Nov 12, 2013
Executives
Deborah Margalit – Director, IR Josef Mandelbaum – CEO Yacov Kaufman – CFO
Analysts
Kerry Rice – Needham & Company Jay Srivtsa – Chardan Capital Markets Aram Fuchs – Fertilemind Capital
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Perion third quarter 2013 Results Conference Call.
All participants are in listen-only mode. Following management’s formal presentation, instructions will be given for the question and answer session.
(Operator Instructions) As a reminder this conference is being recorded. With us today from Perion are Josef Mandelbaum, CEO and Yacov Kaufman, CFO.
I would now like to turn the call over to Deborah Margalit, Director of Investor Relations. Deborah, please begin.
Deborah Margalit
Thank you, and we appreciate the attention of everyone who is joining us today. On today’s call, management will be reviewing the financial results and business highlights of the third quarter and first nine months of 2013.
The press release detailing the results is available on the Company’s website at www.perion.com. Before we begin, I’d like to read the following Safe Harbor Statement: Today’s discussion will include forward-looking statements.
These statements reflect the Company’s current views with respect to future events. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including those discussed under the heading “Risk Factors” and elsewhere in the Company’s annual report on form 20-F that may cause actual results, performance or achievements to be materially different from any future results, performances or achievements anticipated or implied by these forward-looking statements.
The Company does not undertake to revise any forward-looking statements to reflect future events or circumstances. In addition, and as in prior quarters, the results reported today will be analyzed on a non-GAAP basis, which better conveys the operational state of the business.
We have provided a detailed reconciliation of non-GAAP measures to their comparable GAAP measures in our earnings release, which is available on our website, and has also been filed on Form 6-K. With that, I’ll turn the call over to Josef Mandelbaum, Chief Executive Officer.
Josef?
Josef Mandelbaum
Thank you Deborah and good morning everyone. Welcome to our 2013 third quarter earnings call.
As usual, I will begin with remarks about the quarter and provide some color on our operations and our going forward strategy, and Yacov will review our financials in more detail, and also provide updated pro-forma numbers of Conduit’s Client Connect business. Following that, we will open the call up to questions.
Before I discuss the third quarter I would like to share with you our vantage point regarding recent events in the industry. While we understand concerns investors may have in this regard, we look at these changes as an opportunity for growth over the long-term.
We intend to utilize our expertise and quality relationships to continue to provide real value in the ecosystem by enabling consumers to download their favorite products for free. Over the last few months we have further enhanced our controls and systems to enable us to maintain a high quality business with better insight into how to grow it, at an increasing ROI.
The third quarter was certainly a momentous quarter for Perion. Obviously, our primary focus is the planned merger with Conduit’s ClientConnect business.
This combination, and the resulting larger and more profitable Perion, will be uniquely positioned to execute the Company’s business strategy and become a preferred partner of app developers, by offering them the best solution to distribute and monetize their apps across all devices . We will emerge as an industry powerhouse, with the size, recognition, and resources to further strengthen and grow our business.
We will be able to increase investment in our technology platforms, expand faster into mobile, and invest in growth through acquisitions. Since the transaction was announced, we are now in a position to selectively pursue more strategic acquisitions, focused on mobile, advertising and data technology companies.
I fully expect 2014 will be another milestone year in Perion’s history, and one that will shape its future for the next few years. While our primary focus right now is on the new Perion combined with ClientConnect, we are also very pleased about Perion’s financial performance during the quarter, particularly in light of the current headwinds in the industry.
We hit the upper range of our revenue guidance with $21.3 million, which represents a 31% increase year-over-year, and surpassed our EBITDA and net profit expectations, with EBITDA of $5.6 million and Net Income of $4.5 million. During the quarter, we successfully executed on our search diversification strategy, with no single partner accounting for more than 40% of our search generated revenues.
We have expanded from one search partner to five, and now work with Google, Bing, Ask.com, Yahoo! and Conduit.
The merger with SweetPacks last November provided us with the scale necessary to successfully diversify this business. Once we complete the merger with Client Connect, we will be an even more attractive partner to such providers, thereby further lowering the risk profile of our business.
