Welcome to the Opera Limited Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Opera tor Instructions] I would now like to turn the call over to your speaker today, Matt Wolfson, Head of Investor Relations. Please begin, sir.

Thank you for joining us. This morning, I am joined by our co-CEO, Song Lin; and our CFO, Frode Jacobsen. 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 20-F 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 third quarter operational highlights and strategy. And then, Frode Jacobsen will discuss our financials and expectations going forward. Song?

Sure. Thank you, Matt. And thanks to everyone joining us today for a business update and more color on our third quarter. As you can see from our financial results, we find ourselves in a great position. Our product lineup has never been better and continues to gain traction among this high-ARPU users and our efforts to broaden monetization is paying off. As a result, in the third quarter revenue was $123 million growing 20% year-over-year, which represents an acceleration from the 17% growth rate experienced in the first half of the year. And what's more, as you can tell from our updated guidance today, we think the growth rate may increase even further in the fourth quarter. Our annualized ARPU grew 27% year-over-year to a new record of $1.66. Adjusted EBITDA was $31 million, representing a margin of 25%. We are very proud that both revenue and adjusted EBITDA exceeded the high-end of our third quarter guidance ranges. In terms of the year as a whole, we had a material upwards adjustment of guidance up to Q2 and now with Q3, we'll repeat that exercise. We have the new range for revenue above the high end of the previously-provided guidance range and the adjusted EBITDA guidance range also moves higher. Advertising revenue was $77 million in the quarter, growing 26% year-over-year, which represents the highest rate of growth since 2022. Revenue outperformance was led in particular by the e-commerce and travel categories. Our e-commerce initiative benefited in particular from our PC browser monetization as well as our success in expanding our reach to new inventories through our Opera Ads platform. The strong results of Q3 also gives us greater confidence in our continued step-up of monetization during the similarly strong fourth quarter. Search revenue was $46 million in the…

Thank you, Song. We are certainly keeping with the tradition to pair healthy operational development with attractive financials coming in even ahead of our latest expectations. The quarter set new records across our key financial metrics, revenue, adjusted EBITDA, and cash flows. Starting with revenue, we had guided for a modest sequential increase in our year over year revenue growth, though adding 3 percentage points to reach a 20% year-over-year growth rate was well beyond our expectations and guidance range. On a constant currency basis, our growth would have been 6 percentage points higher or 26%. That trajectory including initial e-commerce opportunities continuing to materialize on top of our continued focus on high value users sets the stage for a very nice update to our outlook on the Q4, which I'll get back to shortly. We kept our overall cost base in line with expectations, resulting in adjusted EBITDA also over performing well above the high end of our guidance range and coming in at a 25% margin. With that, Q3 marks our 14th consecutive quarter as a rule of company and yet another quarter of meeting or exceeding our guidance. I've spoken before about the health and predictable nature of our revenue streams, but also about our preference to be cautious when we guide among such rapid growth opportunities. We always try to strike a balance between reasonable expectations, while keeping in mind that we operate in a highly dynamic and competitive environment. Looking more closely at cost, the quarter evolved to a slightly different mix than anticipated, that was mentioned within the expected total of $92 million OpEx pre-adjusted EBITDA. Relative to the Q2, we increased marketing cost by $3.5 million to $32.5 million though our guidance had allowed for an even greater increase. This was partially offset…

[Operator Instructions] Thank you. Our first question will come from Naved Khan from B. Riley Securities. Your line is now open.

Just a couple of questions from me, please. One, maybe just on this top line momentum that you're seeing driven by e-commerce. Can you just kind of give us a sense of how fast that e-commerce advertisement revenue stream is growing within the advertising bucket, if you can just give us a sense of that, that would be great? And also, how big can it be over time in terms of overall revenue? The second question I had was about EBITDA for Q4 and looks like you are increasing marketing spend in the fourth quarter. And then, you do have some sort of one-time kind of activity like the new browser launch and upcoming GX launch. Also, maybe League of Legends, can you just kind of talk about how much of the increase is associated with these versus just regular marketing?

