Opera Limited

Thank you for joining us. As usual, I have with me today our co-CEO, Song Lin, and our CFO, Berta 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 guaranteed a 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 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 have also posted unordered quarterly historical financial results of APRA 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, and then Frodo, who will discuss our financials and expectations going forward.

Sure. Thank you, Matt. Sure. Excellent. So thank you, Matt, and thank you, everyone, for joining us today. Like again, I'm very happy to report our good third quarter results with you today. Despite a certain global macroeconomic environment, we were able to generate record revenue and profitability. It is due to the indicator that our strategy of focusing our products on the highest value users has enabled growth, even in a challenging environment. Our third quarter revenue exceeded the high-end NOVA guidance range by over $2 million, with a 25% EBITDA margin exceeding the high-end NOVA EBITDA guidance by more than $4 million. We believe this momentum puts us in an excellent position as we enter the seasonally strong fourth quarter. Total revenue grew 28% year-over-year, driven by record revenue from both search and advertising. Our strategic choice to focus on better monetization users, in particular in the U.S. and Europe, has created an underlying tailwind that helps shield us from strong FX headwinds due to a strong U.S. dollar and pricing pressure in the market. This choice combined with the audience extension provided by our Opera ads platform resulting us tracking well ahead of our expectations. For several quarters now, we have articulated our strategy of focusing on the highest value users, which applies to both emerging markets as well as developed ones. This strategy continues to pay off. For the first time, annualized approval exceeded $1. up 13% sequentially to $1.06. Advertising revenue, up 41% compared to last year, now represents 58% of our total revenue. Our advertising business, our owned and operated sites benefit from our high value footprint field, in particular by the success of our gaming browser, Opera GX. All this extension is a natural supplement to our ONO advertising inventory. We believe that leveraging sole-party inventory as a supplement to ONO is a very healthy combination, and we continue to generate stable margins and grow a meaningful EBITDA contribution from the Opera Ads platform. On top of the advertising trajectory, search revenue showed also healthy growth of 15% This is last year. The growth in search revenue was primarily driven by our expanding PC footprint in North America. The revenue outperformance leads to greater than anticipated EBITDA. Also, after setting up our marketing expense in 2021 to attract higher value users, we have stabilized around the 2021 levels. and driven leverage in our business model. We are demonstrating what we said at the end of the time, that EBITDA margins would indeed expand in 2022. So we strongly believe there is a desire by users for features that the larger system and deeper browsers do not offer. And as a result, I've seen strong demand for independent browsers of choice. Our gaming browser, GX, is a good example of identifying a large subsequent of users whose needs are not met and who seek a browser that better fits with both their needs and online personas. Over time, we believe that we can introduce other products that can find a user base and be successfully monetized. The GX browser now has over 18 million users with an annualized output of $3 across PC and mobile, which is the highest monetization browser in all suite of products. GX offers a differentiated advertising proposition that we are starting to take advantage of, as it is a strong engagement and discovery engine. These users typically seek out the advertising that we can solve them, whether it's the latest trailer for our game or the release date of our first person shooter, GX Corner puts it all front and center. We are also able to monetize GX beyond just the advertising with affiliate links to purchase games, downloadable content, and in-game currency. our user growth continues to be strongest in the Americas. As our focus on monetizable users in emerging markets mature, we are starting to see signs of user base stabilization in these regions and significantly higher up levels. During the quarter, we enabled our Web3 wallet for Opera Mini, bringing the wallet to potentially over tens of millions of users. a major event for both Opera and the industry more broadly. This is a long-term play, but demonstrates the power of our engaged audience around the world. Opera is very proud to help millions of users get online and enable them with Web3. We also upgraded the Web3 wallet with a single SDK across Opera video products to make further improvements faster and more cost-effective. With that, I will hand the call over to Frida to discuss our financial results and outlook. So, Frida.