We maintain strong relationships with all of our search partners, and we are confident these relationships will continue into the future. As we discussed in the second quarter call, the industry is going through a transition period while it adjusts to new policies.
We stated that we thought the market would find its equilibrium in 6 months or so, and while generally that seems to be the trend it is taking slightly longer than expected. In addition, we discussed how certain delays in implementing multiple new search partnerships would impact our third quarter revenue.
These issues have been resolved and we began ramping up our marketing efforts to drive future growth towards the end of the quarter. The fourth quarter will indeed show significant growth over this quarter, as well as compared to last year’s fourth quarter.
Turning to the products side of the business, Guardius was just released to the public last week, with over 120,000 installs to date we are very happy with its growth and positive consumer feedback. Over 50% percent of users have acted on the recommendations of other Guardius users to help speed up their browser experience by removing unwanted add-ons and extensions.
In addition, Smilebox and Incredimail are performing very nicely and we continue to invest in their mobile expansion. Smilebox continues to grow at a double digit pace and is on track to deliver strong profits.
In addition, this year’s content selection and new website have already taken the user experience to a new level. With over 2 million installs, Smilebox Mobile is progressing steadily and getting great ratings along the way.
We are also very proud of our new messaging app, Molto, for iPad, iPhone and Android tablets. With great reviews and ratings from consumers, we are hopeful about its success.
With that I’ll turn the call over to Yacov and then take your questions. Yacov?
Yacov Kaufman
Thank you Josef. As Josef just mentioned, in addition to the operational and strategic achievements, this was a very good quarter from a financial standpoint as well.
Revenues this quarter were $21.3 million, increasing 31% compared to the $16.3 million in the third quarter last year. The increase reflected growth across all our revenue-streams year over year, reflecting organic growth, with added growth coming from our Sweetpacks acquisition.
Specifically, this increase was attributable to a 25% year over year increase in search generated revenues, from $10.9 million to $13.6 million. In addition, product and other advertising sales, increased 43% from $5.4 million in the third quarter last year, to $7.7 million this last quarter.
Gross profit in the third quarter of 2013 grew both nominally and as a percentage of sales, reaching $20.4 million, up 34% compared to the $15.2 million in the third quarter last year. This reflects an increase in our gross profit margin to 96%, compared to 94% of sales in the third quarter of 2012.
Total operating expenses were $15.2 million in the third quarter of 2013. Excluding customer acquisition costs of $8.2 million, these expenses totaled $7 million.
Reflecting a relatively small increase, when looking at our year-over-year, top-line growth. As I just mentioned, in the third quarter of 2013, we invested $8.2 million in Customer Acquisition Costs, down sequentially from $12.5 million in the second quarter, but up compared to $5.8 million last year.
EBITDA was $5.6 million, or 26% of sales, in the third quarter of 2013, compared to $3.8 million, or 23% of sales, in the third quarter of 2012. Net Income in the third quarter of 2013 was $4.5 million, increasing 68% compared to $2.7 million in the third quarter of 2012.
Earnings per share this quarter was 34 cents per diluted share, representing a 31% increase from 26 cents in the third quarter of 2012. In the third quarter of 2013, GAAP operating expenses included $0.4 million of non-cash, share-based compensation, $2.3 million, amortization of acquired intangible assets, as well as $3.4 million one-time acquisition related expenses, for a total of $6.1 million excluded from our non-GAAP operating expenses.
In the third quarter of 2012, expenses included in our GAAP report and excluded from our non-GAAP report totaled $1 million. The GAAP Net loss, inclusive of these expenses in the third quarter of 2013 was $1.7 million, or 13 cents per diluted share, compared to net income of $1.7 million, or 17 cents per diluted share in the third quarter of 2012.
The one-time expense of $3.4 million for the acquisition of Conduit’s ClientConnect business alone, represented 26 cents per diluted share. Turning to the financial results for the nine months ended September 30, 2013, total revenues were $73.3 million, an 84% increase, compared to $39.8 million in the first nine months 2012.
