Perion Network (PERI) Q4 2021 Earnings Call Transcript

Perion Network (PERI -2.19%)
Q4 2021 Earnings Call
Feb 09, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello and welcome to the Perion Network fourth quarter and full year 2021 conference call. Today's call is being recorded. The press release containing the transaction details is available on the company's website at perion.com. Before we begin, I'd like to read the following safe harbor statement.

Today's discussion includes forward-looking statements. These statements reflect the company's current views with respect to future events. These forward-looking statements involve known and unknown risks and uncertainties and other factors, including those discussed under the heading Risk Factors and elsewhere in the company's annual report on Form 20-F that may cause actual results, performance or achievements to be materially different and any future results, performance or achievements anticipated or implied by these forward-looking statements. The company does not undertake to update any forward-looking statements to reflect future events or circumstances.

As in prior quarters, the results reported today will be analyzed both on a GAAP and non-GAAP basis. While mentioning EBITDA, we'll be referring to adjusted EBITDA. We have provided a detailed reconciliation of non-GAAP measures to their comparable GAAP measures on Form 6-K, which has been filed and is available on our website as well. Hosting the call today are Doron Gerstel, Perion's chief executive officer; Maoz Sigron, Perion's chief financial officer.

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

Doron Gerstel -- Chief Executive Officer

Hi, everyone. Thanks for joining our fourth quarter and annual 2021 earnings call. Together with me on this call is Maoz Sigron, who is our CFO, and let's get started. So definitely, the Q4 momentum continues, and we are delivering a record revenue growth in the fourth quarter, and we actually doubled our net income.

And there are a few points or a few factors, tailwind factor that I would like to mention on this call and I definitely will dive in on some of them. First and foremost, I think that has to do with our diversification strategy and product that hits different advertising channels. High-impact units, the pendulum is shifting from standard units to high-impact units and it's all about engaging with new consumers. I'll show you a few examples of great campaigns that we're doing that taking the concept of high impact, if it's CTV or video to a different level.

We are very proud. We are very proud of our iHub, the intelligent hub. It's AI-driven technology that 2022 is going to be the first year, which is fully in operation. We have an estimate what it's going to generate financially for our bottom line, and that's definitely something that I share with you when I talk more about 2022 guidance.

But we're very happy with what we're able to deliver. There is a strategic focus on video and CTV with the acquisition of Vidazoo that happened at the beginning of October, the beginning of the quarter. Actually, this is the -- Q4 is the first quarter that they are with us, and I want to share with you some of their great results in this quarter and how it fits really well with our focused strategy on video and CTV. Last but not least, with very successful two follow-ons that we did in 2021 and a great net cash from operation to reach a point where we have more than $320 million in cash, it's not debt.

We intend to continue with our -- I consider as a unique acquisition framework and strategy. It's definitely prove itself over time. And now with more cash, we're definitely looking ahead, and there are some great opportunity in the market. So let's dive in into the fourth quarter.

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

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

Questions & Answers:

Operator

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

Doron Gerstel -- Chief Executive Officer

So you don't see it. OK. So that's the revenue slide that I talked about. And now let's move to the profitability side where we doubled actually our revenue from the fourth quarter of 2020 to the fourth quarter of 2021, where we reached $29 million.

Pay attention into these numbers, which is the ratio between the EBITDA that we generate in the fourth quarter to the revenue expect and we reached a very significant number of 45%. Where -- what are the cost for this high profitability. I mentioned the hub-and-spoke model, and it has a huge potential of saving resources. The second thing is that our investment that we did in the previous year on automation and technology is really paying off.

And as you can see, while we are scaling our business, we're able to leverage our expenses. One of the major efforts that we did, we established offshore operations on some of the repeat tasks that we have in India, and that's definitely helping us from a cost structure standpoint. Display advertising. Our revenue is being structured or in two buckets.

One is display advertising. The other one is the search advertising. When it comes to display advertising, 46% year-over-year growth, $100 million in the fourth quarter, $68 million was in the previous year, very much thanks to the CTV. I mentioned the CTV and video growth.

But here, you basically can see that CTV able to get a 31 new customer. And more importantly, 20% of our customer, active customer, 412 of them. So actually, 92 customers using CTV, it's at 20%. It's actually doubled from last year.

