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spk07: Thank you for joining us. As usual, I have with me today our co-CEO, Song Lin, and our CFO, Berta Jacobson. In addition, our Executive Vice President of Browsers, Christian Calandra, has joined us to shed more light on our segmented approach to the browser market and how we think about the GX browser and gaming opportunity in front of us. 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 or presented based on IFRS. We believe that the use of our 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 unordered quarterly historical financial results of Opera on our investor relations website. We'll be live tweeting 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, followed by Christian, and finally, Frodo will discuss our financials and expectations going forward. Song?
spk04: Sure. Thank you, Matt. This is Songlin, and thank you everyone for joining us today. Again, I'm very pleased to share our strong poll results with you. Like many businesses, we are affected by a more challenging economic environment, including a war in Europe, FX volatility, and advertisers being more cautious given the pressures on consumer spending. But Opera is still a relatively poor player in a huge market with a lot of room to grow. Staying focused on our core growth strategy has proven to be very effective and our performance demonstrates this again. So our results for the quarter were ahead of even the high end of guidance ranges. Our record revenue was a function of healthy growth in both our browsers and Opera News, and our ad tech audience extension delivering an additional avenue for Opera to monetize our advertiser relationships and performance insights. In terms of adjusted EBITDA, our record revenue combined with lower-than-expected marketing spend has allowed us to deliver a margin of 21%, which is five full points higher than the 16% and report of our guidance range. For some time, we have talked about how we focus on improving the quality and the value of our user base, investing in products and markets that allow us to monetize at a higher rates. Comparing with our current database to where we stood in the second quarter of 2019, where the COVID hit and when the world was relatively more stable, we have increased our European users by over 30% and our users in the Americas by nearly 70%. Africa has been stable, too slightly growing, while we have reduced about a solo user base in Asia mainly from South Asia, as we aim for higher ARPU users and greater returns on investments. So while our user base has decreased in size as a result, our financial performance makes the rationale for growing audience in Europe and the Americas clear. Because over the same period, our annualized ARPU from browsers and entrepreneurs has grown over 80%, leading to over 70% growth in revenue from our user base. And that's before considering our epic audience extension. If you look at Opera's search and advertising revenue overall, our combined revenue growth over these last three years has been 105% and 27% . A key part of our strategy And we've talked about this before in the context of what drives our product roadmap in segmentation. Identifying how Opera can meet a specific set of needs for specific audiences that generic general market browsers by their very nature cannot. This strategy also means that our products can and do successfully compete, whether we are talking about browsers optimized for bandwidth constraints, developing market, mobile users, or PC gamers in Europe and US. So Chris, you will talk about how we translate this segmentation into opportunity shortly. Our strategy also has positive ripple effects on monetization. Think about advertising, for example, on our custom gaming browser, Opera GX. We know that we have highly engaged audiences. We know our audience has a particular set of interests. And we can reach that audience with precision. And we can also measure the results without having to rely on cookies or unique user ID. It is an inherent, efficient structure that advertisers appreciate. Our users appreciate it, too, because we are showing them advertising that they find highly relevant and in some cases would actually seek out. For example, a trailer for an upcoming video game. Further, because our advertising is contextual advertising, we do not necessarily need to collect as much personal data from our users, which respects their strong desire for privacy. Finally, our offer as offering gives our performance advertisers access to a greater audience. This audience extension lets buyers acquire not just our own and operated sites, but personal inventories with strong performance characteristics. From a profitability perspective, since there are no sales or marketing expenses associated with it, even at a relatively limited scale, we are already seeing nearly the same EBITDA margin as the rest of our business. So Opera is still in the early stages of executing against our long-term advertising strategy, but this quarter, advertising revenues continue to grow and representing 55% of our overall revenue and 49% year-over-year growth compared to the same quarter of 2021. All in all, our products and initiatives continue to show great momentum. And we think Zebra also has now been more relevant than it is today. We are driving possible growth in a robust consumer internet business that has an exceptional track record of weathering the broader market challenges that trump today. While the public market has been slow to give us credit for our growth in revenue and profitability, For those listening today, I know I speak for everyone at Opera. I want to say thank you for your belief in our continued success. We work hard every day to seize our opportunities and continue the strong growth of Opera. So with that, I will hand the call over to Christian, who is the VP of Microsoft, the core product producer of our company. We wanted to take the opportunity to share some further reflections on how we approach the competitive landscape, and in particular, some of the sort of the opportunities we see around the GX Browser for GANOS. So here, I'll hand over to Christian.