This increase was driven by a $29.2 million, or 128% increase, in search generated revenues, along with a $4.3 million, or 25% increase, in our product and other advertising revenues. Gross profit in the first nine months of 2013 increased 88% to $70.1 million, or 96% of revenues, compared to $37.2 million, or 93% of revenues in the same period in 2012.
In the first nine months of 2013, GAAP gross profit was net of $5.6 million amortization of acquired intangible assets, which were not deducted from our non-GAAP gross profit. In the first nine months of 2012, the difference between gross profit in our GAAP report and that in our non-GAAP report totaled $1.7 million.
R&D expenses in the first nine months of 2013 were $9 million compared to $7.7 million in 2012. As a percentage of sales, R&D decreased from 19% in 2012 to 12% in 2013.
Looking forward, we intend to increase our investment in developing new products for new platforms, without increasing the expense as a percentage of sales. Sales and Marketing expenses, excluding customer acquisition costs, in the first nine months of 2013 were $6.6 million, compared to $4.5 million in 2012.
This increase resulted from adding to our marketing staff from the SweetPacks acquisition. As a percentage of sales these expenses have decreased as well from 11% in 2012 to 9% in 2013.
Customer acquisition costs in the first nine months of 2013 reached $32 million compared to $12.4 million in 2012. The increased expense was a significant factor in powering our revenue growth.
Our G&A expense in the first nine months of this year was $5.7 million, or 8% of revenues, compared to $4.3 million, or 11% of revenues in 2012. GAAP operating expenses in 2013 included $1.1 million of non-cash share-based compensation, $6.9 million amortization of acquired intangible assets, and $3.4 million in acquisition related expenses, totaling $11.5 million, which were adjusted for in the non-GAAP numbers.
In 2012, the adjustment of GAAP numbers totaled $3.7 million. In the first nine months of 2013, EBITDA was $17.8 million, or 24% of revenues, significantly up, compared to $9.1 million, or 23% of revenues in 2012.
Non-GAAP net income increased in the first nine months of 2013 to $13.6 million, or a dollar and 5 cents per diluted share, compared to $6.7 million or 66 cents per diluted share, in the same period in 2012. In first nine months of 2013, GAAP cash flow from operations was $12.7 million compared to $4.8 million in the same period last year.
This reflects a $1.6 million decrease in cash flow from operations during the third quarter of this year. The primary reason for this decrease is a $3.1 million increase in trade receivables this quarter as compared to last quarter.
The increase in trade receivables resulted from new terms of payment from our recently diversified search partnerships, as well as timing of revenues within the quarter. As of September 30, 2013, we had cash and cash equivalents of approximately $27.3 million, up from $21.8 million as of the end of last year.
With regards to ClientConnect, their business continued to perform well in the third quarter of 2013. Based on the pro-forma non-GAAP numbers we received, third quarter revenues increased 58% year-over-year reaching $80.9 million, EBITDA increased 48% year-over-year reaching $21.2 million and net income increased 44% year-over-year, reaching $19.4 million.
This concludes my financial overview. Let me now talk about our outlook.
We are encouraged by the trends we see. As the third quarter progressed, we saw a notable surge in our search-related revenue and improved ROI from our customer acquisition efforts.
We see this trend continue into the fourth quarter. As a result, we believe we are emerging from the transition period we spoke of, and the fourth quarter is shaping up to be a very strong quarter for us, both in terms of revenue and profitability.
That being said, we are not impregnable to the changes in the market and have become even more selective regarding who we partner with and how we invest in customer acquisition. As a result, we are adjusting our guidance for this year and expect revenues to be in the range of 102 to $104 million, EBITDA to be between 24 and $25 million, and Net Income to be in the range of 18 to $19 million.
With that, we will now open the call to questions. Operator?
Operator
Thank you. (Operator Instructions) And we’ll take our first question from Kerry Rice with Needham & Company.
Kerry Rice – Needham & Company
Thanks a lot. Hi, Yacov.
Hi, Josef, quick questions on growth for Q4. You mentioned being more selective around partners and so if I think about the growth or what’s going to be the growth drivers in Q4.
Are they look – are you looking for new partners in the industry or you planning to do more organic marketing around Incredimail or Smilebox or drive more doable hard download or increase the ads in the install process, maybe some color around that. And other people, other companies I should say have highlighted that the competitive environment has been pretty strong and that’s causes some weakness in the revenue for other companies.