Sure. I can go first. I would say on e-commerce, it's growing faster than the advertising overall growth rate. So, it's continuing to increase as a percentage of our advertising mix. I think it's hard to quantify, but it is certainly becoming material, and yet we're still in the early days of addressing the opportunity. In terms of the Q4 EBITDA number marketing implied, we have more or less shifted the, let's say, unused marketing budget of Q3 into Q4. It's a conscious decision, since we just now came out with R2 in October, and our new version of GX is also soon to come out, and we want to be in a good position to take advantage of that, while at the same time ending up with EBITDA for the year higher than what we had guided last.

Understood. Maybe just on the -- on your response, Frode, about the e-commerce. How are the customers finding the opportunity and coming to Opera for it? And maybe just talk about, if you look out few years, every two, three years, five years out, do you think e-commerce could be a majority of the advertising revenue or how should we be thinking about this opportunity?

Yes. I think I'll just try to answer that. So first of all, I think our e-commerce revenue is very strong. It's just because almost all of them are performance-based, right? So, unlike maybe some other advertisers, our revenue is almost purely based on the performance that eventually we bring to the advertisers, and the fact that it's growing so fast, is a good indication that they are very happy. And then, I think that was a result we actually see some major growth even further in Q4, when we actually move into the shopping centers. So very comfortable with that. And I think percentage-wise, it's actually -- I guess it's almost a bit comes to classification of what you count as e commerce, what is not. But in general, I think what we see is that is already major revenue stream for Opera company as a whole with results. So, I think it can be meaningful and it also has given us strong growth potential for us in the future. That's why we're quite excited.

Thank you. Our next question will come from Lance Vitanza with TD Cowen.

Hi, guys. Thanks. Just a couple of questions. The first on the balance sheet, it looks like cash at the end of the period came in actually quite a bit ahead of where we had modeled. I know obviously your EBITDA was strong, but I was wondering, if there was anything kind of below the EBITDA line that may have favorably impacted your cash flow in the quarter. I don't know if taxes were lower-than-expected or CapEx was lower-than-expected or if there's anything on the working capital. And then, the other question I had is, with respect to the OPay stake and I apologize if I missed this in the prepared remarks. But I'm wondering if there's any change in the valuation there, I haven't had a chance to get through all of the materials that you've disclosed. But if there's any change to the valuation there or any update on your thoughts around the potential monetization of that stake? I think you had it on the books at around $250 million recently, so obviously quite material. Thanks.

Yes, Lance, I'll answer that. There wasn't anything particular driving the strong cash other than the fact that we actually reduced our working capital by just over $4 million from Q2 to Q3. So, that's on top of adjusted EBITDA translates more or less to the operating cash flow. In terms of the OPay valuation, it's unchanged. We'll reassess it at year end, but we've maintained the same value as we had in the prior quarters.

And any sort of update or any thoughts on potential monetization of that asset?

Same as before, it has performed well. We are not actively involved in its operations. So, we essentially are a financial investor at this stage. And we do plan to divest it either if we get an offer while the Company is still private or post a future IPO. Just to chime in by the way on the cash part or go back to the cash part of the question you also asked about tax. We didn't really pay tax this quarter. So, it's really 2Q and 4Q that are the tax paying quarters. But I think as I indicated on the call that will affect Q4, and I'd rather point to sort of the full year operating cash flow generation of last year and set the expectation that the percentage conversion from EBITDA to operating cash flow in 2024 will be about the same.

Thank you. Our next question will come from Mark Argento with Lake Street.

Good morning, guys. I just want to drill down a little bit on the AI opportunity. It looks like you guys relaunched a new browser at Opera One R2. Just wanted to maybe dig in a little there in terms of the product roadmap, how you're thinking about the AI opportunity as things evolve here in the marketplace?

Yes. So, it's Song Lin. So, yes, I think as we also mentioned in the prepared notes, so one of the major things that we do launch in the overall ARPU is actually AI and Aria, our own assistant AI. And then we also see that, we've already launched it for about one week, but we also already see some big up picks on that. And then also if you compare quarter-to-quarter like from where we are now, it's already again some major increase, with some of them. So, I think overall quite excited, more like without actually dig too deep into it. I think essentially way that you see AI as a long-term differentiator and then it will be there, it will be always ways users and I think browser is a very good medium that we can make use of it. Like, not only like you also see that we are also moving both on the UI and just make it more immersive in the browser, but also media end, we'll say last quarter we lost a lot on the multimedia part of it, images, and then we will have more things worked on also from this quarter, so quite excited. And then, I think from the other end though, we will also actually do more on both local LMs, but also how to make it activated through the cloud. Essentially, I think best of the net, I think AI will be there and it will be super important. It will be indispensable for everyone, but then we also took a long-term sustainable view because there's also so many other things you have to be respectable, like how to make sure with the privacy are well protected in a local scenario, how to make sure that, we're up of the highest safety standard. All those are into consideration when we are building our products. Again, very excited. I think we are definitely a bit of a goal of AI. It will be a long time. It will be with everybody that has already impacted everybody's life. It can be more and we go there for the long run.