spk05: Thanks, Sunglin. Since this is my first earnings call, I'll introduce myself by saying my background is software engineering and product management. and I have spent the past 15 plus years as part of the Opera team. I lead our browser products overall with the main hub being Wroclaw, Poland, a university town and a great hub for talent, as well as in a couple of locations in Sweden and most recently Scotland. When we make our browsers, we don't mimic or imitate the big brainstorm system defaults like Chrome and Safari as some of our competitors have. You can see what has happened to them. They lost significant market share, specifically among high-value users in desirable geographies. And we have taken more than our fair share of that drop, which we are naturally pleased with. The whole premise of being an alternative browser is to represent a real alternative. As Songbin has said, Opera is the browser of choice for people who want to choose their browsers. So we do our best to be different. We lead with innovation and functionality of selling points, which works quite well actually. That means promoting our technological advantages and features such as privacy and data-saving capabilities or any other productivity features that we've got. And we continue to do our best so people who care enough to try an alternative browser will choose Opera. A couple of years ago, we decided to take it to the next level and accelerate our growth. by identifying attractive segments and then making browsers that really work for those people, such as GX for Gamers. It's been a fantastic success and has enabled us to drive nearly 50% revenue growth from a major browser market over the past three years to compare to the same normalized base that Songlin just referenced. Our core product remains our flagship browser, but through clever architecture and tech work, we've been able to turn our tech base into building blocks that enable us to create, and even more importantly, to operate our specialized browsers in a very lean and efficient way. To summarize, we have a flagship browser packed with innovation that you can't find elsewhere, with solid user engagement, retention, and on top, we developed a way to use it in a very cost-effective way as a foundation for any segment browser we would like to launch, like we did with Opera GX. In terms of what's ahead for Opera, I'd highlight two areas of focus. First, the creation of new versions of our browsers has only just begun with GX and our crypto browsers. We are already exploring other additional sub-segments of users and we think our efforts there will get noticed and drive additional adoption, in particular in Western markets. We will announce these new segments and products in the future. And the second area, our existing gaming initiatives. Opera GX continues to exceed our expectations. We now have 14.5 million desktop users, 2.5 million mobile users, resulting in a year-over-year user growth of 78% for all of GX. Our gaming users also represent our highest ARPU users, with ARPU of $2.89, more than three times our company average. So that product alone is now at the run rate of 50 million revenue per year, milestone we are very proud of as i indicated earlier we continue to improve our ability to monetize this highly specialized highly engaged audience we have started enabling more start page inventory in gx like we have in our flagship browser basically increasing advertising and other non-search revenue in our gaming browser we're also working on engagement in gx corner which we eventually plan to monetize We're offering innovative new features for our users, superior customization options, and are developing a set of offerings that will allow advertisers to better connect with our gaming audience. Just to stress, the GX audience is highly engaged and an extremely valuable one. These are not trivial, occasional gamers. These are hardcore gamers who play games a few hours a day, buy gaming hardware, buy virtual currencies, who show up almost every day. We see it quickly becoming one of the biggest gamer audiences online, and this very active user base enables us to integrate with other segment players to create an even larger gaming ecosystem. But we also know that gaming is not the only highly engaged online audience, and we continue to invest in identifying new segments and developing products for those segments. To sum it up, it's really exciting times for us. We're very happy to drive Opera forward, and I'm excited about our plans here. We'll continue to build great products, capture high-value users, and drive revenue growth. I'll hand over to Frodo now, and then I'm around for the Q&A at the end in case anyone wants to double-click on any of these topics. Frodo?