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

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

So this is an example that I want to show you with $800,000 campaign that we did with Advil. The brief was very interesting, and they described it as the awareness to performance and the idea was to what extent we are able to synchronize few screen, the mobile screen, the desktop screen. In the end, the big screen, which is the TV screen, with here they go to action. And the go to action needs to be translated into an actual buy.

By the way, it's a live campaign. So if you have your smartphone with you, you can scan the QR code here, and we -- and add to this very significant number of 73,000 products that we added to Advil due to this campaign. So let me run it here.[Commercial break]

So we should get Advil. And one of the things while we scan the QR code, the beauty here that you drive it all the way from here to the checkout. And here, you basically type the amount, the quantity and you there with savings on clicks, which is everything that has to do with the consumer funnel. And if you're asking what's next, this is next.

The next big thing is that we are, in case this retailer is out of stock, we are getting an online indication if this is the case and suggesting all kind of localized and alternative product that can be a great substitute based on inventory level. And why it's so important because if advertiser pays so much to be at this point, so much to be at this point where this happens. And at the end, there is no inventory, can you imagine the loss. So we are adding this capability which advertisers see it as a huge, huge, huge value for them and no doubt that they're increasing the amount of spend to 29%.

And that's a very, very neat technology that we develop. The next example -- this is the next example. It's the live CTV example. The whole idea is very much keep the viewer engaged and not look at it as a net break.

It works really well.[Commercial break]

OK. So viewers get to enjoy sports content as it stay live. They never goes to commercial break, never goes to commercial break. That's the whole idea.

And that was very much the brief that we got from drafting, which they very much would love to get more, and you see the quality here as how they view it. It's one of the main drivers behind the CTV growth that we've seen and very much a focus area for us. The next one that I want to show you here, it's the interactive CTV. Here is another example that we did with HBO.

And I think that the most important part is this part, the win-win. It's the win-win for the viewers and the advertiser and everything it has to do with engagement rate. This is the interesting part, the 32% more memorable advertising and as a result, interactivity drives 47 more time spent with ads. That's very much the idea.

You're able to see the interactivity here. That's the interactive part. I hope you can see my circle. So if you really engage with what they have to show next, you click on it.

And then you're very much going deep into the advertising because this is what you want as a viewer instead of us bombarding with another minute and another minute to make it really annoying. So that's the iCTV angle here. 40% lift in engagement rates. Again, a very important factor to increase the spend.

It all has to do with return on ad spend and how it's being translated into this very important factor. Another very important innovation that we bring into the market is a platform that videos -- we call it the all-in-one video monetization platform and here a very interesting slide that we are showing, and we're trying to compare it to other companies and what they are known for. I think that the most important thing is that video viewer is able to incorporate outstream, the video player, ad server, syndication amortization and pre-roll monetization into one platform, publishers, which is around a third of their installed base is already using this platform. And the interesting part is really aligned with what publisher would like to minimize the number of vendors and have 1, very much one console, one platform that covers all.

We are very, very proud of what they're doing. It's creating. That's what I mean and I called -- meant when I called it in previous call, a mode. This is a mode.

It's a technology mode. It's very much protecting our customer from others because it's holistic and it covers all parts of what publisher is looking on their video monetization platform. Search. Search is still growing.

We increased the number of publishers to 114 from 79. search advertising is the second source of revenue for the company. I think you need to pay attention into this more than anything else. I think this is -- these are the most important KPIs when it comes -- because it's a direct impact of the geo expansion that I mentioned on previous call.

And of course, the fact that we're adding more publisher I put here a slide that compares the number of monetized searches, monetized searches is only searches that we are getting your rev share on. And I tried to compare it between 2019, '20 and '21. Just to show you, first of all, it's very much as to do with COVID. I think that people spend more time more time on screen and more time doing e-commerce, more time searching on has to do with commercial transaction.

If you're asking me what happened after COVID, I don't think it will go back to where it was before. I think that we definitely understand the advantage of searching before buying, no matter if this will be done on online or not online. Keep in mind that we are getting rev share on searching, not on the actual purchase itself. So monetized searches will never go back.

