our software products were developed solely
by us. We license certain components of our software from third parties. We believe that the components we license 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.
Our employees and consultants are required to execute confidentiality
covenants in connection with their employment and consulting relationships with us. These agreements generally contain assignment and
waiver provisions relating to the employee’s or consultant’s rights in respect of inventions.
Intellectual property laws, together with our efforts to protect
our proprietary rights, provide only limited protection, and any of our intellectual property rights may be challenged, invalidated, circumvented,
infringed or misappropriated.
For more information, see the Risk Factor titled – “Our
proprietary information, technology and other intellectual property may not be adequately protected and thus our intellectual property
may be unlawfully copied by or disclosed to other third parties.”
Government Regulation
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
or otherwise adversely impact our services. These laws and regulations cover data protection, data privacy, cybersecurity, e-commerce,
content, use of “cookies,” pricing, advertising, distribution of “spam,” copyright and other intellectual property,
libel, marketing, distribution of products, protection of minors, consumer protection, accessibility, taxation, online payment services
and more. Many areas of laws and regulations affecting the internet remain largely unsettled, even in areas where there has been some
legislative or regulatory action.
In many cases, when we deliver an advertisement we are able to
collect certain data, including personal data, about the content and placement of the ad, the relevancy of the ad to a user and the interaction
of the user with the ad, such as whether the user viewed or clicked on the ad or watched a video. As we collect and aggregate data provided
by billions of ad impressions and third-party providers, we analyze the data in order to measure and optimize the placement and delivery
of our advertising inventory and provide cross-channel advertising capabilities. Our ability to collect, use, maintain and otherwise process
such data is crucial.
We are subject to the data privacy laws and regulations of various
jurisdictions, including the GDPR, the CCPA, the Israeli Privacy Law, the Canadian Privacy Law and the ePD. These laws and regulations
generally impose stringent requirements such as transparency and user consent requirements and allow data subjects to request that we
discontinue using certain data. In addition, some countries are considering or already enacted legislation requiring local storage and
processing of data. Certain U.S. federal laws restrict online service providers’ collection of user information on minors. Non-compliance
with such laws could result in enforcement actions, fines and reputational harm.
We voluntarily participate in industry self-regulatory bodies such
as the NAI, IAB and the DAA, which promulgate best practices or codes of conduct addressing, among other things, data protection, data
privacy, cybersecurity and the delivery of digital advertising.
We adopted privacy policies and practices to address privacy implications
on our various business activities. As part of our compliance program, we regularly review our privacy policies and practices in light
of evolving regulation.
An increasing number of U.S. states, such as California, Virginia,
Connecticut, and Colorado, adopted and additional states are planning to adopt statutes concerning data protection which could affect
us. If other states follow suit, it could lead to an increasingly varied and complex regulatory landscape, and result in materially increased
costs. The interpretation of data protection, data privacy and cybersecurity laws and regulations, and their application to our business
may, in certain cases, be interpreted and applied in conflicting and more restrictive ways and in a manner that is not consistent with
our current data protection, data privacy and cybersecurity practices. The enactment of new proposed laws, and the interpretation of existing
laws, adds complexity to our operations, and could result in material costs, and may restrict the growth and profitability of our business.
For more information, see the Risk Factor titled –
“Our business depends on our ability to collect, use, maintain and otherwise process data, including personal data, to help our
clients deliver advertisements and to disclose data relating to the performance of advertisements. Any limitation imposed on our collection,
use, maintenance or other processing of this data could significantly diminish the value of our solution and cause us to lose sellers,
buyers, and revenue. Regulations, legislation or self-regulation relating to data protection, data privacy, cybersecurity, e-commerce
and internet advertising and uncertainties regarding the application or interpretation of existing or newly adopted laws and regulations
threaten our ability to collect, use, maintain and otherwise process this data, could harm our business and subject us to significant
costs and legal liability for non-compliance.”
Recent Acquisitions
Acquisition of Hivestack
On December 11, 2023, Perion announced it has completed the acquisition
of Hivestack Technologies Inc., a global innovative full-stack programmatic DOOH company. The terms of the transaction included
US $100 million in cash paid at closing and a 3-year employee retention and performance-based payment plan of up to US $25 million.
DOOH advertising transforms ordinary public spaces into dynamic
experiences, engaging audiences with eye-catching, personalized content in real-time. It harnesses cutting-edge technologies to target,
deliver and measure immersive ads that connect brands with people on the go.
|
C. |
ORGANIZATIONAL STRUCTURE |
The legal name of our Company is Perion Network Ltd. and we are
organized under the laws of the State of Israel.
The following table sets forth our significant subsidiaries, all
of which are 100% owned directly or indirectly by Perion Network Ltd.:
|
Name
of Subsidiary |
Place
of Incorporation |
|
Codefuel Ltd. |
Israel |
|
IncrediMail, Inc. |
Delaware |
|
Intercept Interactive, Inc. |
New York |
|
Vidazoo Ltd. |
Israel |
|
Hivestack Technologies Inc. |
Canada |
| D. |
PROPERTY, PLANTS AND EQUIPMENT |
Our headquarters are located in Tel Aviv, Israel. As of December 31, 2024, we lease
approximately 32,328 square feet, excluding office space which we currently sublease. The lease expires in April 2029, with an option
to extend for two additional three-year and two-year periods, unless we issue a 270-day prior written notice to the contrary at our sole
discretion. Annual net cost is approximately $1.6 million.
Our principal offices in the United States are located at the World Trade Center (WTC)
in New York. As of December 31, 2024, we lease approximately 9,500 square feet, excluding office space which we currently sublease. The
lease expires in December 2025 and the annual net cost is approximately $0.7 million.
Our principal offices in Canada are located in Montreal, Canada.
As of December 31, 2024, we lease approximately 4,000 square feet. The lease expires in September 2025 with an option to extend for one
additional two-year period. Annual net cost is approximately $0.1 million.
This excludes office spaces we currently sublease or short-term
rent in co-working spaces.
|
ITEM 4A.
|
UNRESOLVED STAFF COMMENTS |
None.
|
ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following discussion of our financial condition
and results of operations should be read in conjunction with our consolidated 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 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 “expects,” “anticipates,” ”intends,”
“believes,” or similar language. These forward looking statements involve risks, uncertainties and assumptions. Our actual results
and timing of selected events may differ materially from those anticipated in these forward looking statements as a result of many factors,
including those discussed under Item 3.D. “Risk Factors” and elsewhere in this annual report.
For a discussion of our results of operations
for the year ended December 31, 2022, including a year-to-year comparison between 2023 and 2022, and a discussion of our liquidity and
capital resources for the year ended December 31, 2022, refer to Item 5. “Operating and Financial Review and Prospects” in
our Annual Report on Form 20-F for the year ended December 31, 2023.
Company Overview
Perion is helping agencies, brands and retailers get better results with their marketing
investments by providing advanced technology across all major digital channels. We are making digital advertising more effective by building
solutions that continuously adapt to connect the dots between data, creative and channels.
Our headquarters are located in Israel and our primary research
and development facilities are located in Israel, Canada and Europe. Our primary sales offices are located in the United States. We also
have several sales and representative offices located in North America, APAC, and EMEA.
Components of Statements of Operations
The following describes the nature of our principal items of income
and expense:
Revenue
We generate our revenue primarily from two major sources, advertising solutions and
search advertising.
Advertising Solutions - we generate revenue from
Advertising Solutions by delivering high-impact and standard ad formats across different channels including standard and high-impact display,
social, CTV, digital audio and DOOH. In addition, we generate revenue by delivering Web Publisher Solutions and DOOH media owners solutions,
such as Ad Servers, SSP and Header Bidder. Our diverse, technology-focused multi-channel set of solutions is designed to drive consumer
engagement and high ROI for advertisers through high-impact ad formats. Our solutions include a content monetization platform that provides
publishers with monetization tools across different channels, and a social platform that supports campaign management and media buying
capabilities across all major social channels.
Search Advertising - we
generate Search Advertising revenue from service agreements with our search partners. Search Advertising revenue is generated primarily
from monthly transaction volume-based fees earned by us for making our applications available to online publishers and app developers
on a revenue share basis relative to the revenue generated by such search partners.
Geographic Breakdown of Revenue
For the distribution of our total revenue, by geographic areas,
see Note 18 to our consolidated financial statements.
Cost of Revenue
Cost of revenue consists primarily of expenses associated with
the operation of our server hosting, data verification and targeting, campaign creative, labor, as well as customer support.
Traffic Acquisition Costs and Media Buy
Our traffic acquisition costs and media buy 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. In addition, media buy costs consist of the costs of advertising inventory incurred to deliver ads. Traffic acquisition
costs are primarily based on revenue share agreements with our traffic sources and the media buy cost are primarily based on Cost Per
Click (“CPC”) and Cost Per Mille (“CPM”).
Research and Development Expenses (“R&D”)
Our research and development expenses consist primarily of salaries
and other personnel-related expenses, allocated facilities costs, subcontractors and consulting fees. Research and development costs are
charged to the statement of income as incurred.
Selling and Marketing Expenses (“S&M”)
Our selling and marketing expenses consist primarily of salaries
and other personnel-related expenses, allocated facilities costs, as well as other outsourced selling and marketing activities.
General and Administrative Expenses (“G&A”)
Our general and administrative expenses consist primarily of salaries
and other personnel-related expenses, allocated facilities costs, professional fees and other general corporate expenses.
Change in fair value of contingent consideration
Our change in fair value of contingent consideration expenses consist
of fair value adjustments of contingent considerations liabilities related to acquisitions.
Restructuring costs and other charges
Restructuring costs and other charges consist of the expenses incurred
by the company in adjusting its operations and increase efficiency.
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.
Financial Income (Expense), Net
Financial income (expense), net consists of mainly interest income,
foreign currency exchange gains or losses and foreign exchange forward transactions expenses. Interest income consists of interest earned
on our cash, cash equivalents, short -term bank deposits and marketable securities. We expect interest income to vary depending on our
average investment balances and market interest rates during each reporting period. Foreign currency exchange changes reflect gains or
losses related to transactions denominated in currencies other than the U.S. dollar.
Income Tax Expense
A significant portion of our income is taxed in Israel and, as a result of previous
acquisitions, in the United States. The standard corporate tax rate in Israel was 23% in 2023 and 2024. For our Israeli operations, starting
2017 and through 2024, part of our subsidiaries elected to implement the “Preferred Technological Enterprise” benefits
pursuant to an amendment to the taxation laws which went into effect in 2017, under which a tax rate of 12% is applied to a portion of
our income which qualifies for the benefits. Any other income which does not qualify for special benefits is subject to the standard corporate
tax rate. With respect to U.S. tax, we continue to utilize accumulated losses and other tax attributes. The federal statutory income tax
rate in the United States has been 21% in 2023 and 2024. Other subsidiaries are taxed globally according to the tax laws in their respective
countries of residence.
Comparison of Period to Period Results of Operations:
The following table sets forth our results of operations in dollars
amounts and as a percentage of revenue for the periods indicated (in thousands of U.S. dollars):
| |
|
Year ended December 31, |
|
| |
|
2023(1)
|
|
|
2024 |
|
| |
|
Amount |
|
|
% of
Revenue |
|
|
Amount |
|
|
% of
Revenue |
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising Solutions |
|
$ |
398,244 |
|
|
|
54 |
% |
|
$ |
335,550 |
|
|
|
67 |
% |
|
Search Advertising |
|
|
344,911
|
|
|
|
46 |
|
|
|
162,736 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
743,155 |
|
|
|
100 |
|
|
|
498,286 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
37,853
|
|
|
|
5 |
|
|
|
46,643 |
|
|
|
10 |
|
|
Traffic acquisition costs and media buy |
|
|
432,943
|
|
|
|
58 |
|
|
|
285,962 |
|
|
|
57 |
|
|
Research and development |
|
|
33,880 |
|
|
|
5 |
|
|
|
36,655 |
|
|
|
78 |
|
|
Selling and marketing |
|
|
59,341 |
|
|
|
8 |
|
|
|
68,497 |
|
|
|
14 |
|
|
General and administrative |
|
|
32,062 |
|
|
|
4 |
|
|
|
38,697 |
|
|
|
8 |
|
|
Change in fair value of contingent consideration |
|
|
18,694 |
|
|
|
3 |
|
|
|
1,541 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
14,092 |
|
|
|
2 |
|
|
|
16,434 |
|
|
|
3 |
|
|
Restructuring costs and other charges |
|
|
- |
|
|
|
- |
|
|
|
6,895 |
|
|
|
1 |
|
|
Total Costs and Expenses |
|
|
628,865
|
|
|
|
85 |
|
|
|
501,324 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from Operations |
|
|
114,290 |
|
|
|
15 |
|
|
|
(3,038 |
) |
|
|
(1 |
) |
|
Financial income, net |
|
|
20,951 |
|
|
|
3 |
|
|
|
18,520 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Taxes on income |
|
|
135,241
|
|
|
|
18 |
|
|
|
15,482 |
|
|
|
3 |
|
|
Taxes on income |
|
|
20,278 |
|
|
|
3 |
|
|
|
2,868 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
114,963 |
|
|
|
15 |
% |
|
$ |
12,614 |
|
|
|
3 |
% |
|
(1)
|
The Company recorded a correction of prior-period errors related to the share-based
compensation expenses. See Note 2 of the Financial Statements for further information regarding such recording of a correction of prior-period
errors. |
Year Ended December 31,
2024 Compared to December 31, 2023
Advertising Solutions revenue. Advertising Solutions
revenue decreased by 16%, from $398.2 in 2023 to $335.6 in 2024, accounting for 67% of revenue in 2024. This decrease was primarily due
to a 61% decrease in Video revenue, partially offset by a $64.9 million increase in DOOH revenue and a 30% increase in CTV revenue to
$43.6 million.
Search Advertising revenue. Search Advertising
revenue decreased by 53%, from $344.9 in 2023 to $162.7 in 2024, accounting for 33% of revenue in 2024. The decrease was primarily due
to decrease in average daily searches and the number of publishers we work with following the changes implemented by Microsoft Bing during
2024.
Cost of revenue. Cost of revenue increased by
23%, from $37.8 million, or 5% of revenue in 2023 to $46.6 million, or 10% of revenue in 2024. The increase in cost of revenue was
primarily as a result of increased headcount, hosting and data verification and targeting software expenses following the acquisition
of Hivestack in December 2023.
Traffic acquisition costs and
media buy. TAC amounted to $286.0 million, or 57% of revenue, in 2024, compared with $432.9 million, or 58% of revenue, in
2023. The margin expansion was primarily due to changes in the product mix, focusing on more profitable solutions.
Research and development expenses.
R&D increased by 8%, from $33.8 million, or 5% of revenue in 2023 to $36.7 million, or 78% of revenue in 2024. The increase was primarily
as a result of increased headcount and employee-related costs following the acquisition of Hivestack in December 2023 and by an increase
in stock-based compensation expenses in 2024.
Selling and marketing expenses.
S&M expenses increased by 15%, from $59.3 million, or 8% of revenue in 2023 to $68.5 million, or 14% of revenue in 2024. The
increase was primarily as a result of increased headcount and employee-related costs following the acquisition of Hivestack in December
2023, as well as an increase in our marketing expenses and sales commissions.
General and administrative expenses.
G&A increased by 21%, from $32.1 million, or 4% of revenue in 2023 to $38.7 million, or 8% of revenue in 2024. The increase was primarily
as a result of increased headcount and employee-related costs following the acquisition of Hivestack in December 2023, as well as increase
in rent and utilities as a result of our new headquarters, higher expenses for software and hardware relating to enhancement of our cyber
security measures, and increased stock-based compensation.
Change in fair value of contingent
consideration. Changes in fair value of contingent consideration in 2024 include a $1.5 million fair-value adjustment of the contingent
consideration payable in respect to previous acquisition.
Depreciation and amortization.
Depreciation and amortization expenses increased by 17%, from $14.1 million in 2023 to $16.4 million in 2024. The increase is primarily
attributable to the amortization of the acquired intangible assets derived from Hivestack acquisition in December 2023.
Restructuring costs and other
charges. Restructuring costs and other charges in 2024 include a $6.9 million in respect to our restructuring plan which was implemented
during the year.
Financial Income (Expense), Net. Finance
income decreased by $2.4 million from $20.9 million in 2023 to $18.5 million in 2024. The decrease was primarily resulting from exchange
rate fluctuations.
Taxes on income. Taxes
on income decreased from $20.3 million, or 3% of revenue in 2023 to $2.9 million, or 1% of revenue in 2024. The decrease was primarily
due to lower pre-tax income in 2023.
| B. |
LIQUIDITY AND CAPITAL RESOURCES |
To date, we have financed our general capital expenditures with
cash generated from operations, debt and equity offerings. To the extent we acquire new businesses, these acquisitions may be financed
by any of, or a combination of, current cash on the balance sheet, cash generated from operations, debt or equity issuances.