spk08: Thanks, Christiane. As Sanglin pointed out, the quarterly business performance was well ahead of our expectations. Revenue came in at a record 77.8 million, which represented 29% year-over-year growth and a solid beat versus our previously issued guidance of 71 to 74 million. The overperformance was mainly caused by two factors not built into our expectations. revenue from Eastern Europe has remained more resilient than expected, and our EdTech platform delivered very strong results. Overall, while about 85% of our revenue remains O&O, the successful expansion of advertiser demand has grown faster and with better margins than we had thought. Operational expenses benefited predominantly from reduced marketing expenses, although some of that reduction was timing related. While OPERA continues to enjoy nice and profitable growth, we too take additional caution in our growth investments in light of the broader economic environment. Cost of revenue items came out at 15% of revenue, as expected, and compensation includes a step up in our bonus provisions in light of our trajectory thus far. As a result, we generated an adjusted EBITDA of 16.6 million, substantially ahead of our 8 to 12 million guidance range, and representing a 21% margin. Then, moving to our strategic investments, two former and one current. As you know, during the first half of the year, we divested our equity stakes in both NanoBank and StarMaker or StarX. Our stake in StarX was sold in April for $83.5 million, and we collected the first $28.4 million in the quarter according to the payment schedule. The remaining two installments are due at the end of 2023 and the end of 2024. Our stake in NanoBank was sold in March for 127.1 million, payable in eight quarterly installments of 15.9 million each. Today, we announced that we and the buyer have agreed to make certain modifications to the share transfer agreement. The buyer recently raised certain allegations related to the original agreement and requested to cancel the transaction. While we disputed those allegations, we determined that an amicable settlement of the matter on the new terms that we summarized in our press release was superior to an inherently uncertain outcome of litigation. This agreement allows us to move on and stay focused on our core business. We have collected the first installment of 8.5 million and the total consideration of all installments is increased by 4.6 million to 131.7 million to compensate for the extended payment period. Our third and final strategic investment, O-Pay, remains classified as held for sale. As a reminder, that's a 6.4% stake in the company after we sold a 2.6% stake for $50 million last year. Moving to our $50 million buyback program. During the second quarter, we repurchased 1.26 million ADSs for $6.7 million, including the 570,000 ADSs repurchased in Q1 and another 600,000 to date in Q3. We've repurchased a total of 2.43 million ADSs for $12.7 million this far. That leaves our total shares outstanding at 113.5 million ADS equivalents, with over $37 million worth of repurchases still to be done. Given the seeming disconnect between the fundamental value of our company and its market pricing, we are very happy to have a good remaining runway on our buyback program. As of June 30th, we held $187 million of cash and marketable securities, up from $182 million on March 31st. Our operating cash flow was well below adjusted EBITDA this quarter, most importantly because the reduced marketing spend in isolation translated to an 11 million reduction in accounts payable and a normalization of accounts receivable after receiving some early payments in Q1 and the revenue growth in Q2. Now, moving to our guidance. Given the continued momentum in our business, we are raising our full-year revenue guidance to 313 to 319 million, representing 26% year-over-year growth at the midpoint. We are also raising the lower end of our adjusted EBITDA range to 53 to 60 million for the year. That represents an 18% margin at the midpoints and an increase of EBITDA dollars of 95% compared to 2021. For the third quarter, we expect revenue of 81 to 83 million, representing 23% year-over-year growth at the midpoints and adjusted EBITDA to be 14 to 17 million.
spk00: On the cost side... Hi, this is Matthew.
spk07: I'll jump in for Frodo, just I think he got disconnected right there. On the cost side, we plan for higher marketing costs relative to Q2 and we expect cost of revenue to kick up to a couple of percentage points relative to revenue with the growth of our ad tech platform. We expect some reduction in salary costs and on the overall, other cost items are expected to be quite stable versus Q2. In sum, We are very pleased with these results in our strategic direction, and we hope you found this call to be useful in conjunction with our release. I'll then turn the call back to the operator to take questions, and please feel free to take advantage of Christian being here today since he's not normally asking these calls.
spk01: Thank you. As a reminder, to ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press the pound key. We do ask that you please pick up your handset to allow optimal sound quality. Thank you. Our first question will come from Alicia Yap with Citigroup. Your line is now open.
