Opera Limited

Thanks for joining us. With me today, I have our co-CEO, Song Lin, and our CFO, Frodo Jacobson. Before I hand over the call to Song Lin, I would like to remind everyone that in the conference call today, the company will be making statements about future results and expectations, which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are based on current expectations and how we perceive the current economic environment and are inherently subject to economic, competitive, and other uncertainties and contingencies beyond the control of management. You should be cautioned that these statements are not guarantees of future performance. You may refer to the safe harbor statement in the company's earnings release for details. Our commentary today will also include non-IFRS financial measures, including adjusted EBITDA, which are different from our consolidated financial statements that are prepared and presented based on IFRS. We believe that the use of non-IFRS financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends. These measures should not be considered in isolation or as a substitute for financial information prepared in accordance with IFRS. We've also posted unaudited supplemental information on our investor relations website that includes historical financial results of Opera and of our Investee Nanobank. We'll be live-sweeting highlights from the call at Investor Opera, so please follow along there during the call and in the future. With that, let me turn the conference call over to our co-CEO, Song Lin, who will cover our operational highlights and strategy, and then Frodo will finish up with financials and our expectations going forward. Song?

Sure. Thank you, Matt. And, you know, this is Song Lin. Thank you, everyone, for joining us today. So I'm pleased to report that Opera once again outperformed delivering financial results for the quarter that exceeded the high end of both our revenue and EBITDA guidance. So revenue was up 57% year over year and represented a continuation of our strong growth trajectory with 11% sequential growth when comparing with the previous quarter. The quarter also represents an earlier than expected start of our margin expansion with a 12% adjusted EBITDA margin well ahead of our break-even guidance. Looking ahead, we are confident that our strong performance will continue. We remain on track to have a record year for the company as search and advertising revenues both set new high watermarks. Revenue growth continues to be driven by advertising and search, generating 98% of our quarterly revenue on a combined basis. And for the first time in Opera history, advertising has surpassed search revenues in terms of mix. So in the short haul, such revenue grow approximately 45% year over year, while advertising was nearly double that rate and 84% growth. Our advertising revenue is accelerating thanks to new products and features, increasing user engagement, a focus on growing high-value users, and finally, a reach toolset for advertisers to target and connect with our audiences. We continue to focus on products and services that highlight the browser and how its adjacent services, which we call BrowserPlus, have been able to enhance people's online experiences. On mobile, we have continued to expand our offerings in Africa. So even though we already have over 140 million monthly active users in Africa and represent one of the most relevant Internet companies in the region, we believe this region possesses great growth potential as there are still 800 million users that are not online. We were pleased to see one of our key partners, Google, has announced a $1 billion investment earlier this month, confirming that our optimism is well deserved. Our messaging app, Hype, which we designed in collaboration with local artists in multiple African geographies and built into the Opera Mini mobile browser, is showing strong adoption we have launched a Hype Club services, which allow the users to participate in conversations about diverse topics, such as football or music. So while Hype is still in its early stages, it more than tripled its registered users during the third quarter. Another good example would be Opera News, which is the number one news app in Africa and has been launched in several countries in Europe and the US continues to grow in financial significance. Advertising revenue from Opera News and our broader platform offerings now make up almost half of our total advertising revenue, following over 200% year-over-year growth, with tremendous potential in the AI-driven content aggregation space with planned rollouts in new forms and new markets around the world. For example, we have leveraged our dominant position in Africa's biggest markets to launch a specialized opera football services using the same AI technology that powers opera news. So when the English Premier League in course win, we are seeing very high engagement with quarterly active users growing more than 50% from the previous columns. Moving to pieces, we continue to invest in innovations and to make it more relevant to our users. So one good example is our in-browser shopping solution, DeFi, and after first launching in Spain, is now preparing to enter several new markets in Europe, starting with Poland, which happened to be where our development center is based and is also one of the faster-growing new economies in Europe, with additional countries to follow. In addition also to cashback, we have also added additional features including coupon offerings to make the solution even more attractive to our end users. So the only results are promising and we look forward to sharing more details in the future. In combination, those offerings serve as good examples of how the browser, being the hub of many services and connections, offers so many points of engagement and thereby monetization opportunities. Gaming represents also an extraordinary opportunity for Opera, with billions of people globally who are spending money on games and related activities. Our GX browser is an excellent example of designing browsers with the user experience in mind and how we are able to build on our core assets to expand into adjacent areas. As of now, we have over 13 million GX users across both mobile and PC, and that number continues to grow. So during the quarter, we also hosted an Opera GX gaming jam focused on game developers, who in turn submitted more than 900 games created with Opera's Game Maker Studio over a few weeks, indicating the power of creation. So we are now also announcing GXC. It's a gaming and self-publishing platform where new users can directly create and publish games for free using the Game Maker Studio. These games will then be available to be played natively in the GX browser by millions of users without having to install the game first. So we believe this latest addition to our offerings for gamers is another strong indication of potentials in this vibrant space and also of the opportunities ahead. So stepping a bit back, I'd also like to talk about a particular trend that will benefit Opera. Many people believe that the history of the browser has already been written. We believe the opposite. that the way people use the internet is changing and that the browser itself has never been more relevant or more important. People want their online experience to be better suited to their individual needs. So at Opera, improving the user experience has driven continuous innovation in our browsers and also related products. consumers are increasingly recognizing the benefit of using a product designed for them. For example, GX Browser is already very highly regarded within the Gamer community, differentiating itself from a standardized product that just came bundled with the operating system of a device. So simply, Opera has become the browser of choice for the hundreds of millions of people who want to choose their browser. And we think the number of people who want to do so will continue to increase. Our intention is to capture this growing market by offering the best browser experience for those that look for something more. introducing improvements and innovations that will drive user engagement, audience growth, and naturally, our ability to increase monetization. So I will next speak to our financial results, but before I do, I want to let our investors know that this quarter's results continue to validate our belief that the browser business is a great business to be in. There is a huge opportunity ahead of us as hundreds of millions of consumers increasingly seek a browser that allows them to harmonize their online lives and get the online experience they choose to best fit their needs. So in summary, WordPress growth is accelerating, our profits and margins are expanding, and our products have never been more relevant to more people. So with this, I'll hand over to Frida.