As of December 31, 2024, we had $373.3 million in cash, cash equivalents, short-term
deposits and marketable securities, compared to $472.7 million at December 31, 2023. The $99.4 million decrease is primarily result of
$54.5 million net cash with connection to previous acquisition contingent consideration, and $46.9 million paid for the repurchase of
shares. We believe that our current working capital and cash flow from operation, in addition to proceeds from our 2021 public offerings,
are sufficient to meet our operating cash requirements for at least the next twelve months. Our cash requirements have principally been
for working capital, capital expenditures and acquisitions.
The following table presents the major components of net cash flows
for the periods presented (in thousands of U.S. dollars):
|
|
|
Year ended December 31, |
|
|
|
|
2023 |
|
|
2024 |
|
|
Net cash provided by operating activities |
|
$ |
155,463 |
|
|
$ |
6,939 |
|
|
Net cash provided by (used in) investing activities |
|
|
(133,354 |
) |
|
|
62,602 |
|
|
Net cash used in financing activities |
|
|
(10,823 |
) |
|
|
(100,914 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
141 |
) |
|
|
(213 |
) |
|
Net increase (decrease) in cash and cash equivalents and restricted cash |
|
$ |
11,427 |
|
|
$ |
(31,586 |
) |
Net cash provided by operating activities
In 2024, our operating activities provided cash in the amount of
$6.9 million, primarily as result of income in the amount of $12.6 million, increased by stock-based compensation expenses of $27.2, depreciation
and amortization of $16.4 million and restructuring costs of $6.9 million, offset by a net change of $49.2 million in operating assets
and liabilities and $7.3 million change in payment obligation related to acquisitions.
In 2023, our operating activities provided cash in the amount of
$155.5 million, primarily as result of income in the amount of $115.0 million, increased by non-cash expenses of change in payment obligation
related to acquisitions of $19.3 million, stock-based compensation expenses of $18.0 depreciation and amortization of $14.1 million, offset
by a net change of $3.2 million in operating assets and liabilities and $5.5 million change in accrued interest, net.
Net cash provided by (used in) investing activities
In 2024, our investing activities provided cash in the amount of
$62.6 million cash, primarily due to $68.1 million proceeds from short-term deposits, net, offset by $6.8 million purchase of property
plant and equipment.
In 2023, we used in our investing activities $133.4 million cash,
primarily due to $101.9 million cash paid for the acquisition of Hivestack, net of cash acquired, $76.6 million purchase of marketable
securities, net of sales, and $0.8 million purchase of property plant and equipment, offset by $46.0 proceeds from short-term deposits,
net.
Net cash used in financing activities
In 2024, we used in our financing activities $100.9 million, primarily
result of $54.5 million net cash with connection to previous acquisition contingent consideration, and $46.9 million paid for the repurchase
of shares.
In 2023, we used in our financing activities $10.8 million, primarily
due to $13.3 million payment of contingent consideration, offset by $2.4 million proceeds from exercise of options.
Off Balance
Sheet Arrangements
We do not have off-balance sheet arrangements (as such term is
defined by applicable SEC regulations) that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial conditions, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that
are material to investors.
| C. |
RESEARCH, DEVELOPMENT, PATENTS AND LICENSES, ETC. |
We conduct our research and development activities primarily in
Israel, Europe and starting December 2023, in Canada. As of December 31, 2024, our research and development department included 135 employees
and the services of additional 8 contractors through a third-party service providers. Research and development expenses were $33.9 million
and $36.7 million in the years ended December 31, 2023 and 2024, respectively. We regard technology and innovation as core drivers of
our culture and operations and are essential for our growth. Hence, we invest substantial resources in research and development, both
in-house and through sub-contractors and collaborations with third parties, to develop new products and platform solutions, applications
and services, improve our core technologies and enhance our technology infrastructure and capabilities. Our advanced technological solutions,
which are applied throughout the consumer journey and marketing funnel, include capabilities that enabled us to achieve above industry
average margins.
In 2024, our efforts were focused on adapting, extending and maintaining
compatibility with the ever-changing business landscapes and automation of our platforms and operating systems, including the preparation
for our strategy aimed to unify all businesses units, brands and technologies under the Perion brand and into one advanced platform named
“Perion One”, which we announced on February 3, 2025.
For a discussion of our intellectual property and how we protect
it, see “Business Overview—Intellectual Property” under Item 4.B. above.
Industry trends are expected to affect our revenue, income from
continuing operations, profitability and liquidity or capital resources:
The digital advertising environment is very crowded and consumers
suffer from overexposure to advertising, which in turn has resulted in a certain level of blindness to these campaigns, decreasing their
effectiveness and value to advertisers. To cut through the clutter, Perion is concentrating on offering multichannel technologies, creative
capabilities and tools that help brands, agencies and retailers thereby increase the effectiveness of their ad campaigns and ultimately
the value to advertisers.
The macroeconomic environment in 2024 presented both challenges
and opportunities for advertisers, prompting a strategic reassessment of ad budgets. Amid economic uncertainty, fluctuating consumer confidence,
and evolving regulatory pressures, advertisers prioritized performance-driven ad formats to maximize ROAS and engagement. This led to
a shift in spending toward direct response platforms such as search advertising, as well as high-impact video and display formats, including
CTV, retail media, social video (such as YouTube and short-form video) and AI-driven ad experiences. These investments aimed to drive
measurable outcomes, enhance brand equity, and improve efficiency in a competitive landscape.
Through our business diversification strategy, Perion is uniquely positioned to adapt
to these shifting trends, operating across multiple digital channels and leveraging AI-powered ad technologies to optimize performance.
This agility allows Perion to swiftly reallocate resources and capitalize on areas of increased advertiser demand, ensuring that clients
achieve maximum value and impact in a dynamic market environment.
Retail media is a fast-growing market segment, as retailers look
to leverage the first-party data they manage to create advertising opportunities both on their consumer-facing websites and the open web.
According to eMarketer, Retail media accounted for $52.3 billion in 2024, 13.2% of all digital ad spending in the U.S., and is expected
to increase by 89% to $99 billion by 2028, or 18.7% of the U.S. digital ad spending. Perion’s Retail Media solutions provide a unique
solution that enables personalized, dynamic solutions in Perion’s signature high-impact approach, which are highly coveted as grocers
and other retailers shift from print advertising to digital solutions. Perion also offers retailers an “always on” solution,
ensuring retailers consistent advertising that drives high brand awareness along ongoing performance campaigns on one hand, and generates
a steady revenue stream for Perion along the year.
Advertisers and consumers are becoming increasingly aware of online
privacy concerns, recognizing the importance of protecting user data and complying with evolving regulations—even as Google reverses
its decision to phase out third-party cookies in Chrome. This heightened focus on privacy-first advertising is reflected in the growing
adoption of Perion’s cookieless SORT® solution, as well as the continued development of alternative identity-free solutions
by other ad tech companies.
Another key trend is the ongoing shift from linear TV to Connected
TV (CTV). While traditional linear TV still commands a significant share of ad spending, CTV is rapidly gaining ground as advertisers
reallocate budgets to digital, data-driven, and measurable video formats. According to eMarketer, CTV ad spending is projected to grow
from $28.8 billion in 2024 to $46.9 billion in 2028, while linear TV ad spending is expected to decline by 24.4%, dropping from $59.7
billion to $45.1 billion over the same period. Perion’s CTV business continued to gain traction in 2024, growing by 30% year-over-year
and representing 13% of its total Advertising Solutions revenue.
The digital advertising environment is complex and fragmented,
making it increasingly difficult for advertisers to determine the difference between offerings. This is driving advertisers to look
for a comprehensive and holistic solution and service provider. In addition, advertisers are looking for clean, safe and transparent solutions.
Perion is working diligently to address these needs by providing robust, scalable and differentiated technologies and solutions across
multiple channels and market verticals. Our solution offers a wide suite of services for advertising brands and agencies, from creative
all the way through to analytic data collection and processing, which is also utilized through its in-demand programmatic capabilities.
Our solutions include a technology platform for buying media on social and mobile platforms which helps optimize the money spent by agencies
and advertisers. In turn, we also provide the publisher a solution for creating new advertising inventory and increasing their revenue.
Digital Out-of-Home (DOOH) advertising has rapidly evolved, transforming
public spaces into dynamic, interactive environments that engage audiences with contextually relevant content. This shift from traditional
static billboards to digital formats is driven by the integration of advanced technologies and data-driven strategies, enabling more targeted
and measurable advertising campaigns. Programmatic DOOH (pDOOH) further enhances this landscape by automating the buying, placement, and
optimization of ads in real-time, resulting in efficient spending and detailed analytics on audience engagement.
The industry’s growth trajectory is notable, with global DOOH
ad spending projected to increase from $17.3 billion in 2024 to $26.5 billion by 2030, reflecting 53.3% growth. In the U.S., eMarketer
anticipates an increase from $3.2 billion in 2024 to $4.5 billion by 2028. This expansion is fueled by several key trends, including the
rise of immersive, AI-driven experiences, deeper digital integration, and the development of advanced measurement tools that provide more
nuanced metrics. Additionally, there is a growing emphasis on creating authentic, real-world connections with consumers, as they seek
meaningful engagements beyond digital interactions. The growing adoption of DOOH within Retail Media advertising further supports the
growth of the DOOH advertising channel.
Perion’s acquisition of Hivestack, a programmatic DOOH technology innovator since
2017, positions the company to capitalize on this anticipated growth. By integrating Hivestack’s capabilities, Perion offers a comprehensive
pDOOH platform that includes tools for campaign planning, delivery, and measurement, enhancing the effectiveness and return on investment
for advertisers.
Overall, the DOOH industry is experiencing a significant transformation,
embracing technological advancements and data-centric approaches to deliver more engaging and effective advertising solutions.
Our search monetization revenue is predominantly within the desktop
computer environment. The transition in recent years of consumer consumption of applications, services and content from desktop towards
mobile platforms has accelerated and, as a result, an increasing share of advertising campaigns are channeled towards mobile platforms
resulting in fewer consumer software downloadable products being developed.
In the first quarter of 2024, we experienced a decline in our search
advertising activity, attributable to changes in advertising pricing and mechanisms implemented by Microsoft in its search distribution
marketplace. These adjustments led to a reduction in Revenue Per Thousand Impressions (RPM) for both Perion and other Microsoft distribution
partners. In the second quarter of 2024, we experienced an additional decline in our search advertising activity attributable to Microsoft’s
exclusion of a number of publishers from its search distribution marketplace. The agreement with Microsoft Bing ended on December 31,
2024 and was not renewed. However, under the agreement terms, it entered a tail period in 2025. For additional information see also the
Risk Factor titled - “Our search advertising solution depends heavily upon revenue generated from our agreement with Microsoft,
and any adverse change in that agreement could adversely affect our business, financial condition and results of operations.”
As the search landscape continues to evolve—driven by advancements
in AI-powered search experiences, voice search, and personalized content recommendations—the competitive environment remains dynamic.
The fast adoption of ChatGPT and other AI search tools underscores the growing demand for AI-enhanced search capabilities that offer more
contextual, intuitive, and personalized experiences. As AI models continue to advance, they
are expected to revolutionize search functionality by delivering more precise, conversational, and user-centric search results. This
evolution could fundamentally alter traditional search behaviors, impact ad placement strategies,
and redefine user expectations for online discovery.
Since the launch of Microsoft’s ChatGPT, other companies
were quick to introduce their own Generative AI platforms such as Gemini (formerly known as Bard) by Google, Claude by Anthropic and Grok
by X. This is likely to result in the creation of tools that could increase competition in the advertising technology industry and lower
barriers to entry.
In the past few years, browser companies, particularly Google and
Microsoft, have implemented policy changes, regulations, and technologies that increasingly restrict the ability to modify browser settings,
even with user consent. This includes limiting changes to default search settings, a key component of the Company’s monetization
model. While we have thus far navigated these challenges within the constraints set by these companies, the evolving landscape poses increasing
difficulties. The growing influence of AI in search, coupled with the control exerted by Google’s Chrome and Microsoft’s Edge,
is further constraining competition and reducing opportunities for independent search partners. Given these shifts, we anticipate increased
pressure on our ability to sustain prior revenue levels and profitability.
For more information on uncertainties, demands, commitments or
events that are reasonably likely to have a material effect on our business, see Item 3.D “Key Information—Risk Factors.”
For additional trend information, see the discussion in Item 5.A.
“Operating and Financial Review and Prospects—Operating Results.”
|
E.
|
CRITICAL
ACCOUNTING ESTIMATES |
We have provided a summary of our significant accounting policies,
estimates and judgments in Note 2 to our consolidated financial statements, which are included elsewhere in this Annual Report. The following
critical accounting discussion pertains to accounting policies management believes are most critical to the portrayal of our historical
financial condition and results of operations and that require significant, difficult, subjective or complex judgments. Other companies
in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our financial condition,
results of operations and cash flows to those of other companies.
Revenue recognition
The Company applies the provisions of Accounting Standards Codification
606, Revenue from Contracts with Customers (“ASC 606” or “Topic 606”). The Company applies the practical expedient
for incremental costs of obtaining contracts when the associated revenue is recognized over less than one year.
The Company generates revenue primarily from two major sources,
Advertising Solutions and Search Advertising. The Company evaluates whether Search Advertising revenue and Advertising Solutions revenue
should be presented on a gross basis, which is the amount that a customer pays for the service, or on a net basis, which is the amount
of the customer payment less amounts the Company pays to publishers. In making that evaluation, the Company considers whether it controls
the promised good or service before transferring that good or service to the customer. The Company considers indicators such as whether
the Company is the primary obligor in the arrangement and assumes risks and rewards as a principal or an agent, whether it changes the
products or performs part of the service, whether the Company has discretion in establishing prices and whether it controls the underlying
advertising space. The evaluation of these factors is subject to significant judgment and subjectivity. Generally, in cases in which
the Company controls the specified good or service before it is transferred to a customer, revenue is recorded on a gross basis.
Stock-Based Compensation
The Company accounts for share-based compensation under ASC 718,
“Compensation - Stock Compensation”, which requires the measurement and recognition of compensation expense based on estimated
fair values for all share-based payment awards made to employees, contractors and directors. ASC 718 requires companies to estimate the
fair value of equity-based awards on the date of grant, using an option-pricing model. The value of the portion of the award that is ultimately
expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statement of income.
The Company estimates forfeitures at the time of grant, and revised if necessary in subsequent periods, if actual forfeitures differ from
those estimates.
The Company recognizes compensation expenses for the value of its
awards, which have graded vesting based on service conditions, using the straight-line method, over the requisite service period of each
of the awards, net of estimated forfeitures. Estimated forfeitures are based on actual historical pre-vesting forfeitures. For performance-based
share units, the Company recognizes compensation expenses for the value of such awards, if and when the Company concludes that it is probable
that a performance condition will be achieved based on the accelerated attribution method over the requisite service period. The Company
reassess the probability of vesting at each reporting period for awards with performance conditions and adjust compensation cost based
on its probability assessment.
Total stock-based compensation expense recorded during 2024 was $27.2 million,
of which $2.4 million was included in cost of revenue, $5.8 million in research and development expenses, $9.6 million
in selling and marketing expenses, and $9.4 million in general and administrative expenses.
As of December 31, 2024, the maximum total compensation cost related
to options and RSU’s, granted to employees and directors not yet recognized amounted to $13.5 million. This cost is expected to
be recognized over a weighted average period of 1.46 years.
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 “Income Taxes”, we use a two-step approach to recognizing and measuring uncertain tax positions.
The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is
more likely than not that the position will be sustained upon examination by the relevant tax authority, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely
of being realized upon settlement.
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 examination, 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.
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, 2024 are appropriately accounted for, the ultimate outcome of such matters could result in favorable or unfavorable adjustments to
our consolidated financial statements and such adjustments could be material. See Note 15 of the Financial Statements for further information
regarding income taxes. We have filed or are in the process of filing local and foreign tax returns that are subject to audit by the respective
tax authorities. The amount of income tax we pay is subject to ongoing audits by the tax authorities, which often result in proposed assessments.
We believe that we adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement. However, our future
results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved,
audits are closed or when statutes of limitation on potential assessments expire.
Business Combinations
We account for our business combinations using the acquisition
method of accounting, which requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible
assets acquired and liabilities assumed at their estimated fair values on the acquisition date. The excess of the fair value of purchase
consideration over the values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair value of
assets acquired and liabilities assumed, we make estimates and assumptions, especially with respect to intangible assets. Our 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. During the measurement period, not to exceed one year from the date of acquisition, we may record
adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill if new information is obtained related
to facts and circumstances that existed as of the acquisition date. Acquisition costs, such as legal and consulting fees, are expensed
as incurred.