spk03: Hi, thank you. Good evening, management. Thanks for taking my questions. Congrats on the really strong results. I have two questions. The first one is against this inflationary environment and also the macro weakness, yet you managed to raise the full year revenues and also the EBITDA guidance. Can you maybe help us and explain a little bit what drives such a divergence of your business performance versus the macro? Is that because of low base from last year or is it because some of the reopening industry actually started to contribute the higher ad demand? And also just wondering if any macro weakness that could potentially affect your ad business in the coming month. Maybe I read out my second question as well. So it's for Christian. Christian, welcome. Thank you. I think regarding the gaming business, I know you mentioned quite a lot on the performance on the GX browser. But I just have a broader question. Were there any reopening post-pandemic negative trends that you potentially could see for your gaming business? And also wondering, you know, any slowdown that you see for gaming business? You know, thank you. Yeah.
spk08: Hey, Alicia. This is Frode. I'm back in the call after I got disconnected. I can begin answering your first question. I think we observe the broader economic environment and we remain cautious. We operate our business in a cautious way, but at the same time, it's almost that when you are a relatively small player, the sum of opportunity that we see is almost it helps us that we don't necessarily need to follow the total market, right? So I think that's a key part of the reason why we keep doing essentially what we did in Q1, which is to also, which is to grow ahead of our expectations and and continue to set the expectations for the quarters ahead a bit higher than what we initially saw.
spk03: Thank you.
spk05: And for GX, for gaming, I can rather say that We actually already saw end of remote learning, end of lockdowns that of course changed the behavior of gamers, not only gamers, all the online users because people were no longer locked at their houses and so on. But I can only say that what we see is that we see continuous growth and we see the gamer patterns more affected by when school ends or starts than the pandemic. So we don't see for gamers, these are mostly Gen Z younger people, we don't see real impact here.
spk03: I see.
spk01: All right. Great. Thank you. Very helpful. Thank you. Our next question will come from Mark Argento with Lake Street. Your line is now open.
spk06: Hey, good morning, guys. Just a couple quick ones. You mentioned that you saw lower marketing spend in the quarter. Can you drill down that, drill into that a little bit for us in particular, just juxtaposing that relative to the strong 31% growth you saw in North America? Yeah.
spk04: Yeah, so, okay, so it's only hell. I'm not sure if I captured fully, but at least I'm not asking the color of the market spend lower in Q2. So I think it's really just a matter of, I think we'll be more smarter and actually identify the right users. And then, you know, also the results which will yield the highest return. So, yeah, I think we are pretty much on plan for Q2. The change is just because we are being smarter in getting the right results and the right price. So then we actually have a higher ROI and even higher ROI than we expected. And also more like, yeah, we saw that if it's summertime, then if it's not as efficient to spend the money, then we don't spend. So it's a matter of that.
spk06: So just to dive into that a little bit, so you're saying that you saw the right ROI at one point, but then the market changed on you, so you – pull back a little bit? Is that what you're saying?
spk04: Yeah. So, yeah, more like to be specific, I think what happened is just that we have more like, say, for instance, when you are at, say, the start of the summer, then you will be able to calculate that in the next few months you the return will be lower. And then if you use more like, yeah, like, then the ROI is not efficient enough for us to do it, then we don't do it. But then, for instance, give another example of that. For instance, in Killsray, when we see that, you know, of course, now it's, you know, it's a hot season coming back and everybody's, is back with all the monetization activities. Now, of course, it makes sense for us to actually invest now, because now it's, well, you saw, obviously, a narrowable higher returns, then we do it. So it's more, yeah, it's more like we're more calculating, we're more detailed, and we are using smartphone requirements.
spk06: Great. Thank you.
spk01: Thank you. Our next question will come from Lance Vitanza with Cohen. Your line is now open.