It's just going to increase, and we are very happy to see it because it has a direct impact on the fact that we are able to grow our search business by 16% on year over year. One of the most complicated -- however, the most important slide in my presentation that has to do with the hub. For those who first time see it, I will just give you kind of an insight. This side is the demand side.

This side is the supply side, which every advertising technology has. Most of our -- most of companies are taking position either on the demand side or on the supply side. Perion diversification strategy is very much calling from the ability to drive revenue from both sides of the open web, but more importantly, of this side is our ability to connect all our assets, either from the demand side or from the supply side into this intelligent hub. This is the AI that we invest the most of our engineering budget, and it's starting definitely to pay off.

And you're able to see the EBITDA contribution when I will talk about the 2022 guidance. When it comes to the value of the hub, we are talking about reduced operational costs to reduce tax here on the millions of dollars that it will generate. But the one that we're proud the most is this one. How are we able to increase our customer value through the fact that we are analyzing so much data.

And I here give you kind of an indication about the huge amount of data that we are crunching on the daily base, every day, that's the amount of data from 70 million searches to huge spend on social to 5 billion daily ad opportunities. Where this all data tranching is going. And one of the things that we are proud so much is SORT, which is our cookie-less technology. We launched SORT beginning of October, that more than three months away.

I mentioned it on our previous call. But now I'm so happy that I'm able to share with you that we have already more than 40 customers that are using SORT, but more impressive, guys, this is more impressive that we are able to show that the CTR, the click-through rate is 2x higher than cookie-based targeting. That's a drama. And you have some of the campaigns that is running.

Some of them are already -- some already started and some of these are live as we speak. But the most important thing here that it's not required any integration with the publisher nor with the user, really a very, very advanced AI technology that drives more and more customers. And I would like to share with you that what we did here -- by the way, you have here how it's demonstrated and how it looks in live. What I want to share with you is this very, very interesting concept, which is how effectively SORT can be a flywheel for our business.

So we start with the fact that 74% of the consumer that are engaged with this ad once visible protection field. This is the visible protection field that we have on any SORT -- any ad that is using SORT. So they feel safe, and thanks to that, they click. So they have more clicks.

And then what's happened because they click more, the click rate is increasing. So that's why we have 2x higher click rate. And then what's happened is that there is a lot of -- we translate it into return on ad spend to our advertisers. They are looking to spend more and looking to have it.

They spend more with us. I mentioned that we have already 42 advertisers that are using SORT, some of them looking at as a standard, and that's why we are able to get more users that are doing this, currently 208 million reachable user and counting. There is another very interesting thing. Let's not forget that it's all AI-based.

So more clicks, more data, more data, it's all about the AI and more on the machine learning that we have and we are able to improve the model, improve the model and able to get a higher performance, which is the great definition of SORT flywheel. We are analyzing the impact of the SORT for 2022 and I will share it when I will talk about the guidance. With that, I would like to turn the call to Maoz that will share with you some financial results of Q4 and 2021.

Maoz Sigron -- Chief Financial Officer

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

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

search advertising revenue was $57.8 million during the fourth quarter of 2021, an increase of 16% year over year. In terms of revenue mix, Display Advertising revenue of $100.2 million represented 63% of the 2021 fourth quarter revenue compared to 58% in 2020 with search advertising of $57.8 million represented 37% of the 2021 fourth quarter revenue compared to 42% in 2020. This change in revenue mix is in line with our diversification strategy. Revenues, excluding TAC, was $64.6 million or 41% of revenue compared to $43.4 million or 37% of revenue in the fourth quarter of 2020.

The increase of 4% was primarily due to product mix, our continued iHub efforts to serve direct demand and supply in a closed loop that is generating superior efficiency and performance and the incremental revenue with low variable costs. Opex and COGS expenses were 25% of revenue in the fourth quarter of 2021 compared to 26% of revenue in the fourth quarter of 2020. The main reason for this reduction is due to our efforts to enhance process automation, the app that act in the shared infrastructure resource and offshoring our operation. Net income was $17.7 million or $0.44 per diluted share, an increase of 97% on compared to $9 million or $0.30 per diluted share in the fourth quarter of 2020.