If that’s the case what gives you confidence that you can kind of reaccelerate that revenue growth to 34% sequentially?
Josef Mandelbaum
Sure, thanks Kerry. Thanks for the questions.
I’ll answer the first question – first part of the question first and I’ll go to second. With regards to select I think partners when the after mentioned partners we’re talking about distribution partners not search partners.
So, we’re not – we have – we are very happy with the search partners we have in Google, in Apps Yahoo being in conduit and we’re not looking for new search partners, we’re talking about – these are affiliates of our distribution partners and the growth will come from three things. One, we are doing more organic investments in our own downloads for marketing for our own products, more SEM both display and search marketing which we’re seeing frankly that is less sensitive to the market environments out there because you’re controlling your own funnel and buying yourself, there were increasing that, number one.
Number two, we do see some partnership, distribution partnerships affiliates that are opportunities for us to grow in this fourth quarter and beyond and we are looking at those and we are being selective about what we’re taking, we do want to maintain obviously the position we have at the marketplace today in terms of the quality install and so forth but we are looking an additional partnerships or a distribution partnerships I should say. And so those are primary ways that we’ll be growing, what gives us confidence is we’re in the middle of November and I know what October was and I know we’re seeing in the marketplace.
So, we’re relatively again if you were just say running new into adopting. So, I think originally where we thought the Q4 would be probably little bit even better but we’re excited about the 34% growth this has had sequentially.
We’re giving a very good position. I think we prepared as you know Kerry, we mentioned I think on our second quarter earnings call already we started talking about this in June that we saw some of the changes and policy changes and we’ve been working with them now for 6 to 8 months.
Yeah, I think we’ve certainly been working hard on the analytic side, on the personal side, on the marketing side to find ways of going in the headwinds and finding opportunities for growth. And we’re just seeing in Q4 is the combination of that plus as I mentioned in our last earnings call, we do have a mix as we saw the market kind of developing, a mix between search revenues here and obviously pay-per-install deals and we’ve been doing both.
We’re looking at those as the way helping us grow through the quarter. Those are the three major things we’re doing and we have confidence because where month is behind us already and we’re seeing the trend, we’re fairly confident about the quarter.
Kerry Rice – Needham & Company
Okay. And just one follow up question.
As you think about that 34% sequential growth, what is that implies for customer acquisition cost for Q4 and maybe the impact that, that could have on margins?
Josef Mandelbaum
Yeah, I mean I think we’re seeing a general yeah I think Yacov mentioned this little early about the ROI. So, fairly well he mentioned about other people their market is certainly more competitive, there is no question about that and the ROIs look at our numbers in Q3 as well and we said that before are not what they were last year.
But we are seeing that interfere smart and if you have good systems then you bought right the ROI can still be very good for us and we’re happy about where it’s going. It’s a balance between the PPI and the revenue share side of it which helps us as well and certainly acquisition cost.
I don’t know if we get to the $450 million we originally felt we would and that’s part of the reason why we’re still going to be very, very close to the EBITDA numbers we originally gave while we’ll be little short of the revenue numbers was still very, very strong year-over-year growth. And when you look at the balance between the PPI and the revenue share that does offset some of the EBITDA if you’d normally take with just acquisition marketing.
I do want to add there, when I think this is important as we get into the quarter and we see things evolve it maybe the good opportunities for us to invest more money for a future growth in 2014 and beyond and we would look at that very carefully to see what it make – if anything makes sense and if we do that we will surely update investors and the analyst about doing that but right now we’re comfortable with the numbers we gave, we’re very confident, we’ve hit these numbers and I think it shows – I think for us a very good rebound in our positioning in the marketplace and with the acquisition – with the acquisition of last combination of conduits playing connect. We remain very excited on next year.
Operator
We’ll take our next question from Jay Srivtsa with Chardan Capital Markets.
Jay Srivtsa – Chardan Capital Markets
Thanks for taking the question. Josef, it appears that if you – the other players in the marker are still figuring out ways to counter the changes that Google has made.