Thanks, Sam. As Sun Lin pointed out, our quarterly business performance was well ahead of our expectations. Earlier in the year, we were pleased to maintain guidance after Q1 and the dramatic start of the year. And later, we're proud to raise it after Q2. Following this Q3 overperformance, we are yet again in a position to indicate even greater expectations for the fourth quarter and the year as a whole. Quarterly revenue came in at a record $85.3 million, which represented 28% year-over-year growth and a solid beat versus our previously issued guidance of $81 to $83 million. This was achieved despite a major headwind, namely the strengthening US dollar. On a constant currency basis, we estimate that our year-over-year growth would have been over 40%. The overperformance was mainly caused by two factors not fully reflected in our expectations. First, revenue from Eastern Europe remains more stable than anticipated, and our audience extension revenue continues to grow faster than anticipated. Adjusted EBITDA was 21.4 million, or a 25% margin, substantially ahead of our 14 to 17 million guidance. In addition to stronger revenue, we benefited from marketing expenses coming in below expectations. At the same time, the growth of our Opera Ads platform led to a couple percentage points more cost of revenue relative to what we had expected. In sum, the cost mix more than nets out as Opera Ads has very limited other incremental costs. Then turning to capital allocation and returning cash to shareholders. Towards the end of the quarter, we announced that we had reached an agreement with 360, one of our pre-IPO investors, to acquire its 23.4 million ADS equivalents, a 20.6% stake in Opera, for 128.6 million. This transaction closed earlier this month, and 360 is no longer a shareholder and no longer represented on our board of directors. Following this transaction, each remaining share constitutes 26% more ownership of Opera than it did before. In terms of our 50 million open market buyback program launched earlier in 2022, we repurchased 900,000 ADSs for 4.4 million in the third quarter. Year-to-date, including shares we have already repurchased during the fourth quarter, we have repurchased a total of 2.9 million ADSs for $14.7 million under this program. In sum, this leaves our total shares outstanding at 89.7 million ADS equivalents as of today. In total, combining all our open market repurchases and the 360 transaction, we have repurchased more than 28% of AES equivalents outstanding after our 2018 IPO and 2019 follow-on offering. And we continue to see a large disconnect between the intrinsic value of Opera and the value observed from the current trading in our stock. And I'll highlight a couple of factors worth noting in addition to our core business performance. As of September 30th, we held $201 million of cash and marketable securities, up from $187 million on June 30th. Our 360 payment is due in November, which will reduce this balance to $73 million before being lifted by the underlying cash flows of the fourth quarter. So that's the most relevant cash number to consider. On top, Opera has held investments in three private companies over the past years, Ope, StarX, and NanoBank. Last year, we decided to initiate processes to realize our gains on those investments. We sold a 2.6% stake in OPE for $50 million in 2021, but still hold a remaining 6.4% stake in the company, classified as held for sale. Earlier this year, we fully exited our investments in the other two, StarX and NanoBank, with payments to be made in installments. We have collected a total of $37 million on these two, and the present value of payments still to be received is $168 million. So, in light of our total shares outstanding now being less than 90 million ADSs, combined with a resilient and growing business with expanded margins and a strong balance sheet of cash and financial assets it is our opinion that opera is substantially undervalued by the markets and as a result we are happy to continue repurchasing our stock now moving to our guidance Given the momentum in our business, we are raising both our revenue and adjusted EBITDA guidance. Our full year revenue guidance is now 323 to 326 million, representing 29% year-over-year growth at the midpoint. We are also raising the adjusted EBITDA range to become 62 to 64 million for the year. That represents a 19% margin at the midpoints. In other words, for both revenue and adjusted EBITDA, the low end of our updated guidance is above the high end of our previous guidance. For the fourth quarter, we expect revenue of $88 to $91 million, representing 23% year-over-year growth at the midpoint, and adjusted EBITDA to be $17 to $19 million, a 20% margin at the midpoints. In terms of cost expectations, we build in another one to two percentage points in cost of revenue, and we maintain our previous expectation of around $30 million in marketing cost, even though Q3 came in lower. Compensation cost is expected to be relatively stable while we build in a slight increase in other OPEX, following expected seasonality in corporate costs and general activity growth. Overall, I am very proud of our recent accomplishments strategically, operationally, and ultimately financially. We continue to execute on our strategy to grow users in high ARPU markets and concentrate our efforts in emerging markets on the most monetizable users. In addition, we are well underway to focus our company around our core operations and leveraging our gains to invest in our own stock through buybacks. And with that, I turn the call back over to the operator to take questions.