Goodwill and Other Intangible Assets
Goodwill and certain other purchased intangible assets have been
recorded in our financial statements as a result of acquisitions. In business combinations, in accordance with ASC Topic 805, “Business
Combination,” 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. Such valuations require us to make significant estimates, assumptions, and judgments,
especially with respect to intangible assets. The estimated fair values and useful lives of identifiable intangible assets are based on
many factors, including estimates and assumptions of future operating performance and cash flows of the acquired business, market conditions,
technological developments and specific characteristics of the identified intangible assets. The allocation of the consideration transferred
in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be
up to one year from the acquisition date.
Goodwill represents excess of the purchase price in a business
combination over the fair value of identifiable tangible and intangible assets acquired. Goodwill is not amortized, but rather is subject
to an impairment test.
ASC No. 350, “Intangible—Goodwill and Other”
requires goodwill to be tested for impairment at least annually and, in certain circumstances, between annual tests. The accounting guidance
gives the option to perform a qualitative assessment to determine whether further impairment testing is necessary. The qualitative assessment
includes judgement and considers events and circumstances that might indicate that a reporting unit’s fair value is less than its
carrying amount.
For the years ended December 31, 2023 and 2024, no impairment losses
were recorded.
Impairment of Long-Lived Assets
We are required to assess the impairment of tangible and intangible
long-lived assets and right-of-use assets subject to amortization, under ASC 360 “Property, Plant and Equipment”, on a periodic
basis and when events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment indicators include
any significant changes in the manner of our use of the assets or the strategy of our overall business, significant negative industry
or economic trends and significant decline in our share price for a sustained period.
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.
For the years ended December 31, 2023 and 2024, no impairment of
long-lived assets was recorded.
Recent Accounting Standards
For a discussion of other significant accounting policies used
in the preparation of our financial statements and recent accounting pronouncements, see Note 2 to our consolidated financial statements
contained elsewhere in this Annual Report.
|
ITEM
6. |
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES |
| A. |
DIRECTORS AND SENIOR MANAGEMENT |
The following table sets forth information regarding our executive
officers and directors as of March 5, 2025:
|
Name |
|
Age |
|
Position |
|
Eyal Kaplan*(1)(2)
|
|
65 |
|
Chairman of the Board of Directors |
|
Tal Jacobson |
|
50 |
|
Chief Executive Officer; Director |
|
Maoz Sigron |
|
47 |
|
Chief Operating Officer |
|
Elad Tzubery |
|
41 |
|
Chief Financial Officer |
|
Stephen Yap |
|
49 |
|
Chief Revenue Officer |
|
Michal Drayman*(1)(4)
|
|
52 |
|
Director |
|
Amir Guy*(1)(3)
|
|
55 |
|
Director
|
|
Joy Marcus*(2)(3)(4)
|
|
63
|
|
Director
|
|
Rami Schwartz*(4)
|
|
67 |
|
Director |
|
Michael Vorhaus*(2)(3)
|
|
67 |
|
Director |
* “Independent director” under the Nasdaq Listing Rules.
(1) Member of our Investment Committee.
(2) Member of our nominating and Governance Committee.
(3) Member of our Compensation Committee.
(4) Member of our Audit Committee.
There are no arrangements or understandings between any of our
directors or executive officers and any other person pursuant to which our directors or executive officers were selected.
Eyal Kaplan has
served as the chairperson of the board of directors of the Company since May 2018. He is also the chairperson of Medial Earlysign, a privately
held company in the healthcare technology field, since 2020 and a board member at CUBEC Investment Corporation, a privately held company
owned by the University of Colorado at Boulder since 2021. Mr. Kaplan is also engaged in advisory and consulting, focusing on growth-through-innovation
and corporate strategies. Prior to that, he was Managing General Partner with Walden Israel, a venture capital firm, during which time
he was Director and chairperson of numerous portfolio companies. In 1990 he co-founded Geotek Communications, an international Nasdaq
traded wireless communications company, and served as senior vice president with broad strategic, managerial and operational responsibilities
until 1995. Mr. Kaplan was a member of the Technion (Israel Institute of Technology) Council (executive board) from January 2014
until September 2023, serving the maximum allowed term, where he chaired the Finance and Budget Committee. He currently serves as the
chairman of the Technion’s Endowment Investment Committee. Since 2012 he has been a member of the Technion Board of Governors, a
body of some 300 high-profile visionaries and decision makers with outstanding achievements in the fields of science, technology, economy,
industry, culture and society. From 2007 to 2012, Mr. Kaplan was a member of the Advisory Committee of Caesarea Center for Capital Markets
& Risk Management, and from 2005 to 2014, he was a member of the Advisory Committee of the Global Consulting Practicum at the Wharton
School of the University of Pennsylvania. Mr. Kaplan holds an MBA from the Wharton School of the University of Pennsylvania, a Master
of Arts in International Studies from the Lauder Institute of the University of Pennsylvania, and a Bachelor of Science (with Honors)
in economics and management from the Technion - Israel Institute of Technology.
Tal Jacobson has
been a leader and executive in the ad-tech industry for more than two decades. Prior to his appointment as Perion’s CEO in 2023,
Tal served as General Manager of CodeFuel, Perion’s Search Advertising unit, since 2018. During his tenure, he turned CodeFuel into
a significant driver of Perion’s market share and valuation. He also cemented a strategic relationship with Microsoft for which
the company won the Microsoft Advertising Global supply partner award. Tal’s success is rooted in his extensive experience in all
facets of the tech industry. As Chief Revenue Officer of SimilarWeb, he was paramount to the Israeli unicorn growth spurt in its early
days. Prior to that, he held the position of VP of Business at McCann Erickson, the role of CEO at the video collaboration platform Watchitoo,
and Director of Business Development at AOL (as part of the IM division - ICQ).
Maoz Sigron
has served as our Chief Operating Officer since August 2024. Prior to that, Mr. Sigron served as our Chief Financial Officer from February
2018 until July 2024, and as our VP Finance from September 2017 until February 2018. Previously, he served in various finance leadership
and senior accounting positions at Tnuva Dairy Corporation, Allot Communications Ltd. (Nasdaq:ALLT) and Stratasys Ltd. (Nasdaq:SSYS) and
prior to that he served as a CPA at Kesselman & Kesselman, member of PricewaterhouseCoopers International. Mr. Sigron holds a B.A
in Accounting and Economics from the College of Management, Israel.
Elad Tzubery
has served as our Chief Financial Officer since August 2024. Prior to that, Mr. Tzubery served as our SVP Finance from July 2023 until
August 2024 and as our VP Finance from December 2020 until July 2023. Perior to that, Mr. Tzubery served as our Senior Director of Finance
from June 2018 until November 2020. Prior to that, he served as corporate controller at Allot Communications Ltd. (Nasdaq:ALLT), and prior
to that he served as a CPA at Kost Forer Gabbay & Kasierer, a member of EY Global. Mr. Tzubery holds a BA in Accounting and Business
Administration from the College of Management, Israel.
Stephen Yap
has served as our Chief Revenue Officer since February 2025. Prior to that, Mr. Yap held several positions at Google. From July 2023 to
February 2025, he served as the Head of Americas for the Google Marketing Platform, and prior to that, from January 2018 through July
2023, he was the Managing Director of Retail - Google Marketing Platform, overseeing Google’s data and technology solutions for
retail and commerce in the Americas. In this role, he helped marketers advance digital maturity and transform their businesses by leveraging
Google’s industry-leading technology platforms, including Display & Video 360, Campaign Manager, Search Ads 360, Google Analytics,
and other cloud-based analytics tools. Prior to that, Mr. Yap held several key positions at Google, including as the Head of Global Emerging
Products and Markets, where, among other things, he led the launch and commercialization of Google Analytics Premium (GA360) and oversaw
the global sales of Google Tag Manager, Audience Center, and Data Studio. Mr. Yap is a member of the Boston College Alumni Group, the
Boston Interactive Marketing Association, and the Web Analytics Association. He was the founder of Google’s Asians in Business in
the Americas and served as a member of Alphabet’s Asian Leadership Group and as Executive Sponsor of the Filipino Googler Network.
Mr. Yap holds a BA in Psychology from Boston College, Massachusetts.
Michal Drayman has
served as a director of the Company since June 2022. Ms. Drayman serves as a director and member of the audit and compensation committee
of Meshek Energy-Renewable energy Ltd (Tel Aviv: MSKE) since October 2024 and serves on the boards of several privately held companies
including Able TX Ltd. and MetzerPlast. Ms. Drayman served as a director and member of the audit and compensation committee of Ree Automotive
Ltd. (Nasdaq:REE) from April 2023 to March 2025. A long standing investor who served as a partner in Jerusalem Venture Partners VC since
2014 to September 2023 and a CFO and VP business development at European High Tech Capital, a privately held investment firm which is
focused on healthcare investments. Prior to that from 2001 to 2004 Ms. Drayman served as the VP Finance America of Lumenis Inc. From 1994
to 2001, Ms. Drayman served in different financial positions in Lumenis Ltd. (previously, Nasdaq:LMNS). Ms. Drayman holds a BA in Economics
and Accounting from Haifa University and an MBA in excellence from The College of Management, Rishon Letzion, Israel, Biomedical Management
Track.
Amir Guy
has served as a director of the Company since June 2022. Mr. Guy spent more than 27 years in the advertising industry, both in corporate
and entrepreneurial settings. Mr. Guy is the founder of Moonshoot since October 2023. Mr. Guy was the founder of togetherr (a Fiverr company)
and served as its CEO from March 2021 through 2022. Mr. Guy served as Adler-Chomski Group’s / Grey Israel’s co-CEO and equity
partner from February 2005 through January 2021. Prior to joining Adler-Chomski Group, Mr. Guy served in various account management roles,
including Wunderman Thompson LLC and other private advertising companies. Mr. Guy holds a B.B.A in marketing and finance from the College
of Management in Israel and an MBA from the Kellogg School of Management at Northwestern University.
Joy Marcus
has served as a director of the Company since November 2019. Ms. Marcus has a wealth of experience in the media industry, including as
EVP and GM Digital Video at Condé Nast Entertainment, CEO of Bloglovin’ (acquired by Impact), SVP Global Marketing Solutions
at Time Warner (now WarnerDiscovery), VP International at MTV Networks, a division of Viacom (now Paramount), GM North America of Daily
Motion (acquired by Orange/France Telecom) and VP Business Development at B&N.com. She is a member of the board of directors of privately
held BBC Maestro, Muso and Qwire, which operate in the digital media industry and the nonprofits New York Tech Alliance and MOUSE. Ms.
Marcus is the Co-Founder and General Partner of The 98, a venture fund that invests in women-led technology businesses. Ms. Marcus is
a full time Lecturer at the Keller Center of Entrepreneurship at Princeton University and previously served as the James Wei Visiting
Professor in Entrepreneurship from February 2014 through May 2014. Ms. Marcus holds an A.B. (Magna Cum Laude, Phi Beta Kappa), from Princeton
University, a J.D. from New York University School of Law, and completed the management course in Finance & Accounting at the Columbia
University Graduate School of Business.
Rami Schwartz has
served as a director of the Company since January 2019. Mr. Schwartz joined The Portland Trust as Managing Director of the Tel Aviv office
in April 2018. Mr. Schwartz also serves as a director of Radcom (NASDAQ: RDCM) and an advisory board member of Algosec. Previously, Mr.
Schwartz was the President of the Amdocs Products and Amdocs Delivery groups from November 2010 through December 2017. Prior to joining
Amdocs, Mr. Schwartz was the chairperson of Olive Software (acquired by ESW Capital), and Comply (acquired by Qualitest), as the co-founder
and as the CEO of Zizio and DigiHOO, as an “entrepreneur in residence” at the Cedar Fund. In addition, Mr. Schwartz served
as the CEO and director of Exanet (acquired by Dell) and General Manager of Precise Software (acquired by Veritas software). Mr. Schwartz
holds a B.Sc. in excellence, in Mathematics and Computer Science from the Hebrew University in Jerusalem.
Michael Vorhaus has
served as a director of the Company since April 2015. Mr. Vorhaus also serves as a Director of Ionik (formerly known as Popreach) (TSXV:INIK).
Mr. Vorhaus founded Vorhaus Advisors in December 2018 and serves as its CEO since its inception. From 1994 to November 2018, Mr. Vorhaus
held a variety of positions at of Frank N. Magid Associates, Inc. (Magid Associates), a research-based strategic consulting firm. Mr.
Vorhaus served as the President of Magid Advisor a unit of Magid Associates, from 2008 through 2018, and as Magid Associates’ Senior
Vice President and Managing Director, from 1994 through 2008. From 2013 to 2014, Mr. Vorhaus served as a director of Grow Mobile Inc.
In 1987, he founded Vorhaus Investments. Mr. Vorhaus routinely advises start-ups and venture capital firms. Mr. Vorhaus has invested a
wide variety of early stage companies primarily in the media and related industries. Mr. Vorhaus formerly served as a director of Altimar
Acquisitions Corporation I, II and III. Mr. Vorhaus holds a B.A. in Psychology from Wesleyan University and completed the Management Development
Program at the University of California, Berkeley’s Haas School of Business.
There are no family relationships between any of our directors
or executive officers.
The aggregate direct compensation we paid to our directors and
officers as a group (13 persons) for the year ended December 31, 2024, was approximately $8.0 million, which included approximately $0.34
million that was set aside or accrued to provide for pension, retirement, severance, or similar benefits. This amount includes bonuses
paid to our officers pursuant to our executive bonus plan based on company performance measures, in accordance with our Compensation Policy.
This amount does not include expenses we incurred for other payments, including dues for professional and business associations, business
travel and other expenses, and other benefits commonly reimbursed or paid by companies in Israel. In addition, our directors are reimbursed
for expenses incurred in order to attend board of directors or committee meetings.
In the year ended December 31, 2024, we granted our directors and
officers in the aggregate (i) 462,592 restricted share units (“RSUs”), which vest over a three-year period; and (ii) 418,000
performance-based share units (“PSUs”), linked to certain financial KPI’s. These awards were granted under our 2013
Equity Incentive Plan, as amended, formerly known as the 2003 Israeli Share Option Plan.
In 2024, we paid each of our non-executive directors an annual
fee of $62,500. At the annual general meeting of our shareholders held on September 30, 2024, or the 2024 AGM, our shareholders approved
an amendment of the equity-based compensation terms of our non-executive directors (other than our chairperson of the Board), with a variable
value based on the role held by each such member of the board of directors. Accordingly, effective as of October 1, 2024, each non-executive
director was granted an annual RSU grant according to his or her role, with a value as follows:
|
• |
chairperson of our Audit Committee: $177,500; |
|
• |
chairperson of our Compensation Committee: $175,000; |
|
• |
chairperson of our Nominating and Governance Committee: $172,500; and |
|
• |
other non-executive directors: $165,000. |
The compensation we paid to our chairman of the board of directors,
Mr. Kaplan, for the year ended December 31, 2024, was $125,000, as approved by our shareholders on June 30, 2022, paid in four quarterly
payments and reimbursement of out-of-pocket expenses incurred in connection with Mr. Kaplan’s services as chairman. Mr. Kaplan is
also entitled to indemnification and liability insurance as provided to other members of the board of directors. Mr. Kaplan’s services
agreement also includes customary non-disclosure, non-compete, and ownership assignment of intellectual property undertakings.
At the 2024 AGM, our shareholders approved an amendment to the
terms of the equity-based compensation paid to Mr. Eyal Kaplan, in his capacity as the chairperson of our Board, setting his annual compensation
at $270,000 per vesting annum, effective as of October 1, 2024. The RSUs shall vest on a quarterly basis, in equal tranches, during
the year following the grant. All unvested RSUs held by a chairperson in office will automatically vest upon a Change of Control event
(as defined below).
In addition, following the approval of the annual general meeting
of our shareholders held on February 6, 2020, and subject to the continued engagement as our chairman of the board of directors, Mr. Kaplan
was granted a one-time grant of options to purchase 90,000 Ordinary Shares with a 3-year vesting schedule (the options vest quarterly
in equal tranches over a three-year period), which commenced on May 9, 2021, at an exercise price of $6.56 per share. The fair market
value per vesting annum of these options and an additional grant was deducted from the annual grants of RSUs awarded to Mr. Kaplan until
they were fully vested. At the 2024 AGM, the exercise period of the unexercised options, comprising 50,000 options as of such date, was
extended through February 6, 2028.