Non-GAAP net income was $25.3 million or $0.62 per diluted share, up 83% compared to $13.8 million or $0.45 per diluted share in the fourth quarter of 2020. Adjusted EBITDA increased to $28.9 million in the fourth quarter of 2021, representing 18% of revenue compared to $15.3 million, representing 13% of revenue in the fourth quarter of 2020. Adjusted EBITDA of revenue, excluding TAC, was 45% during the fourth quarter of 2021 compared to 35% in the fourth quarter of 2020. Our efforts to keep the media margin level stable and to generate incremental revenue with low variable costs have improved efficiency and profitability.

Net cash provided by operating activities was $28 million in the fourth quarter of 2021 compared to $12.9 million in the fourth quarter of 2020, reflecting a 123% year-over-year growth. As of December 31, 2021, we had cash, cash equivalents and short-term bank deposits of $322 million compared to $60 million as of December 31, 2020. Turning now to the yearly results. This year, Perion continued to deliver exceptional growth, increased profitability and significant cash flow generation sticking to the diversity of our revenue streams and differentiation of our IR platform while delivering well ahead of guidance.

Let me share with you some of the top financial achievements for 2021. Revenue for 2021 was $478.5 million, an increase of 46%, the highest revenue ever. EBITDA for 2021 was $70 million, an increase of 112%, the highest EBITDA growth ever. EBITDA to revenue was 15% versus 10% during 2020.

EBITDA to revenue, excluding TAC, was 37% versus 25% during 2020. Net cash from operating activities was $71 million, an increase of 221%. We also continue to boost up financial strength as it's evidenced by two successful capital market transactions during the year, which added in the aggregate more than $230 million to our balance sheet. This enabled us to continue the execution of our strategic trend of organic and inorganic growth.

With a scalable operating model and thorough balance sheet, we're well positioned to continue to deliver profitable growth and expect 2022 to be the third consecutive year of more than 25% revenue growth. We have built a global sustainable platform for profitable growth with clear earnings power. This concludes my financial overview for the fourth quarter and the full year 2021. I will now turn the call back to Doron for closing statements.

Doron Gerstel -- Chief Executive Officer

Thank you, Maoz. So closing remarks. So the title is the 20 -- the momentum continues through 2022. And what I would like to share, OK.

What I would like to share with you is where this sustainability and predictability is coming from. And it's all has to do with the three dimensions of our diversification. I will start and say that one of the most important things, which sets us apart from other ad network and ad companies, the fact that we are operating across the three main pillars of digital advertising, the search advertising, social advertising and display advertising. From connecting everything into our hub allows us first to generate revenue from both sides of the open web, as I mentioned, it's the demand and the supply.

Last but not least is the fact that we're able to connect all as a hub-and-spoke model and ability to -- not just to connect, but also to drive operational savings. We are estimating that due to the fact that we are able to concentrate in our resources. And basically, as Maoz mentioned, work with shared resources, we're able to save $6 million on operational costs as well as on TAC savings during 2022. The other thing which is important, we are estimating that the SORT and the flywheel that I mentioned before able to generate an additional $50 million on advertising budget from our customers.

So with that, we feel comfortable of improving our -- modifying our guidance. I put the new guidance here, which is a midpoint of $620 million in revenue and $90 million of EBITDA. I put it in the context of what we're able to achieve in '20 to '21 to '22 in order to emphasize one point is the sustainability and the predictability of our business model, which is, in my opinion, one of our major strength, allow us to also -- allow us to look at the growth and also keep the organization very, very profitable and in all -- very proud of ability to guide for 36% EBITDA to revenue expect in the 2022. With that, I very much would like to thank you for participating.

But one last word with COVID around is a world that was a very, very challenging year for all of us, the 486 employees of Perion that are in, as we count, 11 countries. So I would like to thank all of them. Without their endless dedication and contribution, we will not be able to achieve this great year. With that, we'll open the line for Q&A.

Thanks so much.

Operator

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

Jason Helfstein -- Oppenheimer and Company -- Analyst

Thanks, guys. How are you? 

Doron Gerstel -- Chief Executive Officer

Great. Hi, Jason.