FRIDA CHENG YIU- Thanks, Peng Min. As Anglind said, our strategy of increasing the value of our user base by introducing adjacent products and opening new markets is producing record results for Opera. Our results this quarter are a strong validation of our browser plus strategy, and we see the strength continuing through the fourth quarter. As a result, I'm pleased to announce that we yet again raise our guidance for the full year revenue and adjusted EBITDA. Revenue for the third quarter was a record 66.6 million, up 57% year-over-year, and up 11% versus the prior quarter. After a few quarters of favorable comps due to COVID, the search and advertising revenues had returned to pre-COVID levels by the third quarter of 2020, making us extra pleased with the year-over-year achievement. For the first time, our revenue mix skews towards advertising revenue, which is now 52% of the total, a trend we expect to continue. Specifically in the quarter, search was 30.7 million, growing 45% year over year. This was driven by monetization gains for both PC and mobile browsers. Advertising was 34.9 million, growing 83% year over year. This was driven by strong monetization from Opera News and our mobile browsers. Our strategy to improve revenue and profitability by focusing on not just growth, but also improving the value of our user base is clearly demonstrated by Opera's consistent and continuing trend of growing our ARPU. One simple way to demonstrate this is to take our search and advertising revenue and divide it by our entire user base. In the third quarter, each user on average generated a record $0.75 on an annualized basis, up 19% sequentially, and up 80% compared to the third quarter of 2020. Great products and features and the increasing relevance of the browser itself mean that over time, Opera continues to expand the profitability of each and every user. In terms of our user base, we continue to direct our resources towards growing the users with the highest value and highest potential for Opera. For example, user growth in the EU was up 9% compared to the third quarter of 2020, and in the Americas, we saw an increase of 30%, led by North America, up 46%. At the same time, our users in Asia, which has historically represented our least profitable market, continue to decline as we de-emphasize that region. Our record high revenue across all regions also reflects better monetization in every market where we operate. What this means is that we're doing a great job of improving the value of every user we have And that's something we intend to remain focused on. In terms of gross margin, the three cost items that scale with revenue are tech and platform fees, content cost, and inventory cost. Combined, they add up to $3.3 million, resulting in a gross margin of $63.3 million, or 95%. On the cost side, most notable is that we managed to drive this growth with less investments and acceleration through marketing and distribution expenses versus what we had considered as basis for our prior guidance. Marketing and distribution expenses remain elevated as we continue our rapid expansion, but slightly decreased from the prior quarter. As a consequence, we generated better than expected adjusted EBITDA of 8.2 million. Our core margins are very high, and when our investments come in below plan, such as it did this quarter, you can see the start of our trajectory towards a more normalized profitability level. Our net income for the quarter was 23.5 million, predominantly driven by the step-up in valuation for the O-Pay ordinary shares we had not previously recorded at fair value. Our operating cash flow was negative at 3.4 million for the quarter, largely explained by a catch-up in the account's payable balance following the plateauing of marketing costs. Combined with smaller non-operating items, such as lease payments and development expenditure, we reduced our total cash and marketable securities by 8 million, ending the period at 193 million. Now, moving to our forward-looking commentary. Our core business continues to perform and grow ahead of expectations, increasing our confidence in our outlook for the rest of the year. We believe our browsers are well positioned to continue to grow both our high margin search and advertising revenues. For the fourth quarter, we expect revenue of 70 to 72 million, representing 41% year over year growth at the midpoint. The fourth quarter revenue growth is fueled by strong continued results from upper score search and advertising business and the underlying seasonality. Adjusted EBITDA is expected to be between 11 to 14 million in the quarter, translating to a margin of 18% at the midpoints. Profits are expected to benefit from the combination of the additional scale we built during the year and the continuation towards a normalization of marketing and distribution spend. However, I want to remind you that as in the past, the fourth quarter profits also benefit from seasonality on the top line. As a consequence, our full year 2021 revenue guidance adds up to 248 to 250 million, representing 51% year-over-year growth at the midpoints. That constitutes yet another lift versus prior guidance, which did at 48% growth after the second quarter and was at 39% for the year when we initially guided back in February. For the full year, we expect adjusted EBITDA to be between 23 and 26 million, which is in the higher end of our initial expectations for the year and well above the expectations we previously set in light of our even stronger revenue growth trajectory. Overall and in sum, Q3 was another great quarter leading to record revenue for both search and advertising. We are very pleased with these results and strongly believe we are pursuing the right strategy of innovating upon our high margin core browser business and investing in adjacent initiatives such as news and gaming to drive continued growth into the future. Thanks. I think we can now take questions.