Opera Limited

Thank you for joining us. This morning, I am joined by our co-CEO, Song Lin, and our CFO, Freda Jacobson. Before I hand over the call to Song Lin, I would like to remind you that some of the statements that we make today regarding our business, operations, and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. please refer to the safe harbor statement in our earnings release and our form 20F, including the risk factors. We undertake no obligation to update any forward-looking statement. During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our investor relations website, located at investor.opera.com. Our comments will be on year-over-year comparisons unless we state otherwise. With that, let me turn the conference call over to our co-CEO, Song Lin, who will cover our second quarter operational highlights and strategy. And then Frodo Jacobson will discuss our financials and expectations going forward. Song?

Thank you, Matt, and thanks to everyone joining us today for a business update and more color on our second quarter. Our second quarter results were ahead of all expectations coming in above the high end of both our revenue and just EBITDA ranges. It is the continued momentum of our products and targeted user adoption that translates to growing and broadened revenue streams and strong financial results. In the second quarter, revenue was $110 million, growing at 17% year-over-year. Adjusted EBITDA was $27 million, translating to a margin of 24%. And particular strengths, this is our guidance of 22 to 25 million. In addition to the revenue over performance, our profitability benefited from even title focus on the most monetizable users as the portal progressed when it comes to our marketing spend. As a result, we grow up to 25% year over year, now an annualized $1.46 average across our products, and geographies. Advertising revenue was 65 million in the quarter, growing 20% year over year in a similar fashion as prior quarters. Our advertising revenue continues to benefit from the same underlying drivers of high output user growth and expanding monetization opportunities. In particular, as our Western and gaming users represent an increasingly attractive audience for monetization partners. Our ability to drive targeted and high purchase intent traffic from our users directly to an expanding partnership base has proven to be scalable. We are taking advantage of our first-party signals and our well-developed ad tech platform within Opera Ads while creating value to both partners and end users. We still consider ourselves to be in the early stages in taking advantage of these opportunities, especially as our AI offerings broaden and we increase the number of direct interactions between the browser itself and the end user. Search revenue was 45 million in the quarter, up 15% year over year, and also in line with our trajectory from prior quarters. We are proud to grow our most mature revenue stream at this pace, as it directly demonstrates our ability to attract and retain highly engaged and monetizable users. We remain enthusiastic about the future of our search-based revenue streams as well. There is certainly increased public focus on ensuring competition among search engines. Being an independent browser provider, we appreciate the broader recognition of the value and importance of the search position provided by a browser. And we are very excited to work with key players to capture and further expand the potential of the massive amount of traffic that we can drive from our user base. Last quarter, we also commented a bit on the positive initial impact of the Digital Markets Act, or DMA, which addresses many of the ways that the browser market is not always a level playing field. As separately disclosed, we take an active role in these processes, and this summer we pointed out where we believe the DMA's gatekeeper designation principles have been applied too narrowly. The BMA momentum carried over into the second quarter, where we saw significant strengths in new user adoption of both Opera for Android and Opera for iOS throughout the EU, as well as an increase in the number of smartphone users in the region who have made our mobile browsers the default. Beyond regulatory matters, technology and services evolved as well. Recently, there has been a lot of focus around search and content platforms being redefined. To a great extent, we see how AI underpins the ability of such services to give the end user a better experience, whether it's from answering questions directly or elevating the quality of promoted content. We are enthusiastic about this trend as we believe it puts a greater emphasis on content providers to deliver true value and less leakage of our user monetization to low-value publishers. The browser sits in a perfect spot as being a vehicle of how end users connect with those AI-elevated services, a powerful position to be in. We believe these changes are beneficial to our users as well as our high-quality monetization partners