But your guidance seems it was just you’re well passed that. Can you clarify what are some of things you’ve done that has allowed you to counters all those changes and why you expect to have very pretty dramatic growth in Q4 well some of the other players over there still be kind of trying to grapple with the changes?
Josef Mandelbaum
Sure, it’s right. Thanks for asking the question Jay.
So, one I’m not giving you the specifics because that’s what competitive positioning is about. So, not about to give you specifics.
What I can say though is far most, there certainly is been a shift to more direct need to buying ourselves as oppose to doing affiliates we think that’s certainly is better for us in terms of the long-term and the short-term talking to guys to compliance issue as well as with regards to LTV and ROI, so that’s number one, it’s not a secret so that’s what we’ve been doing and I think we were taking Q3 we got all these other partnerships up in running Jay. I think we’re one of the few companies around I think five partnerships on the search side.
And what we’re doing is we’re utilizing those five partnerships and optimizing them accordingly so that we could actually grow the business and work through some of these changes and the changes as we mentioned overall as we see some of the industry what’s happening we think that ultimately pricing will go down a little bit so provide other opportunities for us in the future. We’re seeing a little of that in Q4, I expect more of it in next year than this year but that’s really what the things we’ve been focusing on is being smart about how we spend the money so we’re not just spending money to get revenues and that’s why we’re coming now and saying we’ll not give the original full year guidance for revenues but we are going to show extreme very good growth in Q4 and we’re doing that through the combination of the systems, we’ve always talked about and we are very pleased and our systems are giving us the very good indications of whom to work with not to workers, where to buy, where not to buy.
And we’re also looking at doing more direct sales which gives us more control overall and destiny. Those are two major things that we’re doing that provides us the confidence in the Q4 increase.
Jay Srivtsa – Chardan Capital Markets
All right. In terms of partnerships at least one of the other players of peers have been dropped by Google and possibly even by Yahoo.
As you’re looking ahead for your own contractual agreements, how comfortable are you in terms of continued presence that these large search engine fronts partnerships been and how do you see that playing out in the next years?
Josef Mandelbaum
Well, first of all we feel extremely confident that our partnerships will continue, we have good relationships and from our standpoint, we’re very comfortable that moving forward we’ll be working together with them for many years. We did renew with Google and maybe for two years we signed a two year deal with Yahoo and I think we’re now sit in July and we signed a multi-three year deal with Apps with being we have a multiyear deal.
So, I think we have good relationships in conduits we have a obviously deal as well and we’re very confident about the position we’re in today. What I see in the future I would expect that as the business progresses and above the partners will work with players like yes so you’re obviously post the merger will be a much bigger player and I think that makes us more attractive as we look at competitiveness down the road.
And I think that will only work to our benefits as we look over the next one, two, three years.
Jay Srivtsa – Chardan Capital Markets
All right then in terms of the merger itself, can you give us an update on where things are and when do you expect to close more importantly, what are some of the financial metrics that you think will really start to have an impact in terms of your financials next year?
Josef Mandelbaum
Sure again a quick update on where we stand. So, we, for an operating standpoint I would say the company is focus of the company but we have especially kicked off a post-merger integration process where the teams on both respective companies that work hand-in-hand really just getting to know each other, we’ve broken up as to about 10 different work groups to basically effect and investigate and analyze different areas of the companies that we here can get synergies from both from the top line and the bottom line as well as work through the business to make efficiencies and for future growth to understand and we can integrate better spare parts that have been kicked off obviously nothing formal can be done till the deal is closed, but we are talking and we’re working together to try to look and see how we can better repair so when the deal closes we get lot of money that’s number one.
Number two, the – next week as you know the shareholder vote we do not anticipate any issues with the shareholder vote when Yacov and I were on the road a few weeks ago we’ve only received pretty much overwhelming support for the merger so we will expect that to go out to go on without a hit, once that happens I think we mentioned before there are some regulatory approvals we’re waiting for again we do expect getting issues with them I think some of them already we’ve done approvals for, some we’ve done verbal indications and we’ll get approvals over the next few weeks. So with regards to any obstacles we don’t see any and we’re very optimistic and happy with the progress.