The shareholders also approved a mechanism aimed to align
the date of the grant to all directors as of January 1 of each year regardless of the date on which they joined the Board. Incumbent directors
will be awarded the grant less the value of vesting of the previous grant in the applicable year. The foregoing mechanism shall also apply,
mutatis mutandis, in case we appoint a new chairperson to one of our Board committees. Newly appointed or elected directors will receive
a pro-rated portion of the equity award as of the date of such individual’s appointment or election, and follow-up grants on January
1 of each subsequent year. The RSUs vest on a quarterly basis, in equal tranches, during the year following the grant. As an exception
to the foregoing, the first annual grant of RSUs to be granted to a person upon his or her appointment as a director of the Company for
the first time following the 2024 AGM will vest at the first anniversary of the grant date. All unvested RSUs held by a director in office
will automatically vest upon a change of control of the company, which is defined for this purpose as (i) a merger, acquisition, or reorganization
of the company with one or more other entities in which the company is not the surviving entity, (ii) a sale of all or substantially all
of the assets of the company, or (iii) a transaction or a series of related transactions as a result of which more than 50% of the outstanding
shares or the voting rights of the company are beneficially owned by one person or group (as defined in the SEC rules) (the “Change
of Control”).
The table below reflects the compensation granted to our five most
highly compensated office holders during or with respect to the year ended December 31, 2024. We refer to the individuals for whom disclosure
is provided herein as our “Covered Executives.”
For purposes of the table below, “compensation” includes
salary cost, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone and social
benefits and any undertaking to provide such compensation. All amounts reported in the table are in terms of cost to the Company, as recognized
in our financial statements for the year ended December 31, 2024, including the compensation paid to such Covered Executive following
the end of the year in respect of services provided during the year. Each of the Covered Executives was covered by our D&O liability
insurance policy and was entitled to indemnification and exculpation in accordance with applicable law and our articles of association.
All numbers below are in US Dollars in thousands.
|
Name and Principal Position (1)
|
|
Salary Cost(2)
|
|
|
Bonus(3)
|
|
|
Equity-Based
Compensation(4)
|
|
|
Total |
|
|
Tal Jacobson, Chief Executive Officer |
|
|
564 |
|
|
|
255 |
|
|
|
1,736 |
|
|
|
2,555 |
|
|
Maoz Sigron, Chief Operating Officer; former Chief Financial
Officer (5) |
|
|
438 |
|
|
|
170 |
|
|
|
1,251 |
|
|
|
1,859 |
|
|
Daniel E. Aks, former President, Undertone Business Unit
|
|
|
570 |
|
|
|
207 |
|
|
|
464 |
|
|
|
1,241 |
|
|
Elad Tzubery, Chief Financial Officer
(6) |
|
|
326 |
|
|
|
122 |
|
|
|
241 |
|
|
|
688 |
|
|
Eyal Kaplan, Chairman of the Board of Directors |
|
|
125 |
|
|
|
0 |
|
|
|
180 |
|
|
|
305 |
|
(1) Unless otherwise indicated herein and excluding Mr. Eyal Kaplan,
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, risk insurances (e.g., life, or work disability
insurance), payments for social security and tax gross-up payments, vacation, medical insurances and benefits, phone, convalescence or
recreation pay and other benefits and perquisites consistent with the Company’s policies.
(3) Annual bonuses granted to the Covered Executives based on formulas
set forth in the annual compensation plan and/or special bonus approved by compensation committee of the board and the board of directors
pursuant to the terms of our Compensation Policy for Directors and Officers.
(4) Represents the equity-based compensation expenses recorded
in our consolidated financial statements for the year ended December 31, 2024. Such numbers are based on the RSU grant date fair value
in accordance with accounting guidance for equity-based compensation and does not necessarily reflect the cash proceeds to be received
by the applicable officer upon the vesting and sale of the underlying shares. For a discussion of the assumptions used in reaching this
valuation, see Note 2 to our Financial Statements.
(5) Mr. Sigron’s Salary Cost includes an amount of $94,025
remunerated by National Security Institution (the “NII”) for the time he served on reserve duty during 2024.
(6) Mr. Tzubery was appointed as our Chief Financial Officer effective
as of August 1, 2024. Mr. Tzubery’s Salary Cost set forth in the table above, reflects his Salary Cost solely as our Chief Financial
Officer.
Compensation Terms of our Chief Executive Officer
Tal Jacobson was appointed as our Chief Executive Officer effective
August 1, 2023. His compensation terms as Chief Executive Officer were approved by the shareholders at the 2024 AGM. The following is
a summary of his compensation terms, which are consistent with the Company’s Compensation Policy.
At the 2024 AGM, our shareholders approved increasing Mr. Jacobson’s
annual base salary to NIS 1,800,000 (equivalent to approximately 491,803 USD) effective August 1, 2024. Mr. Jacobson is eligible for a
target annual cash bonus of up to 100% of his annual base salary, or 150% in case of overachievement, based on a performance matrix pre-approved
annually by our Compensation Committee and Board. The bonus also includes a discretionary component, not based on measurable performance
indexes. In addition, our Compensation Committee and the Board are authorized to grant Mr. Jacobson, from time to time, a special bonus
as set out in, and subject to the terms of, our Compensation Policy.
In addition, Mr. Jacobson was previously granted 90,000 RSUs and 90,000 PSUs as of February
7, 2023 (the “2023 CEO Grant”). The RSUs under the 2023 CEO Grant shall vest over three years with a 12-month cliff; one-third
vests on the first anniversary of the grant date, and the balance vests quarterly over the next eight quarters. The PSUs under the 2023
CEO Grant are subject to the Company meeting revenue and Adjusted EBITDA targets as determined by our Compensation Committee and Board.
No PSUs vest if either revenue or Adjusted EBITDA targets are below 80%.
Furthermore, Mr. Jacobson was granted 250,000 RSU and 250,000 PSUs
as of July 30, 2024 (the “2024 CEO Grant”). The RSUs under the 2024 CEO Grant vest over three years with a 12-month cliff;
one-third vests on the first anniversary of the grant date, and the balance vests quarterly over the next eight quarters. The PSUs under
the 2024 CEO Grant are subject to achievement of certain business and performance related measurable criteria as determined by our Compensation
Committee and Board. These performance criteria are split equally: 50% are based on revenue and EBITDA targets for 2024, 2025 and 2026,and
50% are based on appreciation in the Company’s share price.
The vesting of the PSUs under the CEO Grants is calculated based on the average performance
levels of actual revenue and Adjusted EBITDA. The maximum vesting of all granted PSUs is capped at 100%. All granted PSUs will not
vest before the first anniversary of the grant date. The RSUs and all granted PSUs are subject to vesting acceleration provisions in the
event of a change in control of the Company, provided that the Mr. Jacobson is still employed by the Company or any of its subsidiaries,
as the case may be.
The PSUs and RSUs will become fully vested upon the closing of
an M&A Event, which shall mean in essence (A) any consolidation, merger or reorganization (“Transaction”) of the Company,
in which the shareholders of the Company, immediately prior to such Transaction, own less than 50% of the voting power of the surviving
entity (or its affiliated company, as the case may be) immediately after such Transaction; or (B) any transaction or series of related
transactions to which the Company is a party, in which all or substantially all of the Company’s outstanding share capital is transferred
to any entity or person (excluding a public offering in a stock exchange, or any consolidation, merger or reorganization effected exclusively
to change the domicile of the Company, or a transaction or series of related transactions, in which the shareholders of the Company prior
to such transaction, hold more than 50% of the voting and economic rights of the Company or surviving entity, as applicable, immediately
following such transaction), or (C) the sale, lease, exclusive license, transfer or other disposition, in a single transaction or series
of related transactions of all or substantially all the assets of the Company and its subsidiaries taken as a whole, or the sale or disposition
of one or more subsidiaries of the Company if substantially all of the assets of the Company and its subsidiaries taken as a whole are
held by such subsidiary or subsidiaries, or any exclusive license of material intellectual property of the Company, other than when any
such transfer is to a wholly owned subsidiary of the Company.
Mr. Jacobson’s employment agreement includes non-solicitation,
confidentiality, intellectual property assignment, insurance plan participation, expense reimbursement, and 28 annual vacation days. The
employment agreement is for an indefinite period and may be terminated by either party with a 6-month advance notice. Mr. Jacobson's performance-based
compensation is subject to our clawback policy.
We also have employment agreements with our other executive officers.
These agreements usually do not contain any change of control provisions and otherwise contain salary, benefit and non-competition provisions
that we believe to be customary in our industry.
Corporate Governance Practices
We are incorporated in Israel and therefore are subject to various
corporate governance practices under the Companies Law, relating to such matters as external directors (or, to the extent applicable,
the provisions of the opt-out from external directors), the audit committee, the internal auditor and approvals of interested party transactions.
These matters are in addition to the ongoing listing conditions of Nasdaq and other relevant provisions of U.S. securities laws. Under
the Nasdaq Listing Rules, a foreign private issuer may generally follow its home country rules of corporate governance in lieu of the
comparable Nasdaq requirements, except for certain matters such as composition and responsibilities of the audit committee. For further
information, see Item 16.G “Corporate Governance.”
Nasdaq Requirements
As required by the Nasdaq Listing Rules, a majority of our directors
are “independent directors” as defined in the Nasdaq Listing Rules.
As contemplated by the Nasdaq Listing Rules, we have an Audit Committee,
a Compensation Committee and a Nominating and Governance Committee, all of whose members are independent directors.
See Item 16.G. “Corporate Governance” for exemptions that we have taken
from certain Nasdaq Listing Rule requirements.
Israeli Companies Law
Board of Directors
According to the Companies Law and our articles of association, our board of directors
is responsible, among other things, for:
|
• |
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. |
Our board of directors may exercise all powers and may take all
actions that are not specifically granted to our shareholders. Our board of directors also appoints and may remove our chief executive
officer and may appoint or remove other executive officers, subject to any rights that the executive officers may have under their employment
agreements.
As of March 5, 2025, our board of directors consists of seven directors.
Our directors are elected in three staggered classes by the vote of a majority of the ordinary shares present and entitled to vote at
meetings of our shareholders at which directors are elected. The members of only one staggered class will be elected at each annual meeting
for a three-year term, so that the regular term of only one class of directors expires annually. Our annual meeting of shareholders is
required to be held at least once during every calendar year and not more than fifteen months after the last preceding meeting.
If the number of directors constituting our board of directors
is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as
nearly equal as possible, but in no case will a decrease in the number of directors constituting our board of directors reduce the term
of any then current director.
Our board of directors may appoint any other person as a director,
whether to fill a vacancy or as an addition to the then current number of directors, provided that the total number of directors shall
not, at any time, exceed seven directors. Any director so appointed shall hold office until the annual meeting of shareholders at which
the term of his class expires, unless otherwise determined by our board of directors. There is no limitation on the number of terms that
a non-external director may serve.
Shareholders may remove a non-external director from office by
a resolution passed at a meeting of shareholders by a vote of the holders of more than two-thirds of our voting power.
A resolution proposed at any meeting of our board of directors
is deemed adopted if approved by a majority of the directors present and voting on the matter. Under the Companies Law, our board of directors
must determine the minimum number of directors having financial and accounting expertise, as defined in the regulations that our board
of directors should have. In determining the number of directors required to have such expertise, the board of directors must consider,
among other things, the type and size of the company and the scope and complexity of its business and operations. Our board of directors
has determined that we require at least one director with the requisite financial and accounting expertise and that Ms. Michal Drayman
has such expertise.
Under the Companies Law, a person, who is, directly or indirectly
subordinated to the chief executive officer of a public company, may not serve as the chairman of its board of directors. In addition,
neither the chief executive officer nor his relative is eligible to serve as chairman of the board of directors (and vice versa), unless
such nomination was approved by a majority of the company’s shareholders for a term not exceeding three years, and either: (i) such
majority included the majority of the voting shareholders (shares held by abstaining shareholders are not considered) which are not controlling
shareholders and have not personal interest regarding the decision; or (ii) the aggregate number of shares voting against the proposal
did not exceed 2% of company voting shareholders. The term can be extended for additional three year terms, in the same manner.
External Directors
Under the Companies Law, Israeli companies whose shares have been
offered to the public in or outside of Israel are required to appoint at least two individuals to serve as external directors.
Pursuant to regulations promulgated under the Companies Law, companies
with shares traded on a U.S. stock exchange, including the Nasdaq Global Select Market, may, subject to certain conditions, “opt
out” from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition
of the audit committee and compensation committee of the board of directors. In accordance with these regulations, in August 2019, we
elected to “opt out” from the Companies Law requirements to appoint external directors and related Companies Law rules concerning
the composition of the audit committee and compensation committee of the board of directors (the “Opt-Out”).
Under these regulations, the exemptions from such Companies Law
requirements will continue to be available to us so long as: (i) we do not have a “controlling shareholder” (as such term
is defined under the Companies Law), (ii) our shares are traded on a U.S. stock exchange, including the Nasdaq Global Select Market, and
(iii) we comply with the director independence requirements, the audit committee and the compensation committee composition requirements,
under U.S. laws (including applicable Nasdaq Rules) applicable to U.S. domestic issuers.
Committees of the Board of Directors
Our board of directors has established an Audit Committee, a Compensation
Committee, an Investment Committee and a Nominating and Governance Committee.
Audit Committee
Our audit committee (the “Audit Committee”) is comprised
of Ms. Michal Drayman (chairperson), Ms. Joy Marcus and Mr. Rami Schwartz, and operates pursuant to a written charter.
Nasdaq Requirements
Under the listing requirements of the Nasdaq Stock Market, a foreign
private issuer is required to maintain an audit committee that has certain responsibilities and authority. The Nasdaq Listing Rules require
that all members of the audit committee must satisfy certain independence requirements, subject to certain limited exceptions. We have
adopted an audit committee charter as required by the Nasdaq Listing Rules. Our audit committee assists the board of directors in fulfilling
its responsibility for oversight of the quality and integrity of our accounting, auditing and financial reporting practices and financial
statements. Our audit committee is also responsible for the establishment of policies and procedures for review and pre-approval by the
committee of all audit services and permissible non-audit services to be performed by our independent auditor, in order to ensure that
such services do not impair our auditor’s independence. For more information see Item 16.C “Principal Accountant Fees and
Services.” Under the Nasdaq Listing Rules, the approval of the audit committee is also required to effect related-party transactions
that would be required to be disclosed in our annual report.
Companies Law Requirements
Under the Companies Law, the board of directors of a public company
must establish an audit committee. The audit committee must consist of at least three directors who meet certain independence criteria.
The responsibilities of the audit committee under the Companies Law include to identify and address problems in the management of the
company, review and approve interested party transactions, establish whistleblower procedures and procedures for considering controlling
party transactions and oversee the company’s internal audit system and the performance of the internal auditor.
Our Audit Committee is authorized to, among other things, oversee
data privacy and data collection compliance.
Compensation Committee
Pursuant to the Companies Law, the compensation committee of a
public company must be comprised of at least three directors, include all of the external directors (and also the chairman is required
to be an external director), and any other members must satisfy certain independence standards under the Companies Law. Following the
Opt-Out, our compensation committee is comprised of Ms. Joy Marcus (chairperson), Mr. Michael Vorhaus and Mr. Amir Guy, all of whom satisfy
the respective “independence” requirements of the Companies Law, SEC and Nasdaq Listing Rules for compensation committee members.
Our compensation committee meets at least once each quarter, with additional special meetings scheduled when required.
Our Compensation Committee is authorized to, among other things,
review, approve and recommend to our board of directors base salaries, incentive bonuses, including the specific goals and amounts, stock
option grants, employment agreements, and any other benefits, compensation or arrangements of our executive officers and directors. In
addition, our Compensation Committee is required to propose for shareholder approval by a special majority, a compensation policy governing
the compensation of office holders based on specified criteria, to review, from time to time, modifications to the said compensation policy
and examine its implementation, and to approve the actual compensation terms of office holders prior to approval thereof by the board
of directors. Our shareholders adopted a new Compensation Policy for Directors and Officers on June 30, 2022, which was amended at the
annual general meeting of shareholders held on September 30, 2024. Our Compensation Committee also oversees the administration of our
equity incentive plans.
Investment Committee
Our investment committee (the “Investment Committee”)
is comprised of Mr. Eyal Kaplan (chairperson), Ms. Michal Drayman and Mr. Amir Guy. The Investment Committee is responsible for formulating
the overall investment policies of the Company, and establishing investment guidelines in furtherance of those policies. The Committee
monitors the management of the portfolio for compliance with the investment policies and guidelines and for meeting performance objectives
over time as well as assist the board of directors in fulfilling its oversight responsibility for the investment of assets of the company.