and ultimately to Opera. now turning a bit to the always high activity level within Opera. Our success has always been driven by innovation and speed, providing our users with unique products and improved experiences, and stayed ahead of competition. Last year, we launched Opera 1, our fully redesigned flagship browser, and in early Q2, we were proud to announce that Opera 1 received the prestigious IF Design Award 2024. We thought they'd lead with visuals and functionality, but to win users' hearts, our browsers must also look beautiful and provide elegant flows. The next major upgrade of Opera 1, referred to as R2, is now available for public testing and will roll out later this year. If you give it a try, you will see how we have improved, how people listen to music from popular services while browsing, as well as continue to advance our browser AI area. With the R2 release, we continue to build on the modular design introduced in Opera 1 and have a new split-screen mode that allows users to multitask more easily between two open tabs. Finally, R2 introduces a new type of scene support where users can customize their browser with a set of high-quality dynamic themes that provide immersive experiences, further differentiating the visual appearance of our browsers. Last week, we also launched Opera 1 for iOS, prioritized as a direct consequence of the increased opportunity to compete on the platform. Compared with Safari, Opera users can engage directly with the ARIA browser AI. They can experience browsing in proper full screen and benefit from all our other integrated services, like building free VPN and ad blocking. With that, our product lineup for users with the greatest monetization potential is more complete, and you will see us putting increased marketing dollars behind this lineup in the months ahead to continue raising awareness of Opera as an alternative to the iOS default browser. Now shifting focus to Opera GX, our highly successful gaming browser. In April, Opera GX debated the official Cyberpunk 2077 browser mode created in collaboration with game developer CD Projekt Red. The mode allowed deep customization of the Opera GX browser with branded elements from the popular game. In total, there are over 7,500 different modes available for Opera GX. In June, we launched the browser from Vault An official collaboration browser experience with the hit TV series, The Boys, alongside the premiere of season four. While seasonality works against our product in the summertime, Opera GX added another 500K users in the quarter to pass 30 million MAUs, achieving a year-over-year user growth of 27%, combined with a year-over-year output growth of 14%, now at $3.55 on an annualized basis. As the AI capabilities improve, the online journey of a consumer can be made both more productive and more informed. Having these tools built directly into the browser instead of a website or browser extension makes the experience all the more seamless. The current landscape reminds me of how search has evolved since the 1990s and before Opera pioneered the integration between search and browser over 20 years ago, from having to use the web page of search engine to search natively in the browser URL bar. So now the ability to gather information, making informed decisions, and both process and create content with the help of AI allows users to be even more productive. In the case of our AI-assisted ARIA, this is a fully integrated experience that exists naturally alongside the user's existing habits. Our role in this ecosystem is not to really make the individual tools available, but rather integrating both the back and the front end to give our users choice and elevated use cases, whether through ARIA or other services. ARIA itself evolves at a rapid pace. And this call along with multiple AI features from beta stage in our feature drop program and into our flagship browsers, including command line prompts, page context awareness, as well as voice and image generation capabilities. We are also offering an integrated and simplified way for users to download and use large language models locally on their computers, currently available in R2. It's a fantastic feeling to have always access to the power of AI assistance, regardless of internet connection, and with the certainty that your data does not leave your computer. As you can see, we are keeping busy. We might be a small company compared to our competition, but I think we are also the perfect size to innovate and seize opportunities. While we have more than tripled our revenue since our 2018 IPO, we have maintained an ever-present startup mindset free of the bureaucracy of large organizations, combined with a scaled business while solid financials allow us to invest in exciting products and healthy continued growth. With strength building throughout the year, we are excited to embark on the second half of 2024 and what comes next. With that, I will turn it over to Frodo to dive deeper into the QP numbers and our guidance.