Just to remind everybody what that means is by December 31, there will be officially a split of Conduit of Client Connect and then roughly or so a few days or a week or so afterwards we will then proceed to close the transaction in early January I don’t know the exact date yet, but it will be as soon as possible on January we then close the date, close on the merger and that officially from that point in time we’ll be one company. So roughly for now I’d say two months or 7 weeks from now we should be ready to close then and move forward.
With regards to metrics [indiscernible] Q1 when we kind of really talk about our post-merger and we see things going forward we’ll certainly talk about the metrics and we will [indiscernible] right I think we’re fairly transparent we like to put then for investors so that they can see what we’re seeing and we’ll put metrics about what we’re hoping to do. As little thing where short way to comment on that now we will do that in Q1.
Jay Srivtsa – Chardan Capital Markets
Okay and then last question on the mobile part, what are some of the areas that you think are sectors that you can go after in terms of getting more mobile penetration and then what are, when do you expect to start to get them some revenues from that given that the business mile of the mobile world is obviously slightly different from the current model that Perion have?
Josef Mandelbaum
Yeah so the first thing it is different in the sense that today primarily of the search drives was one of our revenues but when you look at it just it’s just a monetization view correct, so our mobile today search is big for Google, but other than that not a whole lot of other people. Most of the people are making their money today through advertising, right display, video advertising and virtual currency/purchase systems so on and so forth.
As we look at mobile at our existing product I think we’ve already mentioned we’re looking to get scale first so [Cumulus] told them Dropbox are very happy about that we like to get higher. And also we just launched on the iPhone hopefully by the end it will come in Android phone version that we just launched in the Android tablet and we’re doing okay, I’d like to see more installed we’re doing okay and we’re getting regular view then great customer comments.
I think you’ll see the mobile revenues for us really have an impact post probably some an acquisition that we don’t do over the next let’s say 0 to 24 months and that’s where you’ll probably see that and we’ll look to round out part of our new strategy as we mentioned last time that’s really kind of do things is equal system for the app developers/publishers where we can help them with distribution and monetization and analytics and we think we have a lot of the existing core competencies to do that but we will need to augment that with some other admissions and/or organic investments. And those two things as combined I expect I’d expect mobile revenues to be a little bit next year and then really starts scaling up in 2015.
Jay Srivtsa – Chardan Capital Markets
Thank you very much.
Josef Mandelbaum
Thank you Jay.
Operator
We’ll take our next question from [Dan Trenos], with Benchmark.
Unidentified Analyst
Great, thank you good evening gentlemen. Josef, let me just ask you a couple of high level questions and dig into some of the things you talked about earlier just first and I’m not if you enter this or not but if you have any thoughts on AVG’s decision to exit the third-party toolbar business that would be great?
Josef Mandelbaum
First of all nice to have in the phone Jay, Dan sorry, and no I don’t have any on AVG I think they’re great company, and these making invest business risk company and that’s great I think we have to carry those questions from our vantage point we see the business as an opportunity. And hopefully we’ll be able to execute to go against that and increase our market share over time.
Unidentified Analyst
Okay, great and then we talked about the competitive landscape to a fair degree here so I’m just curious as we go forward into 2014 excluding any synergies are going to get or should get from the Conduit acquisition how do you see your customer acquisition costs pacing and is there any negative impact to margins due to competition as we go forward?
Josef Mandelbaum
Yeah so first of all I think in general margin impact to get any business thus that matures and goes forward I’m sure they will be a little competitiveness and we believe our what the recent policy changes that are being in the market place for all little partners. And I think beyond the phone knows we’ve been very supportive for those policy changes.
We think ultimately it favors keep companies like us [indiscernible] but companies like us that some of the pricing increases that were happening was because of certain practices that increased the LTV that probably weren’t allowed. As those get shutdown the pricing actually in a lot of cases will come down to a normal standpoint and for those of us who were ultimately doing find more or less by the rules to begin with fundamentally that only will start to benefit.