Nominating and Governance Committee
Our Nominating and Governance Committee is comprised of Mr. Michael
Vorhaus (chairperson), Mr. Eyal Kaplan, and Ms. Joy Marcus, and operates pursuant to a written charter. It is responsible for making recommendations
to the board of directors regarding candidates for directorships and the size and composition of the board. In addition, the committee
is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the board concerning corporate
governance matters. Under the Companies Law, nominations for director are generally made by our board of directors but may be made by
one or more of our shareholders pursuant to applicable law and our articles of association.
Internal Auditor
Under the Companies Law, the board of directors of a public company
must appoint an internal auditor nominated based on the audit committee’s recommendation. The role of the internal auditor is to
examine whether a company’s actions comply with the law and proper business procedure. The internal auditor may be an employee of
the company employed specifically to perform internal audit functions but may not be an interested party or office holder, or a relative
of any interested party or office holder, and may not be a member of the company’s independent accounting firm or its representative.
The Companies Law defines an interested party as a substantial shareholder of 5% or more of the shares or voting rights of a company,
any person or entity that has the right to nominate or appoint at least one director or the general manager of the company or any person
who serves as a director or as the general manager of a company. The internal auditor’s term of office shall not be terminated without
his or her consent, nor shall he or she be suspended from such position unless the board of directors has so resolved after hearing the
opinion of the audit committee and after giving the internal auditor a reasonable opportunity to present his or her position to the board
and to the audit committee. Our internal auditor is Ms. Tali Yaron, CPA, of Brightman Almagor Zohar & Co., a member of Deloitte Touche
Tohmatsu.
The breakdown of our employees, by department, as of the end of
each of the past three fiscal years is as follows:
|
|
|
December 31, |
|
|
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
Cost of sales |
|
|
91 |
|
|
|
129 |
|
|
|
152 |
|
|
Research and development |
|
|
121 |
|
|
|
158 |
|
|
|
135 |
|
|
Selling and marketing |
|
|
150 |
|
|
|
170 |
|
|
|
136 |
|
|
General and administration |
|
|
78 |
|
|
|
104 |
|
|
|
105 |
|
|
Total |
|
|
440 |
|
|
|
561 |
|
|
|
528 |
|
As of December 31, 2024, we had 528 employees globally, from whom
186 were located in Israel, 169 were located in the United States, 110 were located in Canada, 40 were located in Europe and 23 of our
employees were located across APAC. As of December 31, 2024, we also engaged the services of 126 contractors in different locations through
a third-party service organization.
We provide our employees around the world with fringe benefits
in accordance with applicable law and we are subject to various labor laws and labor practices around the world. In Israel we are subject
to certain labor statutes and national labor court precedent rulings, as well as to some provisions of the collective bargaining agreements.
These provisions of collective bargaining agreements apply to our Israeli employees by virtue of extension orders issued in accordance
with relevant labor laws by the Israeli Ministry of Economy and Industry, and which apply such provisions under the extension orders to
certain or all Israeli employees including our employees even though they are not directly part of a union that has signed a collective
bargaining agreement. The laws and labor court rulings that apply to our employees principally concern, among others, minimum wage laws,
procedures for dismissing employees, determination of severance pay, leaves of absence (such as annual vacation or maternity leave), sick
pay and other conditions for employment. The extension orders which apply to our employees principally concern, among others, the requirement
for the length of the workday and the work-week, annual recuperation pay and commuting expenses, and payments to pension funds. As mentioned
above, we are required to insure all of our employees by a comprehensive pension plan or a managers’ insurance according to the
terms and the rates detailed in the extension order. In addition, Israeli laws determine minimum wages for workers, minimum paid leave
or vacation, sick leave, working hours and days of rest, insurance for work-related accidents, determination of severance pay, the duty
to give notice of dismissal or resignation and other benefits and terms of employment. We have never experienced a work stoppage, and
we believe our relations with our employees are good.
Israeli law generally requires the payment of severance by employers
upon the retirement or death of an employee or upon termination of employment by the employer or, in certain circumstances, by the employee.
Substantially all of our agreements with employees in Israel contain an arrangement made in accordance with Section 14 of the Severance
Pay Law, 5723-1963 (“Section 14”), where our contributions for severance pay are paid in lieu of any severance liability.
Upon termination of employment, for any reason, and subject to contribution of the employee’s entire monthly salary as of the commencement
date of his/her employment, and release of the policy to the employee, no additional severance payments are required to be made by us
to the employee. Additionally, the related obligation and amounts deposited pursuant to such obligation are not stated on the balance
sheet, as we are legally released from any obligation to employees once the deposit amounts have been paid.
Furthermore, Israeli employees and employers are required to pay
predetermined sums to the National Insurance Institute, which covers, amongst other benefits, payments for state retirement benefits and
survivor benefits (similar to the United States Social Security Administration), as well as state unemployment benefits. These amounts
also include payments for national health insurance. The payments to the National Insurance Institute can equal up to approximately 19.6%
of wages subject to a cap if an employee’s monthly wages exceed a specified amount, of which the employee contributes up to approximately
12% and the employer contributes approximately 7.6%.
Our U.S. subsidiaries sponsor a retirement plan for eligible employees.
Their 401(k) Plan allows eligible employees to defer compensation up to the maximum amount allowed under the current Internal Revenue
Code. Our U.S. subsidiaries may make discretionary employer matching contributions to the 401(k) Plan to match employees’ elective
deferrals subject to certain non-discrimination requirements under the Internal Revenue Code. This matching contribution is made
for all eligible employees who elected to make salary deferral contributions into the plan. In addition to 401(k) Plan, our U.S. subsidiaries
provide healthcare and life insurance coverage to all eligible employees.
Our Canadian subsidiary offers its employees a Registered Retirement
Savings Plan with employer matching contributions. A Registered Retirement Savings Plan is a savings plan that is registered with the
Canada Revenue Agency. The employer will match employee contributions up to a specific percentage of earnings and up to a maximum dollar
amount per calendar year. Our Canadian subsidiary also offers eligible employees a group insurance program for life, disability,
health and dental benefits. All benefits are employer paid except the long-term disability benefit.
Security Ownership of Directors and Executive Officers
The following table sets forth information regarding the beneficial
ownership of our ordinary shares as of March 5, 2025, by all of our directors and executive officers as a group and by each officer and
director who beneficially owns 1% or more of our outstanding ordinary shares.
Beneficial ownership of shares is determined in accordance with
the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Ordinary
shares that are subject to warrants, RSUs or stock options that are vested or will vest within 60 days of a specified date are deemed
to be outstanding and beneficially owned by the person holding the stock options for the purpose of computing the percentage ownership
of that person, but are not treated as outstanding for the purpose of computing the percentage of any other person.
Except as indicated in the footnotes to this table, each officer
and director in the table has sole voting and investment power for the shares shown as beneficially owned by them. Percentage ownership
is based on 45,037,180 ordinary shares outstanding as of March 5, 2025 (such amount excludes 115,339 ordinary shares held by the Company).
|
Name |
|
Number of Ordinary
Shares Beneficially Owned |
|
|
Percentage of Ordinary
Shares Outstanding |
|
|
All directors and officers as a group (10 persons) (1)
|
|
|
280,016 |
|
|
|
0.62 |
% |
| (1) |
Includes 103,252 RSUs and options to purchase ordinary shares that are vested or will vest within 60 days of March 5, 2025.
|
Share Option Plans
2013 Incentive Plan
Our 2013 Equity Incentive Plan, or the 2013 Plan, was initially
adopted in 2003, providing certain tax benefits in connection with stock-based compensation under the tax laws of Israel and potentially
the United States. On November 8, 2022, our board of directors approved extending the term of the 2013 Incentive Plan for an additional
period of two years, which expired on December 9, 2024. The 2013 Plan provided for the grant of equity-based compensation to our employees,
directors, office holders, service providers, and consultants.
We no longer grant any awards under the 2013 Plan as it was superseded
by our 2024 Share Incentive Plan, although previously granted awards remain outstanding. Ordinary shares subject to outstanding equity
awards granted under the 2013 Plan that expire or become un-exercisable without having been exercised in full will become available again
for future grant under the 2024 Plan (as defined below). As of December 31, 2024, a total of 250,710 options to purchase ordinary shares
were outstanding under the 2013 Plan, with a weighted average exercise price of $6.07 per share, and 3,990,413 restricted share units
were outstanding under the 2013 Plan. Our board of directors, or a duly authorized committee of our board of directors, administers the
2013 Plan.
2024 Share Incentive Plan
On November 19, 2024, our board of directors approved the adoption
of the 2024 Share Incentive Plan, or the 2024 Plan.
We maintain the 2024 Plan, under which we may grant equity-based
incentive awards, to attract, motivate, and retain the talent for which we compete. The 2024 Plan is administered by our board of directors, or
a duly authorized committee of our board of directors and provides for the grant of stock options (including incentive stock options and
nonqualified stock options), ordinary shares, restricted shares, restricted share units, and other share-based awards.
The maximum number of ordinary shares available for issuance under
the 2024 Plan is equal to the sum of (i) 250,000 shares, (ii) any shares subject to awards under the 2013 Plan which will expire or become
un-exercisable without having been exercised, and (iii) such additional number of shares as determined by our board of directors in the
future, if so determined, subject to the availability of unissued registered share capital; provided, however, that no more than 200,000
shares may be issued upon the exercise of incentive stock options. As of December 31, 2024, no restricted share units were outstanding
and 400,921 ordinary shares were available for future issuance under the 2024 Plan.
The 2024 Plan provides for granting awards under various tax regimes,
including, without limitation, in compliance with Section 102 of the Israeli Income Tax Ordinance (New Version), 5721-1961, or the Ordinance,
and Section 3(i) of the Ordinance and for awards granted to our United States employees or service providers, including those who are
deemed to be residents of the United States for tax purposes, Section 422 of the Internal Revenue Code of 1986, as amended, or the Code,
and Section 409A of the Code.
Section 102 of the Ordinance allows employees, directors, and officers
who are not controlling shareholders and are considered Israeli residents to receive favorable tax treatment for compensation in the form
of shares or options, subject to the terms and conditions set forth in the Ordinance. Our non-employee service providers and controlling
shareholders may only be granted shares or options under Section 3(i) of the Ordinance, which does not provide for similar tax benefits.
Options granted under the 2024 Plan to our employees who are U.S.
residents may qualify as “incentive stock options” within the meaning of Section 422 of the Code or may be non-qualified stock
options. As of the date of this annual report, we don’t intend to grant “incentive stock options” under the 2024
Plan.
Please also see Note 13 to our Financial Statements for information
on the options and restricted share units issued under the 2013 Plan.
|
F. |
DISCLOSURE OF A REGISTRANT’S ACTION TO RECOVER ERRONEOUSLY AWARDED
COMPENSATION |
None.
|
ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
The following table sets forth information with respect to the
beneficial ownership of our shares as of March 5, 2025, by each person or entity known by us to beneficially own 5% or more of our outstanding
Ordinary Shares.
Beneficial ownership of shares is determined in accordance with
the Exchange Act and the rules promulgated thereunder, and generally includes any shares over which a person exercises sole or shared
voting or investment power. Ordinary Shares that are issuable pursuant to an outstanding right within 60 days of a specified date are
deemed to be outstanding and beneficially owned by the person holding the right for the purpose of computing the percentage ownership
of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
For the purpose of calculating the percentage of shares beneficially
owned by any shareholder, this table lists the applicable percentage ownership based on 45,037,180 ordinary shares issued and outstanding
as March 5, 2025 (such amount excludes 115,339 Ordinary Shares held by the Company).
Except as indicated in the footnotes to this table, to our knowledge,
the shareholder in the table has voting and investment power for the shares shown as beneficially owned by such shareholder, except to
the extent the power is shared by spouses under community property law. Our major shareholder does not have different voting rights than
our other shareholders. The information in the table below with respect to the beneficial ownership of shareholders is based on the public
filings of such shareholders with the SEC through March 5, 2025, and information provided to us by certain shareholders.
|
Name of Beneficial Owner |
|
Shares Beneficially Owned |
|
|
|
|
Number |
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Harel Insurance Investments & Financial Services Ltd.
(1) |
|
|
5,217,731 |
|
|
|
11.59 |
% |
|
Phoenix Financial Ltd.(2)
|
|
|
4,229,152 |
|
|
|
9.39 |
% |
|
Private Capital Management, LLC(3)
|
|
|
2,692,825 |
|
|
|
5.98 |
% |
(1) Based solely upon, and qualified in its entirety with reference
to, Amendment No. 3 to Schedule 13G/A filed with the SEC on October 15, 2024, by Harel Insurance Investments & Financial Services
Ltd. (“Harel”). Of the 5,217,731 Ordinary Shares reported as beneficially owned by Harel): (i) 5,035,162 Ordinary Shares are
held for members of the public through, among others, provident funds and/or mutual funds and/or pension funds and/or insurance policies
and/or exchange traded funds, which are managed by subsidiaries of Harel, each of which subsidiaries operates under independent management
and makes independent voting and investment decisions, and (ii) 182,569 Ordinary Shares are beneficially held for its own account. The
address of Harel is Harel House; 3 Aba Hillel Street; Ramat Gan 52118, Israel. Harel notified the Company via email that its holdings
in the Company as of December 31, 2024, were 5,307,980 ordinary shares.
(2) Based solely upon, and qualified in its entirety with reference
to, Amendment No.15 to Schedule 13G/A filed with the SEC on November 13, 2024, by Phoenix Financial Ltd. (“Phoenix”). The
securities reported by Phoenix are beneficially owned by various direct or indirect, majority or wholly-owned subsidiaries of Phoenix
(the “Subsidiaries”). The Subsidiaries manage their own funds and/or the funds of others, including for holders of exchange-traded
notes or various insurance policies, members of pension or provident funds, unit holders of mutual funds, and portfolio management clients.
Each of the Subsidiaries operates under independent management and makes its own independent voting and investment decisions. The address
of Phoenix is Derech Hashalom 53, Givataim, 53454, Israel. The Phoenix notified the Company via email that its holdings in the Company
as of December 31, 2024, were 4,272,402 ordinary shares.
(3) Based solely upon, and qualified in its entirety with reference
to Schedule 13G filed with the SEC on October 1, 2024, by Private Capital Management, LLC (“PCM”). Of the 2,692,825 Ordinary
Shares as beneficially owned by PCM (i) 1,160,715 Ordinary Shares are beneficially held for PCM’s own account; and (ii) 1,532,110
Ordinary Shares, are held for members of the public through other entities affiliated to PCM.
To our knowledge, the significant changes in the percentage of
ownership held by our major shareholders during the past three years preceding the date of this annual report on Form 20-F have been:
(i) the increase in the percentage of ownership by Harel Insurance Investments & Financial Services Ltd. and its third-party client
accounts and various direct or indirect, majority or wholly-owned subsidiaries, above 5% during the years 2022 and 2023, and a further
increase above 10% in 2024; (ii) the increase in the percentage of ownership by the Phoenix Holdings Ltd. and its various direct or indirect,
majority or wholly-owned subsidiaries, above 10%, and the decrease in the percentage of ownership below 10% during the year 2022, with
a further decrease in their ownership percentage below 5% during 2023, which later increased above 5% during 2023, and further increased
in 2024; (iii) the increase in the percentage of ownership by Clal Insurance Enterprises Holdings Ltd. and its third-party client accounts
and various direct or indirect, majority or wholly-owned subsidiaries, above 5% during the year 2023, and a subsequent decrease below
5% during 2024; and (iv) the increase in the percentage of ownership by Private Capital Management, LLC, above 5% during the year 2024.
To our knowledge, as of March 5, 2025, we had 5 shareholders of
record (excluding the Depository Trust Company) all of which were registered with addresses in the United States. These U.S. holders were,
as of such date, the holders of record of approximately 0.05% of our outstanding shares. The number of record holders in the United States
is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since
many of these ordinary shares were held of record by brokers or other nominees.
|
B. |
RELATED PARTY TRANSACTIONS |
It is our policy that transactions with office holders or transactions
in which an office holder has a personal interest will be on terms that, on the whole, are no less favorable to us than could be obtained
from independent parties.
See Exhibit 2.1 to this annual report on Form 20-F, which is incorporated
by reference into this annual report on Form 20-F, for a discussion of the requirements of Israeli law regarding special approvals for
transactions involving directors, officers or controlling shareholders.
The following is a description of some of the transactions with
related parties to which we are party and which were in effect within the past three fiscal years. The descriptions provided below are
summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the complete agreements.
Indemnification Agreements
Our articles of association permit us to exculpate, indemnify and
insure our directors and officeholders to the fullest extent permitted by the Companies Law. We have obtained directors’ and officers’
insurance for each of our officers and directors and have entered into indemnification agreements with all of our current officers and
directors.