spk02: Hi, guys. Thanks for taking the questions and congrats on a really nice quarter. Just to be clear, I mean, opera is certainly outperforming the broader market. And I guess you're doing that despite exposure to Russia and Ukraine. So let me start there. You called that out for it. I think you said that, you know, relative to your guidance, part of the beat was that just you've seen less of an impact from that area than you had expected. any thoughts on, on what that means for going forward? Do we think that like similarly, do you feel like you have a greater clarity on the impact going forward or does that remain as volatile as ever? Could we see that reverse potentially, you know, could you be too aggressive in your forecasting for the back half of the year as it relates to that area in particular?
spk08: Hey, Lance, thanks for that. Yeah, last time in the context of the war in Europe, right, we indicated that we expected about the $4 million overall headwind per quarter for us, so indicating another sort of $12 million for the year as a whole. As mentioned, Eastern Europe did better than we thought. So I think the headwind we actually did observe in Q2 was about half that, about 2 million. And that's including the strengthening of the U.S. dollar relative to other global currencies, right, that we ultimately are revenue in. So right now, it's looking like that level of Q2 is continuing into the second half. So in sum, that's a $6 million revenue improvement for us. But we remain quite cautious and also how we reflected in our guidance because it is a very unpredictable situation.
spk02: Sure. Okay. So, let me turn to the revenue per MAU. Great job there. I guess my question is, you know, obviously, well, I shouldn't say obviously, but I can't imagine that we're going to expect to see it up 46% year-on-year indefinitely. But if I look over the past, you know, I don't know, eight quarters or so, it looks like that revenue per MAU has only gone up, and it's gone up quarter-on-quarter as well as year-on-year. So, Is there really any seasonality in that number, or is 94 cents, is that kind of like the new baseline, and 3Q and 4Q, if anything, maybe they're a little bit higher than that? I mean, how should we be thinking about those sequential quarter-on-quarter trends over the remainder of the year?
spk08: So maybe I can begin just from a numbers perspective, but Christian, please feel free to chime in. I think we have experienced very strong ARPA growth. If we look at the year past, so the year-ago quarter, it's driven by both like-for-like ARPA growth and the geographic mix composition of our user base. tilting it more towards Western or developed markets. So, the second factor of geomix was roughly twice as important as the like-for-like arbor growth, but both performing very well. And the final comment to make is when we focus our user base in emerging markets on the more monetizable users, then you have the impact of the reduction in some of these countries of the total end use, but an increase in the revenue. meaning that the resulting ARPA growth then naturally becomes very strong. But it is a validation, we believe, of the strategy that we have pursued.
spk02: Okay. Then turning to the sort of the capital allocation question, I mean, It's hard to imagine the performance of the company being better, and yet the performance of the stock, as you pointed out yourself, has obviously been disappointing. So why wouldn't you want to be more aggressive? I mean, it's great that you've bought in a couple million ADSs, and I imagine that the answer is that you are limited by the underlying trading volume in the shares. If that's the case, and maybe you could confirm that for me, but if that's the case, what's the thought process around doing something more ambitious like a Dutch tender where you wouldn't have to worry, presumably where the volume wouldn't be the factor that it is on the buyback that you have in place?
spk08: So number one, I can confirm that I believe the effective limitator that we, the buyback program, operates under is the caps and sort of the share of average daily volume and so on. When it comes to broader thoughts about what we could do, yes, we do have a very strong balance sheet and it is strengthening over time with our operating results as well as the assets that we have had and have sold. But we have not made any decisions on anything. If so happens, we will make sure to announce it clearly.
spk02: Okay. Thanks, guys.
spk01: Thank you. Once again, if you would like to ask a question, please press star 1 on your touchtone phone. We are now holding. Again, that is star 1 if you would like to ask a question. It appears we have no further questions at this time. I'll now turn the program back over to Songlin for any additional or closing remarks.
spk04: Yeah, yeah, sure. This is Songlin here. So, yeah, I mean, like I said, thank you again for joining us. It was a great call, and we feel really good about what's to come. With our content and gaming initiatives, a lot of very strong ad tech business line up to contribute and even follow to our growth. So our strengths in both our business and our balance should allow us to pursue our opportunities and full speed, even if in a difficult operating environment. So we appreciate your time, and we look forward to speaking with you again in the future.
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