So I think as we feel in 2014 there is still broadly some cleanup in industry and that could be another affiliates of ours as well as we look at next year, as we look to clean up – continuing clean up and please ourselves I think that’s the responsibility of all the companies in this marketplace if we’re going to have a long-term business which I believe we will and that also those should mean as we see those policy stringency as we get down year past Google changes another change by other partners I believe the other pricing will come to normal level and that will benefit people like us.
Unidentified Analyst
Great, thanks that’s helpful. And then, speaking of Conduit it looks like growth moderate a little bit sequentially for them but I would think that given some of the opportunities in the environment particularly with one of your larger competitors citing some issues in the B2B space that they might be able to take share particularly given their larger reliance on Bing, so I’m curious what you think of Conduit’s ability to take share in this marketplace and sort of the growth profile for them going forward?
Josef Mandelbaum
That is a great question and actually it’s worth explaining. When we announced the deal and we did it and obviously we’re Conduit putting the business in two, the Conduit part and the Client Connect part which we’re buying.
And obviously in the negotiation than discussion cash flow is an issue on both sides than revenue. So what we’re trying to say is we’re keeping the level of investments relatively stable since the second quarter.
So actually do not think that Conduit in the short-term for Q4 is going to be very aggressive in increasing their marketing spend to get new business. And it’s understandable because the owners of Conduit won’t get really the benefit of that, because that all the revenue goes to Client Connect.
So obviously for this time I mean we’ve agreed that we’re going to keep relative same standard level and that is what enabling us, that’s why is also the revenue relative up quarter of the basis – quarter basis relatively flat some slight growth here and there. To answer your question for 2014 though yeah, we certainly believe obviously the deal closes then our one company yes and we believe that Conduit, the Client Connect has some opportunities for growth in the market share as I mentioned out, that wasn’t really business we were in so and it’s certainly a business which they are very beginning we think there will be opportunities for us.
Unidentified Analyst
And just one point of housekeeping you did talk about the installs for Guardius. I’m just curious if you could give us the contribution to the quarter from Guardius and what you expect from Guardius in Q4?
Josef Mandelbaum
Especially in regard to Q4 is not high. We’re taking it slow and we just launched beta last week to make it public.
Really the power of Guardius is the power of the people. So again our objective here is to get a lot of people using it, its self-learning application and technology which uses the wisdom of the crowd to help them.
And you will see a lot of that we’re focusing on tweaking the product, improving the product, going deeper and in fact going a little broader in some other activities that we could probably do over the quarter to help the consumer and next year I think is when we’ll start looking at that and really helping us grow the business. And actually there are some things in the Client Connect side of the business that similar technology, the best hand that we think actually can make a very good combination make even stronger product.
So that’s really going to be our focus in Q4 is getting more consumers, getting more feedback. I want you to tweak the product to make even better and really 2014 hopefully grow it in a more meaningful way.
Unidentified Analyst
And Yacov just one maybe one quick point of clarification. Would you be willing to split out what product versus I guess display growth was in the quarter in the other category?
Yacov Kaufman
Yes, I could do it, just one second. So our product revenues in the third quarter were approximately $4.3 million and other advertising revenues were about $3.4 million in the third quarter of this year.
And when you are looking at the third quarter of 2012 the product revenues were $4.1 million and the other revenues were about $1.3 million.
Unidentified Analyst
Great. Thank you very much, Yacov, and thank you, Josef.
Josef Mandelbaum
Thank you, Dan.
Operator
We’ll take our next question from Aram Fuchs with Fertilemind Capital.
Aram Fuchs – Fertilemind Capital
Josef, I was wondering as a follow-up to that other segment question. Can you talk about that by advertising and how the segment is trending so much quickly than the first?
Josef Mandelbaum
Sure. So the other advertising increased dramatically.
It’s actually how we put the emphasis. When we distribute our search inventory – we’re looking at the search assets and how we are able to monetize from that distribution.
And there were some opportunities in the third quarter enabled us to put a strong emphasis on the advertising part of it as it compared to the search part of it, I would expect it to reverse itself actually in the fourth quarter and that’s while search revenues will go up dramatically I would expect advertising revenues actually –approximately decrease.