Thank you, Sang. Now, four months further into the year versus our last earnings call, it's fair to say that 2024 is shaping up to be another really nice year for Opera. We are growing ahead of expectations with internal excitement across the board on the topics Sang Lin covered and more to come. Our financial results once again exceeded expectations, even the top of our ranges. In fact, over our six-year history as a public company, we've never missed our revenue guidance and only missed our EBITDA guidance once when the COVID pandemic hit in the first quarter of 2020. That does say something about our healthy and organic growth, and its relatively predictable nature, even if we like to bake in some caution for potential headwinds here and there. We've also been a rule of 40 company for 13 sequential quarters now, that is every quarter after the first year of COVID. And as you see from our guidance, we aim to remain in that category going forward as well. Our overall revenue growth was 17% and our adjusted EBITDA margin was 24%, both in line with recent quarters. As Song commented, I would highlight the e-commerce opportunities already seized and their further potential as a key building block in our continued ARPU building, naturally on top of healthy user-based dynamics. As in recent quarters, FX continues to represent a headwind, in particular as it relates to emerging markets. And our year-over-year growth would have been 8 percentage points higher, or 25% on a constant currency basis. In terms of cost, we had guided for a sequential increase in marketing costs, yet in the end maintained the spend level from Q1. That led adjusted EBITDA to overperform even beyond the incremental revenue. Other than that, costs largely came in according to expectations. Compensation costs increased sequentially as expected, predominantly due to annual salary adjustments, but also with hires and increased bonus provisions. Cost of revenue items came in at 25.2% of revenue, which was within the expected range. And all other OPEX pre-adjusted EBITDA came in at 8.6 million, also in line with expectations. Tax cost of 2.8 million was 11% of adjusted EBITDA. In the prior quarter, our tax cost was elevated due to FX impacts on our tax assets. Year-to-date, tax cost as percentage of adjusted EBITDA is 14%, and in line with a more normalized level. Our operating cash flow was 17.4 million in the quarter, representing 65% of adjusted EBITDA. Free cash flow from operations was 13.5 million, or 51% of adjusted EBITDA. This year, annual bonuses were paid in Q2, as opposed to in the first quarter of 2023, representing a quarter-specific headwind. Looking at the first half of 2024 as a whole, our conversion from adjusted EBITDA to operating cash flow stands at 94%. The year-to-date conversion from adjusted EBITDA to free cash flow from operations stands at 42%. However, it would be 79% if netting out the special 19 million investment we made in establishing a proprietary AI cluster in Iceland. As commented earlier, we expect these ratios to stabilize as the year progresses. Towards the end of the quarter, we announced our regular semi-annual dividend of 40 cents per ADS, or 35.4 million in total value. Payment was made in early July consisting of 27.6 million in cash and 7.8 million offset against the remainder of our receivable related to the sale of Starex in 2022, meaning that this receivable is now fully settled. Going forward, dividend payments will be entirely cash-based and fully funded by our growing cash generation. Then, turning to guidance. Following a strong first half of the year that demonstrated the resilience in our growth model, we have added to our comfort on our full-year trajectory and are pleased to raise our guidance today. We now guide full-year revenue of 461 to 467 million, up from our prior guidance of 454 to 465 million, and translating to 17% year-over-year growth at the midpoint. Our trajectory allows us to raise guidance beyond the Q2 overperformance and also narrow the range to reflect a solidified outlook for the second half. We are seeing particular strength in the e-commerce vertical, and we are cautiously optimistic that such benefits may be even more pronounced during the holiday season in the final months of the year. We raised suggested EBITDA guidance to $110 to $113 million for the year, up from our prior guidance of $106 to $110 million, and representing a 24% margin at the midpoint. While Q2 in isolation could indicate an even stronger range for the year, we guide for a more back-loaded marketing spend profile than earlier assumed to ensure we are in position to seize growth opportunities on the back of our new iOS offering and the upcoming releases of Opera 1 and Opera GX. In sum, our updated revenue guidance range now begins above the former midpoint and our updated adjusted EBITDA guidance range now begins at the former high end. While we do guide for the trend to be modest, we are also very pleased to indicate increases in the year-over-year growth rate from quarter to quarter in the second half of the year. For the third quarter, we guide revenue of 119 to 121 million, or 17% year-over-year growth at the midpoint. We got adjusted EBITDA of 27 to 28.5 million, or a 23% margin at the midpoints. That equates to OPEX pre-adjusted EBITDA of 92 million at the midpoints, in which the sequential increase of 9 million is predominantly driven by incremental provisions for marketing spent. We also had just over a percentage point of cost of revenue in items relative to revenue, and expect compensation costs to modestly tick upwards in dollar amounts, though decrease as a percentage of revenue. The total of other OPEX items pre-adjusted EBITDA is expected to trend down versus the second quarter, both in dollars and naturally then relative to revenue. Our cost expectations for the year as a whole remain in line with our prior directional commentary. with marketing cost and cost of revenue ticking up a bit as percentage of revenue relative to 2023, while compensation costs and other OPEX items tick down, largely offsetting one another, but implying 40 basis points of continued margin expansion at the midpoints, combined with stronger than expected revenue growth. So all in all, we are entering the second half with great momentum and look forward to keeping you posted. With that, I'll turn the call back to the operator for questions.