We have entered into indemnification and exculpation agreements
with each of our current office holders and directors exculpating them to the fullest extent permitted by the law and our articles of
association and undertaking to indemnify them to the fullest extent permitted by the law and our articles of association, including with
respect to liabilities resulting from this annual report, to the extent such liabilities are not covered by insurance. See also Item 10.B.
“Related Party Transactions—Indemnification Agreements.”
Employment and Consulting Agreements
We have or have had employment, consulting or related agreements
with each member of our senior management. For more information on employment and consulting agreements see Item 6.B. “Compensation.”
|
C. |
INTERESTS OF EXPERTS AND COUNSEL |
Not applicable.
|
ITEM 8. |
FINANCIAL INFORMATION |
|
A. |
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION |
Our Financial Statements are included in this annual report pursuant to Item 18.
Legal Proceedings
On April 16, 2024, Craig Beisner, a purported shareholder of the Company,
filed a putative class action complaint, alleging violations of U.S. federal securities laws against, the Company and certain of our former
and current directors and officers, in the United States District Court for the Southern District of New York (the “SDNY,”
and the putative class action, the “SDNY Action”). The SDNY Action asserts claims under Sections 10(b) and 20(a) of
the Exchange Act and alleges that the defendants materially misrepresented and/or omitted facts in various public disclosures concerning
the Company’s search advertising business and its partnership with Microsoft Bing. On August 5, 2024, the court appointed Menora
Mivtachim Insurance Ltd., Menora Mivtachim Pensions and Gemel Ltd., Menora Mivtachim Vehistadrut Hamehandesim Nihul Kupot Gemel LTD, Clal
Insurance Company Ltd., Clal Pension and Provident Ltd., and Atudot Pension Fund for Employees & Independent Workers Ltd. as joint
lead plaintiffs (“Lead Plaintiffs”). On September 20, 2024, Lead Plaintiffs filed an amended complaint against the aforementioned
defendants and one additional defendant, one of the founders of Content IQ (the “Amended Complaint”). On November 4, 2024,
the Company filed a motion to dismiss the Amended Compliant, which is now fully briefed. The Company disputes the allegations of wrongdoing
and intends to continue to vigorously defend against them.
On April 11, 2024, Ms. Hadar Shamai, filed a motion to certify
a class action with the Financial Department of the District Court of Tel Aviv (the “DCTA”) against the above mentioned defendants.
On August 8, 2024, the Company and the plaintiff filed a mutual motion with the DCTA requesting to stay the proceedings in DCTA until
final adjudication of the SDNY Action. DCTA upheld the motion.
On February 13, 2025, purported shareholder John Carr filed a putative derivative action
on behalf of the Company in the SDNY against all of the Company’s directors and certain of its officers and former directors, principally
alleging that the Board breached its duties by allowing the Company to make material misrepresentations and/or omissions in various public
disclosures concerning the Company’s search advertising business and partnership with Microsoft Bing (the “Derivative Action”).
The Derivative Action is currently pending. The Company also disputes the allegations of wrongdoing and intends to defend against
them vigorously.
From time to time, we or our subsidiaries may be a party to legal proceedings and claims
in the ordinary course of business. The outcome of such matters cannot be predicted with certainty.
Policy on Dividend Distribution
It is currently our policy not to distribute dividends.
None.
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ITEM 9. |
THE OFFER AND LISTING |
|
A. |
OFFER AND LISTING DETAILS |
Our ordinary shares have been listed on the Nasdaq Stock Market
since January 2006. Our ordinary shares commenced trading on the TASE on December 4, 2007. Our trading symbol on Nasdaq is “PERI”
and on TASE is “PERION.”
Not applicable.
See “—Listing Details” above.
Not applicable.
Not applicable.
Not applicable.
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ITEM 10. |
ADDITIONAL INFORMATION |
Not applicable
|
B. |
MEMORANDUM AND ARTICLES OF ASSOCIATION |
A copy of our amended and restated articles of association is attached
as Exhibit 1.1 to this annual report on Form 20-F. The information called for by this Item is set forth in Exhibit 2.1 to this annual
report on Form 20-F and is incorporated by reference into this annual report on Form 20-F.
We have not entered into any material contract within the three
years prior to the date of this Annual Report, other than contracts entered into in the ordinary course of business, or as otherwise described
herein in Item 4.A “History and Development of the Company,” Item 4.B “Business
Overview,” Item 5.B “Operating and Financial Review and Prospects—Liquidity
and Capital Resources,” Item 6.C “Board Practices” and Item 7.B “Related
Party Transactions.”
Non-residents of Israel who hold our ordinary shares are able to
receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, freely repatriable in
non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is required to have been
paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of exchange controls has not been
eliminated, and may be restored at any time by administrative action.
The following is a general summary only and should not be considered
as income tax advice or relied upon for tax planning purposes.
ISRAELI TAXATION
THE FOLLOWING DESCRIPTION IS NOT INTENDED TO CONSTITUTE A COMPLETE
ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE OWNERSHIP OR DISPOSITION OF OUR ORDINARY SHARES. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR
CONCERNING THE TAX CONSEQUENCES OF YOUR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY STATE,
LOCAL, FOREIGN OR OTHER TAXING JURISDICTION.
The following is a summary of the material Israeli tax laws applicable
to us, and some Israeli Government programs benefiting us. This section also contains a discussion of some Israeli tax consequences to
persons acquiring our ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular
investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli
law. Examples of this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not
covered in this discussion. Since some parts of this discussion are based on new tax legislation that has not yet been subject to judicial
or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed
in this discussion.
The discussion below should not be construed
as legal or professional tax advice and does not cover all possible tax considerations. Potential investors are urged to consult
their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of our ordinary shares,
including, in particular, the effect of any foreign, state or local taxes.
General Corporate Tax Structure in Israel
Taxable income of Israeli companies is generally subject to corporate
tax at the rate of 23%. However, the effective tax rate payable by a company that derives income from a Preferred Enterprise or a Preferred
Technological Enterprise (as further discussed below) may be considerably lower.
Under Israeli tax legislation, a corporation is considered as an
“Israeli resident company” under the Ordinance if it meets one of the following: (i) it was incorporated in Israel; or (ii)
the control and management of its business are exercised in Israel.
Foreign Currency Regulations
We are permitted to measure our Israeli taxable income in U.S.
dollars pursuant to regulations published by the Israeli Minister of Finance, which provide the conditions for doing so. We believe that
we meet and will continue to meet, the necessary conditions and as such, we measure our results for tax purposes based on the U.S. dollar/NIS
exchange rate as of December 31st of each year.
Law for the Encouragement of Capital Investments, 1959
The Law for Encouragement of Capital Investments, 1959 (the “Investment
Law”) provides tax benefits for income of Israeli companies meeting certain requirements and criteria. The Investment Law has undergone
certain amendments and reforms in recent years.
The Israeli parliament enacted a reform to the Investment Law,
effective January 2011 (the “2011 Amendment”). The reform introduced new benefits for “Preferred Enterprises”
instead of the benefits granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However,
companies entitled to benefits under the Investment Law in effect up to January 1, 2011, which were referred to as an Approved Enterprise
and Benefited Enterprise, were entitled to choose to continue to enjoy such benefits, provided that certain conditions were met, or elect
instead, irrevocably, to forego such benefits and elect the benefits of the Preferred Enterprise. The 2017 Amendment introduced new benefits
for Technological Enterprises, alongside the existing Preferred Enterprise tax benefits. According to the 2011 Amendment, a flat rate
tax applies to companies eligible for the Preferred Enterprise status. In order to be eligible for Preferred Enterprise status, a company
must meet minimum requirements to establish that it contributes to the country’s economic growth and is a competitive factor for
the Gross Domestic Product (a competitive enterprise).
We elected the Preferred Enterprise status commencing in 2011 and
one of our Israeli subsidiaries became a Preferred Enterprise in 2017.
We believe that the Company and certain of its Israeli subsidiaries,
qualify as a Preferred Technology Enterprise in 2024 and therefore, the portion of the income derived from Preferred Technology Income,
as defined in the Investment Law, which qualifies for the benefits, is subject to a lower tax rate of 12% according to Amendment 73 to
the Law, as described below.
Benefits granted to a Preferred Enterprise’s Preferred Income
include reduced tax rates. In peripheral regions (Development Area A) the reduced tax rate was 7.5%. In other regions the tax rate was
16%. Preferred Enterprises in peripheral regions will be eligible for grants from the Israeli Authority for Investments and Development
of the Industry and Economy (the “Investment Center”), as well as the applicable reduced tax rates.
A dividend distribution from a Preferred Enterprise out of the
“Preferred Income” would be generally subject to 20% withholding tax (in the case of non-Israeli shareholders - subject to
the receipt in advance of a valid certificate from the Israel Tax Authority ("ITA") allowing for such reduced 20% withholding tax rate,
or such lower rate as may be provided under an applicable double tax treaty). Dividend distributions out of “Preferred Income”
to an Israeli company, are not subject to withholding tax (although, if such dividends are subsequently distributed to individuals or
a non-Israeli company the aforesaid will apply).
In December 2016, the Economic Efficiency Law (Legislative Amendments
for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016, which includes Amendment 73 to the Investment Law, was published.
Amendment 73 prescribed special tax tracks for technological enterprises as described below, and is in addition to the other existing
tax beneficial programs under the Investment Law. On June 30, 2021, certain grandfather rules in Amendment 73 pertaining the preferred
enterprises have expired, most significantly the limitation of Preferred Income to exclude such which is generated by intangible assets
not related to the manufacturing or such that would not have been recognized as Preferred Technology Income.
Tax benefits under Amendment 73 that became effective on January
1, 2017.
Amendment 73 provides tax benefits for two types of “Technology
Enterprises”, as described below, and is in addition to the other existing tax beneficial programs under the Investment Law.
Amendment 73 applies to “Preferred Technology Enterprise” that meet certain
conditions, including, inter-alia, the following:
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• |
A company’s average R&D expenses in the three years prior to the current tax year must be greater than or equal to 7% of
its total revenue or exceed NIS 75 million (approximately $21 million) per year; and |
|
• |
A company must also satisfy one of the following conditions: (1) at least 20% of the workforce (or at least 200 employees) are employees
whose full salary has been paid and reported in the Company’s financial statements as R&D expenses; (2) a venture capital investment
of an amount approximately equivalent to at least NIS 8 million (approximately $2.2 million) was previously made in the company, and the
company did not change its line of business after such investment; (3) growth in sales by an average of 25% or more, over the three years
preceding the tax year provided that the company’s turnover in the tax year and in each of the previous three years was at least
NIS 10 million (approximately $2.8 million); or (4) the number of the company’s employees increased by 25% (on average) or more
in the course of three years, provided that the company employed at least 50 employees in the tax year and in each of the previous three
years. |
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• |
Companies that do not meet one of the above two conditions may request preliminary approval from the National Authority for Technological
Innovation regarding being companies that own an innovation-promoting enterprise. |
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• |
A company must qualify as a “Competitive Enterprise” as described under the Investment Law. |
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• |
Total annual consolidated revenue is below NIS10 billion (approximately $2.7 billion). |
A “Special Preferred Technology Enterprise” is an enterprise
that meets conditions one and two above, and in addition is a part of a group of companies that have total annual consolidated revenue
in excess of NIS 10 billion (approximately $2.7 billion).
A “Preferred Technology Enterprise” satisfying the
required conditions will thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technology Income”,
as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise located in Development
Area A. These corporate tax rates shall apply only with respect to the portion of intellectual property developed in Israel unless certain
exceptions apply. In addition, a Preferred Technology Enterprise will enjoy a reduced corporate tax rate of 12% on capital gain derived
from the sale of certain “Benefitted Intangible Assets” (as defined in the Investment Law) to a related foreign company if
the Benefitted Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million (approximately
$55 million), and the sale receives prior approval from the National Authority for Technological Innovation (previously known as the Israeli
Office of the Chief Scientist), to which we refer as the IIA.
A “Special Preferred Technology Enterprise” satisfying
the required conditions, will thereby enjoy a reduced corporate tax rate of 6% on “Preferred Technology Income” regardless
of the company’s geographic location within Israel. In addition, a Special Preferred Technology Enterprise will enjoy a reduced
corporate tax rate of 6% on capital gain derived from the sale of certain “Benefitted Intangible Assets” to a related foreign
company if the Benefitted Intangible Assets were either developed by the Special Preferred Technology Enterprise or acquired from a foreign
company on or after January 1, 2017, and the sale received prior approval from IIA. A Special Preferred Technological Enterprise that
acquires Benefitted Intangible Assets from a foreign company for more than NIS 500 million (approximately $140 million) will be eligible
for these benefits for at least ten years, subject to certain approvals as specified in the Investment Law.
Dividends distributed to Israeli shareholders by a Preferred Technological
Enterprise or a Special Preferred Technology Enterprise, paid out of Preferred Technology Income, are generally subject to withholding
tax at source at the rate of 20% (in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from
the ITA allowing for such 20% reduced withholding tax rate or such lower rate as may be provided in an applicable tax treaty). However,
if such dividends are paid to an Israeli company, no tax is required to be withheld (although, if such dividends are subsequently distributed
to individuals or a non-Israeli company the aforesaid will apply). If such dividends are distributed to a parent foreign company that
holds solely or together with other foreign companies at least 90% of the shares of the distributing company and other conditions are
met, the withholding rate will be 4% (or a lower rate under a tax treaty, if applicable, subject to the receipt in advance of a valid
certificate from the ITA allowing for a reduced tax rate).
We believe that we and our Israeli subsidiary Vidazoo are qualified
as a “Preferred Technology Enterprise” in 2023 and 2024 and subject to a lower tax rate of 12% according to Amendment 73 to
the Law, as described above.
Law for the Encouragement of Knowledge Intensive Industry (Temporary
Provision), 2023
In July 2023, the Israeli Parliament enacted the Law for the Encouragement
of Knowledge Intensive Industry (Temporary Provision), 2023 (“the Angel’s Law”)
among other stipulations, the Angel’s Law provides certain benefits to companies qualifying for the Preferred Technological Enterprise
status in the form of tax deductions when acquiring other companies, Israeli or foreign. In order to obtain the benefits, the acquiror
and target companies must meet certain criteria, perform certain actions and obtain certain approvals from the government.
Law for the Encouragement of Industry (Taxes), 5729-1969
We believe that we, and one of our Israeli subsidiaries, currently
qualify as an “Industrial Company” within the meaning of the Law for the Encouragement of Industry (Taxes), 5729-1969, or
the Industry Encouragement Law. The Industry Encouragement Law defines an “Industrial Company” as a company resident of Israel
which was incorporated in Israel, of which 90% or more of its income in any tax year, other than income from certain government loans,
is derived from an “Industrial Enterprise” owned by it and located in Israel or in the “Area”, in accordance with
the definition in section 3A of the Ordinance. An “Industrial Enterprise” is defined as an enterprise whose major activity
in any given tax year is industrial production.
The following corporate tax benefits, among others, are available to Industrial Companies:
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• |
Amortization of the cost of purchased know-how, patents, and right to use patent or know how that were purchased in good faith and
are used for the development or promotion of the Industrial Enterprise, over an eight-year period beginning from the year in which such
rights were first used; |
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• |
Under specified conditions, an election to file consolidated tax returns with additional related Israeli Industrial Companies controlled
by it; and |
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• |
Deduction of expenses related to a public offering in equal amounts over three years beginning from the year of the offering.
|
Eligibility for the benefits under the Industry Encouragement Law
is not subject to receipt of prior approval from any governmental authority. We cannot assure that we qualify or will continue to qualify
as an “Industrial Company” or that the benefits described above will be available in the future.
Taxation of our Shareholders
Capital Gains Taxes Applicable
to Non-Israeli Resident Shareholders. The Ordinance, generally imposes a capital gains tax on the disposition of capital assets
by non-Israeli tax residents if those assets (i) are located in Israel, (ii) are shares or a right to shares in an Israeli resident corporation,
or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a specific exemption is available or unless a tax
treaty between Israel and the shareholder’s country of residence provides otherwise. The Ordinance distinguishes between real capital
gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain equivalent to the increase of the relevant
asset’s tax basis attributable to an increase in the Israeli consumer price index or, in certain circumstances, a foreign currency
exchange rate, between the date of purchase and the date of disposition. Inflationary surplus is not currently subject to tax in Israel.
The real capital gain is the excess of the total capital gain over the inflationary surplus.