Jason Helfstein -- Oppenheimer and Company -- Analyst

Doron, maybe to start, so that was an interesting example you gave with Advil owned by Pfizer. So one of the questions that we get from clients is what are you doing that Pfizer's agency record, right,  Pfizer is huge company, you probably have a master agency. What are you doing that their agency of record can't do? Or is it because campaigns are so regional, you have certain capabilities that may not work in certain channel. But -- so like what are you doing that a company the size of Pfizer need you to do for Advil.

That's question one and then I've got two follow-ups for Maoz.

Doron Gerstel -- Chief Executive Officer

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

We are taking upon ourselves to drive sales. That's it. That was the concept. For them, it was always this concept that there is a gap between the awareness dollars and the performance dollars.

And once we came and said, guys, we're able to bridge those two parts of the funnel in a very nice way. We're up to the challenge. And they very much said, OK, you know what, we'll give you that chance. And there is only one KPI that they shared with us from the get-go.

They said, you know what, if you're up to the challenge, we want to see how many boxes we're able to sell. That's very much it. And I must tell you that we are working with them closely on what we said, connected cars 2.0, which is the ability to connect the inventory part. That is going to be a killer feature because think about, Jason, the amount of dollars that advertisers are wasting on performance advertisement that at the end of it, you find yourself that you don't have the right size of your jeans or you're not having the right color of your shoes, that's a few ways.

And the ability on the flight to offer substitute product, I think that can be a very, very interesting. So in a way, there is another interesting level for you to maybe to discuss later on, is the merge between the ad tech and the market, which is a very interesting subject that we discussed internally because if you see that we're taking into the advertising logistic aspects like inventory, it's beyond of the traditional, I think, advertising or ad tech framework that we were kind of thinking, and I'm -- they are thrilled about this technology.

Jason Helfstein -- Oppenheimer and Company -- Analyst

So Maoz, just two for you. Can you talk about the impact of Vidazoo on gross margins in the quarter? And how you're thinking about kind of the benefit to that in next year or this year '22? And then just on acquisitions, obviously, you're seeing a lot of cash. Given the decline in public market assets and presumably the impact, there has been a decline as well in private market values. Is it taking longer to kind of close the next acquisition or a round of acquisitions that you're looking at? Thanks.

Maoz Sigron -- Chief Financial Officer

Thank you, Jason. So based on -- this is not a surprise, we did a due diligence before closing the deal. So it's already embedded in the model that Vidazoo is part of us. They are running with margin that is similar to the other business units, so there is no negative or much positive.

I can say that the fact that now we have another asset that we're able to use the hub and to contribute more together, definitely help us to improve the current margin as the other. So as a stand-alone business before getting into Perion day 1 with, let's say, the same level as that, a bit lower. But together with us, part of the reason that you can see that the quarterly margin is better is definitely the combination of Vidazoo into Perion. We see the same trend for 2022.

And our assumption for the guidance for 2022 is more or less the same level of margin about 40%. This is about the first question. We have -- again, Doron can touch about the M&A as well, but there is list of companies on the list, definitely. The fact that the multiple moving down help us to have more opportunities actually and to have maybe others that was not part of the list before.

So I think this is -- as we have a model that is unique, we have the cash. We have something that is also appetite for the target because there is synergy that we can do together. What they can do by themselves, they can now do together with us and do better and be able to achieve the goal for the next two or three years together with Perion. So we -- I think that the other way around, there is a lot of opportunity, but this is a process that we're managing and maybe Doron can also elaborate more on that.

Doron Gerstel -- Chief Executive Officer

No need.

Operator

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

Andrew Marok -- Raymond James -- Analyst

Hey, guys. Thank you for taking my questions this morning. I had two. So one, I wanted to talk about the uptake of the high-impact CTV formats.

So I guess you showed the Advil example, which I think was really helpful. But what other kind of broader feedback are you getting from clients using the formats? And what do you think are some of the gating factors to broader adoption? And then second on the '22 guidance. So it's SORT is providing a $50 million incremental budget and iHub is driving about $6 million in cost savings. I guess if you could help us with any incremental investments that you're thinking of for why EBITDA margin is maybe flattish to slightly down year over year.

Thank you.