Aram Fuchs – Fertilemind Capital
Okay. And revenue from things like re-targeting and is that placed in the search line item or…
Josef Mandelbaum
They are advertising. So as Yacov mentioned we are starting a little bit of that and certainly helped us with CPMs and increasing those as we go forward.
We’re looking to continually evolve that as we go forward.
Aram Fuchs – Fertilemind Capital
And then Yacov another question on your receivables, trade receivables you mentioned that I think what you said was one of the new vendors came in slightly better payment terms. Is that…
Yacov Kaufman
Yes. Well we are very happy with the diversification of our revenues, but with the new partnerships, new terms of payments, we had a single partner Google in the past and we had certain returns of payment, actually returns of payment coming from some of the other partners likes of being slightly longer than that and therefore the accounts receivable on those accounts would be for the first half.
So that was one reason. And the second reason was also as I mentioned was the mix of revenues within the quarter.
As we explained this growth has been happened slowly and obviously within the third quarter our best month was the third month. And therefore accounts receivable naturally grew just as a matter of timing in the third quarter compared to the second quarter.
Aram Fuchs – Fertilemind Capital
And then the payment obligation relates to acquisition, is that bumped from this number 12. Is that SweetPacks or are you – there is nothing in Client Connect for that right?
Yacov Kaufman
Actually what had happened is a shift from long term to short term, because our third payment is now classified as short term.
Aram Fuchs – Fertilemind Capital
Okay, got it, got it. Josef, you mentioned that mobile might be picking up that you are projecting to the three that might pickup in 2015.
But it seems that this is a duopoly still with Google Play and iTunes. What do you see that gives that confidence that you can start to roughly weight into that revenue through?
Josef Mandelbaum
So I think it would be arrogant I mean they can wrestle in between Apple and Google but I appreciate the contextual reference. It’s nice to be putting that sentence.
Actually we don’t think search right now would be a big part of the mobile for us, but we are really focusing on and as we mentioned before the other advertising revenues and frankly our products whether it’s in our efforts or another, but we think on a platform basis we’re going to look to that heavily and organically and through acquisitions in more of the ad text space and the mobile tech ad space and leveraging the data we have and really looking to cross platform the data we have on the desktop with mobile which lot of – now many more companies are doing that, we think that’s the way we can help a lot of ad developers and publishers on the mobile front actually make money. And we think we have some unique position in certain places that’s also competitive space, but and they know as mobile advertising is growing exponentially and we think we have a lot of good relations with a lot of ad developers already that we can leverage.
Aram Fuchs – Fertilemind Capital
And on this integration with Client Connect, what oversight, determine the LTV on these things and it’s really the key variable to cash flow, rate of return in these campaigns. I’m just curious is there a plan where you are sort of overseen these campaigns that are going on in Q4 and to the holiday season, what’s the process between [Q3] right now?
Josef Mandelbaum
Yeah, so it’s important to know again we are two separate companies so we have no oversight and jurisdiction. The only thing we have contractually for example both sides have is they can’t make an acquisition without on my approval and I can’t make an acquisition without their approval or any out of the ordinary type of expense, other than that they are running their business, the way they were running the business which has done a pretty good job up till now and that would continue through closing.
We’re certainly talking to each other but in terms of our business and pricing and things like that we’re not evolved nor they are involved in ours because we are still two separate businesses and until it closes we are not well to really discuss those things.
Aram Fuchs – Fertilemind Capital
Okay. Thanks for your time.
Josef Mandelbaum
Thank you, Aram.
Operator
At this time I would like to turn the conference back to the speakers for any additional or closing remarks.
Josef Mandelbaum
Thank you. To conclude, our optimism surrounding the ClientConnect merger continues to grow, and we believe the industry changes create a tremendous opportunity for the new Perion to increase market share and continue to build upon our strong foundation.
As a new, larger and more profitable company, we will have the resources to fuel continued organic and inorganic growth. As always I would like to thank the great team we have at Perion for their hard work and dedication in helping us achieve these great results.
I am also excited to welcome the ClientConnect team to the family. Together I know we are going to accomplish great things.
Thank you and have a good day.
Operator
That does conclude today’s conference. We appreciate your participation.
You may now disconnect.