Generally, a non-Israeli resident (whether an individual or a corporation)
who derives capital gains from the sale of shares in an Israeli resident company purchased upon or after the registration of the shares
on the TASE or on a regulated market outside of Israel (such as Nasdaq) should be exempt from Israeli capital gains tax unless, among
others, (i) the shares were held through a permanent establishment that the non-Israeli resident shareholder maintains in Israel, or (ii)
the Israeli resident company is classified as a real estate investment trust or ceased to be a real estate investment trust (as defined
in the Ordinance). If not exempt, a non-Israeli resident shareholder would generally be subject to tax on capital gain at the ordinary
corporate tax rate (23% in 2024), if generated by a company, or at the rate of 25%, if generated by an individual, or 30%, if generated
by an individual who is a “substantial shareholder” (as defined under the Ordinance), at the time of sale or at any time during
the preceding 12-month period (or if the shareholder claims a deduction for interest and linkage differences expenses in connection with
the purchase and holding of such shares). A “substantial shareholder” is generally a person who alone or together with such
person’s relative or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least
10% of any of the “means of control” of the corporation. “Means of control” generally include, among others, the
right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds
any of the aforesaid rights how to act, regardless of the source of such right. Individual and corporate shareholders dealing in securities
in Israel are taxed at the tax rates applicable to business income (a corporate tax rate for a corporation (23% in 2024) and a marginal
tax rate of up to 47% for an individual in 2024 (excluding excess tax as discussed below)) unless contrary provisions in a relevant tax
treaty apply. Non-Israeli entities (including corporations) will not be entitled to the foregoing exemption if Israeli residents, whether
directly or indirectly: (i) have a controlling interest of more than 25% in such non-Israeli entity or (ii) are the beneficiaries of,
or are entitled to, 25% or more of the revenue or profits of such non-Israeli entity. Such exemption is not applicable, inter alia, to
a person whose gains from selling or otherwise disposing of the shares are deemed to be business income.
Additionally, a sale of shares by a non-Israeli resident may be
exempt from Israeli capital gains tax under the provisions of an applicable tax treaty between Israel and the shareholder’s country
of residence. For example, under the Convention Between the Government of the United States and the Government of the State of Israel
with respect to Taxes of Income, as amended, or the United States-Israel Tax Treaty, the disposition of shares by a shareholder who (i)
is a U.S. resident (for purposes of the United States-Israel Tax Treaty), (ii) holds the shares as a capital asset, and (iii) is entitled
to claim the benefits afforded to such person by the United States-Israel Tax Treaty, is generally exempt from Israeli capital gains tax.
Such exemption will not apply, inter alia, if (a) the capital gain arising from such sale, exchange or disposition is attributed to a
permanent establishment that the shareholder maintains in Israel, (b) the shareholder holds, directly or indirectly, shares representing
10% or more of the voting capital of the company at any time in the 12-month period preceding such sale, exchange or disposition, subject
to certain conditions, (c) such U.S. resident is an individual and was present in Israel for a period or periods aggregating to 183 days
or more during the relevant taxable year, (d) the capital gains arising from such sale, exchange or disposition is attributed to real
estate located in Israel, or (e) the capital gain arising from such sale, exchange or disposition is attributed to royalties. In each
case, the sale, exchange or disposition of our ordinary shares would be subject to Israeli tax, to the extent applicable.
Regardless of whether non-Israeli shareholders may be liable for
Israeli capital gains tax on the sale of our ordinary shares, the payment of the consideration may be subject to the withholding of Israeli
tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding
at source at the time of sale. Specifically, in transactions involving a sale of all of the shares of an Israeli resident company, in
the form of a merger or otherwise, the ITA may require from shareholders who are not liable for Israeli tax to sign declarations in forms
specified by this authority or obtain a specific exemption from the ITA to confirm their status as non-Israeli tax residents, and, in
the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.
In addition, with respect to mergers involving an exchange of shares,
Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions,
including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares
of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions in which
the sellers receive shares in the acquiring entity that are publicly traded on a stock exchange, the tax deferral is limited in time,
and when such time expires, the tax becomes payable even if no disposition of such shares has occurred. In order to benefit from the tax
deferral, a pre-ruling from the ITA might be required.
Taxation of Non-Israeli Resident
Shareholders on Receipt of Dividends. Non-Israeli residents (whether individuals or corporations) are generally subject to
Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, unless relief is provided under the provisions
of an applicable tax treaty between Israel and the shareholder’s country of residence (provided that a certificate from the ITA
allowing for a reduced withholding tax rate or a tax exemption is obtained in advance). With respect to a person who is a “substantial
shareholder” (described above) at the time of receiving the dividend or on any time during the preceding 12 months, the applicable
tax rate is 30%. Dividends paid on publicly traded shares, like our ordinary shares, to non-Israeli residents, are generally subject to
Israeli withholding tax at a rate of 25%, so long as the shares are registered with a nominee company (whether or not the recipient is
a substantial shareholder), unless a lower rate is provided under an applicable tax treaty (provided that a certificate from the ITA allowing
for a reduced withholding tax rate is obtained in advance). However, a distribution of dividends to non-Israeli residents is generally
subject to withholding tax at source at a rate of 20% if the dividend is distributed from income attributed to a “Preferred Enterprise”
(as such terms are defined in the Investment Law), subject to the receipt in advance of a valid certificate from the ITA allowing for
such reduced tax rate, or such lower rate as may be provided under an applicable tax treaty. If such dividends are distributed by a “Preferred
Technology Enterprise” or a “Special Preferred Technology Enterprise”, paid out of “Preferred Technology Income”
(as such terms are defined under the Investment Law), to a parent non-Israeli company that holds, alone or together with other foreign
companies, 90% or more in the Israeli company and other conditions are met, the withholding tax rate will be 4% (or a lower rate under
a tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate).
For example, under the United States-Israel Tax Treaty and subject
to the eligibility to the benefits under such treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder
of our ordinary shares who is a U.S. resident (for purposes of the United States-Israel Tax Treaty) is 25%. However, for dividends not
generated by a Preferred Enterprises and paid to a U.S. corporation holding 10% or more of the outstanding voting capital throughout the
tax year in which the dividend is distributed as well as during the previous tax year, the maximum rate of withholding tax is generally
12.5%, provided that not more than 25% of the gross income of the Israeli resident paying corporation for such preceding year consists
of certain types of dividends and interest. Notwithstanding the foregoing, dividends distributed from income attributed to a Preferred
Enterprise are not entitled to such reduction under such tax treaty but are subject to withholding tax at the rate of 20% for such a United
States corporate shareholder (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate),
provided that the conditions related to the holding of 10% of our voting capital and to our gross income for the previous year (as set
forth in the previous sentence) are met. The aforementioned rates under the United States-Israel Tax Treaty would not apply if the dividend
income is derived through a permanent establishment of the U.S. resident in Israel.
If the dividend is attributable partly to income derived from a
Preferred Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions
of the two types of income. U.S. residents (for purposes of the United States-Israel Tax Treaty) who are subject to Israeli withholding
tax on a dividend may be entitled to a credit or deduction for United States federal income tax purposes up to the amount of the taxes
withheld, subject to detailed rules contained in U.S. tax law.
We cannot assure you that we will designate the profits that we
may distribute in a way that will reduce shareholders’ tax liability.
A non-Israeli resident who receives dividends from which tax was
withheld is generally exempt from the obligation to file tax returns in Israel in respect of such income, provided, inter alia, that (i)
such income was not derived from a business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income
in Israel with respect to which a tax return is required to be filed and (iii) in the case of individuals, the taxpayer is not obliged
to pay excess tax (as further explained below).
Excess Tax. Individuals
who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) are also subject to an additional
tax at a rate of 3% on annual income exceeding NIS 721,560 (approximately $198 thousand) for 2024 (which amount is generally linked to
the annual change in the Israeli consumer price index, with the exception that based on Israeli new legislation such amount, and certain
other statutory amounts will not be linked to the Israeli consumer price index for the years 2025-2027), including, but not limited to,
dividends, interest and capital gain. According to new legislation, in effect as of January 1, 2025, an additional
2% excess tax is imposed on Capital-Sourced Income (defined as income from any source other than employment income, business income or
income from “personal effort”), to the extent that the Individual’s Capital Sourced Income exceeds the specified threshold
of NIS 721,560 (and regardless of the employment/business income amount of such individual). This new excess tax applies, among other
things, to income from capital gains, dividends, interest, rental income, or the sale of real property.
Estate and Gift Tax. Israeli tax law
presently does not impose estate or gift taxes.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of material U.S. federal income
tax consequences to the U.S. Holders described below of owning and disposing of our ordinary shares, but this discussion does not purport
to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to own,
or dispose of, our ordinary shares.
This discussion applies only to a U.S. Holder that holds the ordinary
shares as capital assets for U.S. federal income tax purposes (generally, property held for investment). It does not describe all of the
tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including any minimum tax, the Medicare
contribution tax on net investment income and tax consequences applicable to U.S. Holders subject to special rules, such as:
|
• |
certain financial institutions; |
|
• |
dealers or traders in securities that use a mark-to-market method of tax accounting; |
|
• |
persons holding ordinary shares as part of a straddle, integrated or similar transaction; |
|
• |
persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; |
|
• |
entities classified as partnerships for U.S. federal income tax purposes and their partners; |
|
• |
tax-exempt entities, “individual retirement accounts” or “Roth IRAs”; |
|
• |
real estate investment trusts or regulated investment companies; |
|
• |
persons who acquired our ordinary shares pursuant to the exercise of an employee stock option or otherwise as compensation;
|
|
• |
persons that own or are deemed to own 10% or more of our stock by voting power or value; or |
|
• |
persons holding ordinary shares in connection with a trade or business outside the United States .If a partnership (or other entity
that is classified as a partnership for U.S. federal income tax purposes) owns ordinary shares, the U.S. federal income tax treatment
of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships owning ordinary shares
and their partners should consult their tax advisers as to their particular U.S. federal income tax consequences of owning and disposing
of ordinary shares. |
This discussion is based on the Internal Revenue Code of 1986,
as amended (the “Code”), administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations,
and the income tax treaty between the United States and Israel, (the “Treaty”), all as of the date hereof, any of which is
subject to change, possibly with retroactive effect.
As used herein, a “U.S. Holder” is a person that is
eligible for the benefits of the Treaty and is, for U.S. federal income tax purposes, a beneficial owner of ordinary shares and:
|
• |
a citizen or individual resident of the United States; |
|
• |
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
therein or the District of Columbia; or |
|
• |
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
This discussion does not address any U.S. federal taxes (such as
estate or gift taxes) other than income taxes, nor does it address any state, local or non-U.S. tax considerations. U.S. Holders should
consult their tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of our ordinary
shares in their particular circumstances.
Passive Foreign Investment Company Rules
In general, a non-U.S.
corporation is a PFIC for any taxable year in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more
of the value of its assets (generally determined on an average quarterly basis) consists of assets that produce, or are held for the production
of, passive income. For purposes of the above calculations, a non-U.S. corporation that owns (or is treated as owning for U.S. federal
income tax purposes), directly or indirectly, at least 25% by value of the shares or equity interests of another corporation is treated
as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the
income of the other corporation . Passive income generally includes dividends, interest, rents, royalties and certain gains. Cash and
marketable securities are generally passive assets for these purposes. Goodwill and other intangible assets are generally characterized
as non-passive or passive assets based on the nature of the income produced in the activity to which the goodwill and other intangible
assets relate.
Because we hold a substantial amount of cash and other
passive assets, our PFIC status for any taxable year generally will depend on the average value of our goodwill and other intangible assets
(as well as the value of our other active assets). If the value of our assets were determined by reference to the sum of our market capitalization
and liabilities, we would likely be a PFIC for 2024 due to the low average value of our market capitalization during 2024. However, because,
among other considerations, the market price of our ordinary shares was significantly volatile throughout 2024, we believe that
alternative valuation methods are appropriate. Specifically, we believe that if our assets were valued based on the discounted cash flows
or revenue multiples methods, our enterprise value for 2024 would be significantly larger than the value derived from using the market
capitalization method. Accordingly, we believe that we were likely not a PFIC for 2024. However, our position is not binding on the U.S.
Internal Revenue Service and there can be no assurance that it will agree with our valuation approach.
In addition, we may also be a PFIC for any future taxable
year if the portion of our financial income out of our gross income were to increase to 75% or more for any taxable year. Our PFIC status
for any taxable year is an annual factual determination that can be made only after the end of that taxable year and will depend on the
composition of our income and assets and the value of our assets from time to time (including the value of our goodwill and other intangible
assets). For the reasons described above, we cannot express any expectation regarding our PFIC status for 2025 or any future taxable year.
If we are a PFIC for any taxable year and any of our non-U.S. subsidiaries
or other companies in which we own equity interests is also a PFIC (any such entity, a “Lower-tier PFIC”), a U.S. Holder will
be deemed to own a proportionate amount (by value) of the shares of any Lower-tier PFIC and will be subject to U.S. federal income tax
according to the rules described in the subsequent paragraph on (i) certain distributions by the Lower-tier PFIC and (ii) dispositions
of shares of the Lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even though the U.S. Holder will not receive
the proceeds of those distributions or dispositions.
In general, if we are a PFIC for any taxable year during which
a U.S. Holder holds ordinary shares, gain recognized by such U.S. Holder on a sale or other disposition (including certain pledges) of
its ordinary shares will be allocated ratably over the U.S. Holder’s holding period. The amounts allocated to the taxable year of
the sale or disposition and to any year before we became a PFIC will be taxed as ordinary income. The amount allocated to each other taxable
year will be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and
an interest charge will be imposed on the resulting tax liability for each such year. Furthermore, to the extent that distributions received
by a U.S. Holder in any taxable year on its ordinary shares exceed 125% of the average of the annual distributions on the ordinary shares
received during the preceding three taxable years or the U.S. Holder’s holding period, whichever is shorter, such distributions
will be subject to taxation in the same manner. Under a rule commonly referred to as “once a PFIC always a PFIC,” if
we are a PFIC for any taxable year during which a U.S. Holder owns ordinary shares, we will generally continue to be treated as a PFIC
with respect to the U.S. Holder for all succeeding taxable years during which the U.S. Holder owns the ordinary shares, even if we cease
to meet the threshold requirements for PFIC status, unless the U.S. Holder makes a timely “deemed sale” purging election,
in which case any gain on the deemed sale will be taxed under the PFIC rules described above.. If we are a PFIC for any taxable year but
cease to be a PFIC for subsequent taxable years, U.S. Holders should consult their tax advisers regarding the advisability of making the
“deemed sale” election.
Alternatively, if we are a PFIC for any taxable year and if our
ordinary shares are “regularly traded” on a “qualified exchange,” a U.S. Holder can make a mark-to-market election
that will result in tax treatment different from the general tax treatment for PFICs described above. The ordinary shares will be treated
as “regularly traded” for any calendar year in which more than a de minimis quantity of the ordinary shares are traded on
a qualified exchange on at least 15 days during each calendar quarter. Nasdaq, where the ordinary shares are listed, is a qualified exchange
for this purpose. If a U.S. Holder of ordinary shares makes a timely mark-to-market election, the U.S. Holder generally will recognize
as ordinary income any excess of the fair market value of the ordinary shares at the end of each taxable year over their adjusted tax
basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ordinary shares over their fair market
value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-
to-market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in the ordinary shares will be adjusted to
reflect the income or loss amounts recognized. Any gain recognized on the sale or other disposition of ordinary shares in a year in which
we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount
of income previously included as a result of the mark-to-market election, with any excess treated as a capital loss). If a U.S. Holder
of ordinary shares makes a timely mark-to-market election, distributions paid on ordinary shares will be treated as discussed under “—Taxation
of Distributions” below. U.S. Holders should consult their tax advisers regarding the availability and advisability of making a
mark-to-market election in their particular circumstances. In particular, U.S. Holders should consider carefully the impact of a mark-to-market
election with respect to their ordinary shares given that we may have Lower-tier PFICs and that there is no provision in the Code, Treasury
regulations or other official guidance that would permit them to make a mark-to-market election with respect to any Lower-tier PFIC the
shares of which are not “regularly traded” as described above.
If we are a PFIC (or are treated as a PFIC with respect to any
U.S. Holder) for a taxable year in which a dividend is paid or the preceding taxable year, the favorable rate for dividends paid to certain
non-corporate U.S. Holders, as described in “—Taxation of Distributions” below, will not apply.
We do not intend to provide information necessary for U.S. Holders to make “qualified
electing fund” elections which, if available, would result in tax treatment different from the general tax treatment for PFICs described
above.
If we are a PFIC for any taxable year during which a U.S. Holder
owns any ordinary shares, the U.S. Holder will generally be required to file annual reports with the U.S. Internal Revenue Service (the
“IRS”). U.S. Holders should consult their tax advisers regarding the determination of whether we are a PFIC for any taxable
year and the potential application of the PFIC rules to their ownership of our ordinary shares.