Doron Gerstel -- Chief Executive Officer

Yeah. So it's -- I think it's all has to do with one thing, and the high impact is all about consumer engagement. And there is a huge effort from advertiser to get this maximum engagement, if it's the live CTV that you are -- get the retention because the game is on. It is the interactive because you're able to gauge their engagement with the unit.

And of course, the fact that there is a go-to action, and we talked about it in the examples. The way we are -- so this is our focus. The focus is engagement, and we know what's the engagement level on standard is and we know what's the engagement on high-impact ads. Yes, high-impact ads are way more expensive for the advertiser.

But is it matter when you translate it into ROS, into return on ad spend? And this is the only thing that we're doing. So the way we're looking at from a customer standpoint, we are -- show them the loss calculator that we have and we said, the cost is really doesn't matter. What does really matter is what is the return. And we are trying to get as much away from the flood of standard advertising.

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

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

As far as your question, I mentioned that we are devoting more and more resources -- engineering resources. I must tell you that -- in order to establish or connecting all units into a central intelligent hub with a huge effort on our side, a huge technology effort, we have to establish a whole AI team that is going to do it. The amount of dollars that we're paying to Amazon just to store and analyze and crunch this data is pilling every day. But we couldn't be in this situation, and I all -- want to look more on the SORT, the impact that we bring to the market with the SORT and the flywheel that it will generate.

And I'm very happy that it took us a good two years to be in this position. But now, as I mentioned, we start to see the fruits and we are just encouraging to invest more and more and turn it into a really effective mode, technology mode for our company. Thank you.

Operator

Thank you. Our next question today is coming from Laura Martin. Your line is now live.

Laura Martin -- Needham and Company -- Analyst

Hi, there. 

Doron Gerstel -- Chief Executive Officer

Hey, Laura.

Laura Martin -- Needham and Company -- Analyst

Hi, hi. So maybe a couple. Following up on Jason's question, it sounds like you might be taking on physical inventory now. So can you speak to that and whether -- what that does to your working capital and cash needs in 2022? Second, can you talk about what percent of your total fourth quarter's CTV ad revenue were these high-impact ad units.

And then third, data, you keep sort of harping on data. Can we sell that revenue stream? Can we create a revenue stream out of data? Those are my three. Thank you.

Doron Gerstel -- Chief Executive Officer

Very good. So one correction. By all means, we're not in the inventory business. We're not having this inventory.

The only thing that we're having is that we're hoping a very useful tunnel that allows us on the fly to understand if there is, for instance, for this Advil, whatever capsular is, if there is an inventory because you are about as the consumer to click and buy to this screen, and I will -- it's important for me to share it, hold on for a second. It took us so much to be in this page. So I want to want to show up, OK? Can you -- so this is the Advil. We don't need the sound.

So the point here is, while you are here and you are doing all -- as a consumer, you're doing all this journey and finally, you are here. This is the money time. And the question is that we were very much like looking at is what would happen. If you click here, let's say you use the QR code at is here and you are OK, you want to buy and there is no inventory.

That's very much the point. And what we want is to refresh this ad or actually this SKU, which you have here with alternative look alike. So for instance, this is -- let's say, this is a big size, so we'll get, I don't know what, the same price you'll get to because the most precious thing for Advil is to get this consumer to a point that they want to buy. And from that point, they must end it with a transaction.

So we are not holding the inventory. We just refresh the ad unit with the most relevant alternatives, substitute SKU that will end it with the transaction. That's clear?

Laura Martin -- Needham and Company -- Analyst

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

Doron Gerstel -- Chief Executive Officer

Thanks for the question. So no, we're not getting paid on the 73,000. But you know why we care? Because I can tell you that $800,000 of Advil campaign is now turning to $1.8 million, only because they are happy with the results, and we care a lot because this additional $908,000 was very much taken for someone else. That's our business.

It's a zero-sum game. And if we are able to show them that their ROS is way higher, and we're not putting our hands in their pockets. In other words, we're not asking for any dollars if this will be for the next campaign, more than $100,000, we're getting more budget. That's it.

That's why we care.

Laura Martin -- Needham and Company -- Analyst

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

Doron Gerstel -- Chief Executive Officer

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

Laura Martin -- Needham and Company -- Analyst

OK. And then my last one was high-impact CTV units as a percent of total CTV revenue in Q4?

Doron Gerstel -- Chief Executive Officer

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

Operator

Thank you. Next question is coming from Mark Kelly.

Laura Martin -- Needham and Company -- Analyst

Hey, great. Thank you very much. I appreciate you taking my question. I'd love to go back to the Advil example.

I know we've talked about it a bit. But I'm just curious, how does the Walmart as the preferred retailer in that scenario factor into the conversation that you have with Advil. And then I guess would it be possible to, instead of showing the consumer alternative products, if Advil is out of stock, would it be possible to shift to like a target or something like that and still have you buy the exact product you clicked on? And I guess, in this exact example...

Doron Gerstel -- Chief Executive Officer

It's a great question. And I must tell you that there is -- we know -- not know the details. There is a relationship between Advil and Walmart. So for that point, we are able to do a lot in terms of switching, let's say, to target, but we are -- on this perspective, the advertiser is very much binding us to say what is in Walmart inventory.

I believe that they participate on the dollars that has to do with this campaign, but it's -- we're not -- this is behind the scene. We know -- we are interacting we've said. We really don't know how the supply chain is working there. So we are capable of doing it, let me put it this way.

But we present doing it in this case specifically.

Laura Martin -- Needham and Company -- Analyst

OK. All right. That's fair. And then quickly, just on SORT, some of the click-through rates that you presented were interesting.

And obviously, impressive. I guess, do you think you have to advertise to the consumer to make just people who aren't familiar with ad tech and don't understand the industry, just the typical consumer, just making sure that, that logo really is with people that the general public knows that is cookieless and privacy safe and all that stuff. And I'm bringing this up because I saw that Criteo, which is not exactly the same thing as what you guys do, but they're supposed to have a Super Bowl ad coming up that kind of does the same thing that just makes the consumer more familiar with Criteo and just their privacy-centric approach. I'm just curious if you guys have to do something similar, do you think?

Doron Gerstel -- Chief Executive Officer

So at the end of the day, what Criteo is doing from DR standpoint, direct response and retargeting, we're not in this business. The businesses for that sake is an awareness campaign. And with that, I think that we are able to get to great results. Keep in mind, for those who wants to get into the technology a bit.

If I personally want to get your attention, Mark, and I'm using a third-party cookie and I'm going specifically after you, that's not our business. That's considered to be a DR business. Our business is our ability without using third-party cookie to get the mark alike people. That's the idea.

It's not about following you, you will be a victim because it can be -- what it's done before and third-party cookie, it might tip you. But the idea is not following specifically in a specific consumer. I hope I make it clear. That's why we're looking.

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

I hope it's clear the difference between us and Criteo.

Laura Martin -- Needham and Company -- Analyst

Sure. Maybe giving you the Criteo example wasn't the best on my part. I guess, I meant more about like making just the general consumer aware that SORT is a cookieless privacy-centric solution? Like do you need to advertise to the general public?

Doron Gerstel -- Chief Executive Officer

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

I think that in order to get an effective flywheel, no wonder I start with the number one that if 74% wants to be visible on the feel, they need to make sure that this is the seal and it's not part of the hand beer logo. You're absolutely right. We need to get their attention. I don't want to spend our money on the Super Bowl.

We're not there yet. But I think that there are way more effective ways to use our net margin, let me put it this way.

Laura Martin -- Needham and Company -- Analyst

That's perfect. Thank you very much.

Doron Gerstel -- Chief Executive Officer

You're welcome.

Operator

Our next question today is coming from Eric Martinuzzi. Your line is now live.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

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

Doron Gerstel -- Chief Executive Officer

Thank you, Eric.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

It's not a long time that you had already announced a positive Q4 and raised the 2022 outlook, I think it was December 8. So it's good to see that there's still more in the tank here. My first question has to do with seasonality. Now that we've got the business kind of shifting more to the advertising side.

And I know you gave a full year 2022 that you did not give Q1. What is the kind of seasonal step-down in revenue? Because you've got some moving parts here. There's a remnant of COVID there's the acquisition of Vidazoo. We've got more revenue coming from the advertising side.