Taxation of Distributions
This discussion is subject to the discussion under “—Passive Foreign Investment
Company Rules” above.
We currently do not intend to make cash distributions on the ordinary shares. Any distributions
(other than certain pro rata distributions of ordinary shares) will be treated as dividends to the extent paid out of our current or accumulated
earnings and profits, as determined under U.S. federal income tax principles. Because we do not maintain calculations of our earnings
and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as
dividends. Dividends will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code.
Subject to applicable limitations, dividends paid on our ordinary shares to certain non-corporate U.S. Holders may be taxable at a favorable
rate, provided that we are not (and are not treated with respect to any U.S. Holder as) a PFIC for our taxable year in which the dividend
is paid or the preceding taxable year. Non-corporate U.S. Holders should consult their tax advisers regarding the availability of this
favorable rate in their particular circumstances and taking into account our PFIC status for any taxable year.
Dividends will generally be included in a U.S. Holder’s income
on the date of receipt. If any dividend is paid in NIS, the amount of dividend income will be the U.S. dollar amount of the dividend calculated
by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars.
If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency
gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into
U.S. dollars after the date of receipt. Such gain or loss will generally be treated as U.S.-source ordinary income or loss.
Dividend income will include any amounts withheld in respect of
Israeli taxes and will be treated as foreign-source income. Subject to applicable limitations, some of which vary depending upon the U.S.
Holder’s circumstances, Israeli taxes withheld from dividends on our ordinary shares (at a rate not exceeding the applicable Treaty
rate) generally will be creditable against the U.S. Holder’s U.S. federal income tax liability. The rules governing foreign tax
credits are complex. For example, Treasury regulations provide that, in the absence of an election to apply the benefits of an applicable
income tax treaty, in order for foreign income taxes to be creditable the relevant foreign income tax rules must be consistent with certain
U.S. federal income tax principles, and we have not determined whether the Israeli income tax system meets these requirements. The IRS
has released notices that provide relief from certain of the provisions of the Treasury regulations described above for taxable years
ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified
in such notice or other guidance). In lieu of claiming a non-U.S. tax credit, U.S. Holders may elect to deduct non-U.S. taxes (including
Israeli taxes) in computing their taxable income, subject to applicable limitations. An election to deduct non-U.S. taxes instead of claiming
foreign tax credits applies to all otherwise creditable non-U.S. taxes paid or accrued in the taxable year. U.S. Holders should consult
their tax advisers regarding the creditability or deductibility of Israeli taxes in their particular circumstances.
Sale or Other Taxable Disposition of Ordinary Shares
This discussion is subject to the discussion under “—Passive Foreign Investment
Company Rules” above.
Gain or loss realized on the sale or other taxable disposition
of our ordinary shares will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder has owned the ordinary
shares for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the
ordinary shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss
will generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.
Israeli taxes on capital gains will generally not be eligible for foreign tax credits. U.S. Holders should consult their tax advisers
with respect to the creditability of Israeli taxes, if any, on disposition gains (or the ability to reduce the amount realized on dispositions
by the amount of any such taxes) in their particular circumstances.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the
United States or through certain U.S.-related intermediaries may be subject to information reporting and backup withholding, unless (i)
the U.S. Holder is a corporation or other “exempt recipient” and (ii) in the case of backup withholding, the U.S. Holder provides
a correct taxpayer identification number and certifies that it is not subject to backup withholding. Backup withholding is not an additional
tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s
U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.
Certain U.S. Holders who are individuals (or certain specified
entities) may be required to report information relating to their ownership of ordinary shares or non-U.S. accounts through which the
ordinary shares are held. U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to our ordinary
shares.
|
F. |
DIVIDENDS AND PAYING AGENTS |
Not applicable.
Not applicable.
We are subject to the informational requirements of the Exchange
Act that are applicable to foreign private issuers, and under those requirements file reports with the SEC. Those other reports or other
information may be inspected without charge at the locations described above. As a foreign private issuer, we are exempt from the rules
under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders
will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition,
we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently
or as promptly as United States companies whose securities are registered under the Exchange Act. However, we will file with the SEC,
within 120 days after the end of each subsequent fiscal year, or such applicable time as required by the SEC, an annual report on Form
20-F containing financial statements audited by an independent registered public accounting firm, and will submit to the SEC reports on
Form 6-K containing unaudited quarterly financial information.
Our filings with the SEC are also available to the public through
the SEC’s website at http://www.sec.gov. This site contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The information on that website is not part of this Annual Report on Form 20-F
and is not incorporated by reference herein.
|
I. |
SUBSIDIARY INFORMATION |
Not applicable.
|
J. |
ANNUAL REPORT TO SECURITY HOLDERS |
Not applicable.
|
ITEM 11.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Exchange Rate Risk. A portion of our revenue
and expenses are denominated in foreign currencies. As a result, numerous balances are denominated or linked to these currencies. Foreign
currency related fluctuations resulted in $0.3 million net losses in 2022, $0.6 million net losses in 2023 and $1.0 million net losses
in 2024. These losses are included in financial expenses, net, as presented in our statements of income.
As of December 31, 2024, balance sheet financial items in U.S.
dollars, our functional currency, and those currencies other than the U.S. dollars were as follows:
|
|
|
U.S. dollars |
|
|
NIS |
|
|
Canadian dollars |
|
|
Other Currencies |
|
|
Total |
|
|
|
|
In thousands of U.S. dollars |
|
|
Current assets |
|
|
438,707 |
|
|
|
36,384 |
|
|
|
38,594 |
|
|
|
47,778 |
|
|
|
561,463 |
|
|
Long-term assets |
|
|
457 |
|
|
|
6,784 |
|
|
|
408 |
|
|
|
1,283 |
|
|
|
8,932 |
|
|
Current liabilities |
|
|
(87,837 |
) |
|
|
(11,669 |
) |
|
|
(57,840 |
) |
|
|
(2,454 |
) |
|
|
(159,800 |
) |
|
Long-term liabilities |
|
|
(11,251 |
) |
|
|
(18,772 |
) |
|
|
(497 |
) |
|
|
(217 |
) |
|
|
(30,737 |
) |
|
Total |
|
|
340,076 |
|
|
|
12,727 |
|
|
|
(19,335 |
) |
|
|
46,390 |
|
|
|
379,858 |
|
In addition, in territories where our prices are based on local
currencies, fluctuations in the dollar exchange rate could affect our gross profit margin. We may compensate for such fluctuations by
changing product prices accordingly. We also hold a small part of our financial investments in other currencies, mainly NIS and Euro.
The dollar value of those investments may decline. A revaluation of 1% of the foreign currencies (i.e. other than U.S. dollar) would not
have a material effect on our income before taxes possibly reducing it by $0.5 million.
A significant portion of our costs, including salaries and office
expenses are incurred in NIS. Inflation in Israel may have the effect of increasing the U.S. dollar cost of our operations in Israel.
If the U.S. dollar declines in value in relation to the New Israeli Shekel, it will become more expensive for us to fund our operations
in Israel. A revaluation of 1% of the New Israeli Shekel will affect our income before tax by approximately $0.4 million. The exchange
rate of the U.S. dollar to the New Israeli Shekel, based on exchange rates published by the Bank of Israel, was as follows:
|
|
|
Year Ended December 31, |
|
|
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
Average rate for period |
|
|
3.359 |
|
|
|
3.688 |
|
|
|
3.701 |
|
|
Rate at year-end |
|
|
3.519 |
|
|
|
3.627 |
|
|
|
3.647 |
|
|
ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
PART II
|
ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
|
ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|
None.
|
ITEM 15. |
CONTROLS AND PROCEDURES |
|
(a) |
Disclosure controls and procedures Our chief executive officer and chief financial officer,
after evaluating the effectiveness of our disclosure controls and procedures as of December 31, 2024, have concluded that, as of such
date, our disclosure controls and procedures were effective and ensured that information required to be disclosed by us in reports that
we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and
chief financial officer, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within
the time periods specified by the SEC’s rules and forms. |
|
(b) |
Management annual report on internal control over financial reporting Our management, under
the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal
control over our financial reporting. The Company’s internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act, means a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting includes policies and procedures that: (a) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect our transactions and asset dispositions; (b) provide reasonable assurance that transactions are recorded
as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (c) provide reasonable
assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material
effect on our financial statements. Due to its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
|
|
|
Our management evaluated the effectiveness of our internal control over financial reporting as of December
31, 2024. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in “Internal Control – Integrated Framework” (2013 framework). Our management has concluded, based
on its assessment, that our internal control over financial reporting was effective as of December 31, 2024. |
|
(c) |
Attestation Report of the Registered Public Accounting Firm Kost Forer Gabbay & Kasierer,
an independent registered accounting firm and a member firm of EY Global, has issued an attestation report on the effectiveness of our
internal control over financial reporting, as stated in their report included herein. See “Report of Independent Registered Public
Accounting Firm” on page F-2. |
|
(d) |
Changes in internal control over financial reporting During the period covered by this report,
no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) have occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
|
ITEM 16A. |
AUDIT COMMITTEE FINANCIAL EXPERT |
Our board of directors has determined that Ms. Michal Drayman,
who is an independent director (as defined in the Nasdaq Listing Rules) and serves as our chairperson of the audit committee, qualifies
as an “audit committee financial expert” as defined in Item 16A of Form 20-F.
Our board of directors has adopted a code of business conduct and
ethics (which was amended in February 2017) applicable to all of our directors, officers and employees as required by the Nasdaq Listing
Rules, which also complies with the definition of a “code of ethics” set out in Section 406(c) of the Sarbanes-Oxley Act of
2002. A copy of the code of ethics can be found on our website at: http://www.perion.com/governance-documents. We granted no waivers
under our code of business conduct and ethics in 2024.
|
ITEM 16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Fees for the professional services rendered by our independent
accountants Kost Forer Gabbay & Kasierer, a member of EY Global, for each of the last two fiscal years were as follows (in thousands
of U.S. dollars):
|
|
|
2023 |
|
|
2024 |
|
|
Audit Fees |
|
$ |
747 |
|
|
$ |
721 |
|
|
Tax Fees |
|
|
57 |
|
|
|
98 |
|
|
Audit Related fees |
|
|
483 |
|
|
|
45 |
|
|
Total |
|
$ |
1,287 |
|
|
$ |
864 |
|
Audit fees include
fees for professional services rendered by our principal accountant in connection with the annual audit, review of quarterly consolidated
financial data, internationally required statutory audits, consents and assistance with review of documents filed with the SEC.
Tax fees include services
related to tax compliance and claims for refunds, tax planning and advice, including assistance with tax audits and appeals, advice related
to additional efforts required in connection with mergers and acquisitions and assistance with respect to requests for rulings from tax
authorities.
Audit-related fees principally
include assistance with audit services and consultations, mainly related to follow-on public offerings, mergers and acquisitions.
Our audit committee provides assistance to our board of directors
in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control
and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding
our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts
of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent
of management. Our audit committee has authorized all auditing and non-auditing services provided by our independent accountants during
2023 and 2024 and the fees paid for such services.
|
ITEM 16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
None.
|
ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
In February 2024, our board of directors approved a share repurchase
program of up to $50 million, which was expanded in April 2024 to a maximum of up to $75 million. In March 2025, our board of directors
approved an additional $50 million expansion of the previously authorized share repurchase program, to a total of $125 million. This expansion
of the program is subject to the issuance of the Company’s audited annual financial report for the year 2024, which is part of this
annual report. As of December 31, 2024, we spent an aggregate of $46.9 million to repurchase 5,200,000 ordinary shares under our share
repurchase program. The following table provides information regarding our repurchases of our ordinary shares for each month included
in the period covered by this Annual Report on Form 20-F:
|
Period |
|
(a) Total Number
of Ordinary
Shares
Purchased |
|
|
(b) Average
Price Paid per
Ordinary Share |
|
|
(c) Total Number of
Ordinary Shares
Purchased as Part
of Publicly
Announced
Plans or Programs |
|
|
(d) Approximate Value ($US) that may yet be purchased under the Plan(1)
|
|
|
May 1, 2024 – May 31, 2024 |
|
|
86,223 |
|
|
|
12.472 |
|
|
|
86,223 |
|
|
$ |
73.9 |
M |
|
June 1, 2024 – June 30, 2024 |
|
|
1,913,777 |
|
|
|
9.915 |
|
|
|
1,913,777 |
|
|
$ |
54.9 |
M |
|
July 1, 2024 – July 31, 2024 |
|
|
400,000 |
|
|
|
8.534 |
|
|
|
400,000 |
|
|
$ |
51.5 |
M |
|
August 1, 2024 – August 31, 2024 |
|
|
398,112 |
|
|
|
8.756 |
|
|
|
398,112 |
|
|
$ |
48 |
M |
|
September 1, 2024 – September 30, 2024 |
|
|
801,888 |
|
|
|
8.205 |
|
|
|
801,888 |
|
|
$ |
41.5 |
M |
|
October 1, 2024 – October 31, 2024 |
|
|
846,341 |
|
|
|
8.008 |
|
|
|
846,341 |
|
|
$ |
34.7 |
M |
|
November 1, 2024 – November 30, 2024 |
|
|
753,659 |
|
|
|
8.774 |
|
|
|
753,659 |
|
|
$ |
28.1 |
M |
(1) The Approximate Value that may yet be purchased under the Plan,
is calculated as of December 31, 2024, before the increase of the repurchase plan that was approved in March 2025.
|
ITEM 16F. |
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.
|
ITEM 16G. |
CORPORATE GOVERNANCE |
We are a foreign private issuer whose ordinary shares are listed
on the Nasdaq Global Select Market. As such, we are required to comply with U.S. federal securities laws, including the Sarbanes-Oxley
Act, and the Nasdaq Listing Rules, including the Nasdaq corporate governance requirements. The Nasdaq Listing Rules provide that foreign
private issuers may follow home country practice in lieu of certain qualitative listing requirements subject to certain exceptions and
except to the extent that such exemptions would be contrary to U.S. federal securities laws, so long as the foreign private issuer discloses
that it does not follow such listing requirement and describes the home country practice followed in its reports filed with the SEC. Below
is a concise summary of the significant ways in which our corporate governance practices differ from the corporate governance requirements
of Nasdaq applicable to domestic U.S. listed companies:
Shareholder Approval. Although
the Nasdaq Listing Rules generally require shareholder approval of equity compensation plans and material amendments thereto, we follow
Israeli practice, which is to have such plans and amendments approved only by the board of directors, unless such arrangements are for
the compensation of chief executive officer or directors, in which case they also require the approval of the compensation committee and
the shareholders.
In addition, rather than follow the Nasdaq Listing Rules requiring
shareholder approval for the issuance of securities in certain circumstances, we follow Israeli law, under which a private placement of
securities requires approval by our board of directors and shareholders if it will cause a person to become a controlling shareholder
(generally presumed at 25% ownership) or if:
|
• |
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. |
Shareholder Quorum. The
Nasdaq Listing Rules require that an issuer have a quorum requirement for shareholders meetings of at least one-third of the outstanding
shares of the issuer’s common voting stock. We have chosen to follow home country practice with respect to the quorum requirements
of an adjourned shareholders meeting. Our articles of association, as permitted under the Companies Law, provide that if at the adjourned
meeting a legal quorum is not present after 30 minutes from the time specified for the commencement of the adjourned meeting, then the
meeting shall take place regardless of the number of members present and in such event the required quorum shall consist of any number
of shareholders present in person or by proxy.
Executive Sessions. While
the Nasdaq Listing Rules require that “independent directors,” as defined in the Nasdaq Listing Rules, must have regularly
scheduled meetings at which only “independent directors” are present. Israeli law does not require, nor do our independent
directors necessarily conduct, regularly scheduled meetings at which only they are present.
Approval of Related Party Transactions. Although
the Nasdaq Listing Rules require the approval of the audit committee or another independent body of a Company’s board of directors
for all “related party transactions” required to be disclosed pursuant to Item 7.B. of Form 20-F, we follow the provisions
of the Israeli Companies Law. Specifically, that all related party transactions are approved in accordance with the requirements and procedures
for approval of interested party acts and transactions, set forth in sections 268 to 275 of the Israeli Companies Law, and the regulations
promulgated thereunder, which allow for the approval of certain related party transactions, which are immaterial, in the normal course
of business and on market terms, by the board of directors. Other specified transactions can require audit committee approval and shareholder
approval, as well as board approval. See also Exhibit 2.1 to this annual report on Form 20-F, which is incorporated by reference into
this annual report on Form 20-F, for the definition and procedures for the approval of related party transactions.
|
ITEM 16H.
|
MINE SAFETY DISCLOSURE |
Not applicable.
|
ITEM 16I.
|
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTION |
Not applicable.
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