What's the right way to think about Q1 revenue seasonality versus Q4?

Doron Gerstel -- Chief Executive Officer

Maoz, do you want to take it?

Maoz Sigron -- Chief Financial Officer

Yes, of course. So as we're looking on the entire year and the business that's acquired similar to the business we already have. In term of seasonality, we're expecting the same trend, about 20% in Q1, 24% in Q2 and Q4 and more than 30%, 32% in Q4. This is more or less in line with our pro forma for 2021.

And we'll take -- also will be the same in 2022.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

OK. All right. And then my second question has to do with the display -- when I think about the -- it's wonderful to get more demand from your advertisers and agency. But I just think about the mechanics of serving display and serving video, CTV, iCTV, there's a huge element of their creative that needs to take place here.

Is Undertone doing that creative or are the agencies doing the creative here? What's -- how are we getting the raw materials that go into these expansion campaigns?

Doron Gerstel -- Chief Executive Officer

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

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

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Understand. Good luck in 2022.

Doron Gerstel -- Chief Executive Officer

Thank you very much.

Maoz Sigron -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question today is coming from Jeff Martin. Your line is now live.

Laura Martin -- Needham and Company -- Analyst

Thanks. Good evening, guys. 

Doron Gerstel -- Chief Executive Officer

Hey, Jeff. 

Laura Martin -- Needham and Company -- Analyst

Congratulations on a great year.

Doron Gerstel -- Chief Executive Officer

Thanks.

Laura Martin -- Needham and Company -- Analyst

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

Doron Gerstel -- Chief Executive Officer

Great. So I will use this engineering slide as we like to call it. So in a way, think about it that -- and impression. No matter where the impression source, let's say, whatever, impression is coming into the hub.

And at the same time, request is coming to the hub and that's an INR. And the point here that you have here is what is the match. That's very much the idea. So this is the challenge.

And the match here is -- first of all, needs to very much -- needs to meet all kinds of targeting and everything like this. But let's look about it only from the economic time. And here, it is the optimization element, the optimization element into the hub. In other words, what is the priority if you met all the other criteria.

If all other criteria is being met, the priority always goes to asset that you own, either you owned ir or you operate it because over there, you have a higher gross margin. So it's like a waterfall, if you think about it is, OK, first match, if everything is OK, goes to here, second match goes to here, so on and so forth. So we are able to drive more and more impression to request that is coming from our assets. Keep in mind that if it's a video or CTV, we want that those assets will come through our Vidazoo platform.

In other words, that it will play on the Vidazoo player that it will very much monetized on the Vidazoo platform because that gives us another edge. Now what is all about here, all about is to really reduce one by one, the number of intermediators that has to do from serving an impression all the way to its destination. And if you are able to reduce the number of those changing between, let me put it this way, you are saving money, but we provide something else. And that's very much the point.

The point here, the brand and agency are looking about to what extent are able to deliver for them the transparency and the control when we are serving their ad. From the moment we received it, all the way where it's been published. Everything is being done in a very -- not just transparent, but from a point of a dashboard reporting, what have you, and privacy, take any elements that you have, no surprises. From that point where we analyze the impression request to the time that we publish it here, no matter if it's your cellphone, your big screen, no matter if it's interactive or not, we are -- that's the end-to-end element.

Now if you combine the end-to-end into the efficiency of the hub that's able to optimize it, you're able to get a lot of gain. As I mentioned, we are translating it into a contribution of $6.5 million into the bottom line.

Operator

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

Doron Gerstel -- Chief Executive Officer

OK. Guys, thank you so much. I apologize about the glitches that we have. But since we are dealing with creative and high impact and all those kind of things, I think that it's better than to read it from a script.

So my apology and thanks so much for your participation. Have a great year. Thank you.

Operator

[Operator signoff]

Duration: 66 minutes

Call participants:

Doron Gerstel -- Chief Executive Officer

Maoz Sigron -- Chief Financial Officer

Jason Helfstein -- Oppenheimer and Company -- Analyst

Andrew Marok -- Raymond James -- Analyst

Laura Martin -- Needham and Company -- Analyst

Unknown speaker -- Needham and Company -- Analyst

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

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