Is there any thoughts around, I mean, you look at like the success that perplexity is having and almost kind of tweaking the whole kind of concept of browsing, almost kind of putting AI first and obviously being able to charge for a product like that? I think they're charging $20 a month, not too dissimilar to ChatGPT. Is there anything in the roadmap or potential subscription type product that you guys can launch, just given the feature search deep rich feature sets that you guys have built out?

Yes, that's a very good question. I would almost say, I think in general, Opera, you can see in the past our historical track record. I think in general, we are more in favor of how to make this AI products more accessible to everyone out there, instead of prioritizing charging our subscription base. I think that's what -- that's actually also positive why we are also being careful in launching it in the right time. That's also why for instance, we are doing -- we are now working on potentially cloud hosting, which of course is actually very manageable from our end, but still be able to maximize user engagement. So, yes, I think all you all might be in [indiscernible]. I think we will probably prioritize how to make this more accessible to the end users instead of purely subscription based, but we're contemplating all the aspects of it. But we do also have subscription-based products like VPN, so it's not surprising. But I would say, at this point, our strengths would probably be how to make sure, it reaches the maximum audiences. I think the past also because, like route itself, we managed to make it quite profitable product. Unlike some AI start-ups, we don't really need to maximize for revenue short-term. I think that's also perhaps one of the strengths that we would have against some of the other start-ups, which they are just very money. So that we are quite proud of.

Thank you. Our next question will come from Eric Sheridan with Goldman Sachs. Your line is open.

This is Alex on for Eric. Thanks so much for taking the question. Just want to dig into the iOS opportunity in Europe. Now that, you've had a few months under your belt, more than a few months under your belt since the DMA went into effect. Any color you can give on user retention rates sort of browsing behavior ARPU, for the iOS users in Europe? And on the investment side for iOS, is it really just on marketing spend at this point or is there any sort of product development or other investments that you need to make in Europe to tackle the iOS opportunity? Thanks so much.

I think also great to comment. So, yes, I think as we also addressed a bit in the prepared notes, we are quite happy with the progress that we had in iOS. It had been growing significantly, if we see the iOS at home, but I think we're also particularly seeing without the inflow of the users. The new users increased more than 60% that we see in Europe. So, I think it's actually pretty much above what our expectation is before this summer and we're also happy to see that this trend continues. So yes, I think in Q4, we'll probably see stronger growth in iOS. We're very happy over how that had been received. And also, together with the new Opera launch of Opera One R2, which we are proud of, we will also have corresponding release on iOS, a company that because we also feel that there is also beautiful potentials of combining many of those desktop users, which are already using Opera, but hopefully a big portion of them also have the iOS phones. So, we think that will not mature, those are going to be for us both on Opera iOS, but also potentially for GX Mobile. So, that's what we are focused on in Q4. Again, very excited because, if you look at our penetrations in the Western market, we still have a lot of growth potential, even if we just make sure that all the operating loss in Western market, on PC are also using that on mobile, for instance. So quite excited about the opportunities.

Thank you. [Operator Instructions] Our next question will come from Alicia Yap with Citi. Your line is open. Alicia, your line is open. Please make sure your phone is not on mute.

Thanks, management, for taking my questions. And I have one follow-up question. Would you please share with us latest user majors and feedback on Aria on Opera One? And also, would management share some initial view on the next year top line growth expectations and EBITDA trends and any investment area that we should be aware of?

Yes. So, it's only I'm not sure if I hear you poorly because the voice is [indiscernible], but I guess you have asked about our app and our loss on Aria. So, I more like I would say that we're worried it's like compared with Q3 to Q2 point sense, we're already seeing some major uptakes of Aria like I take a great look, it's probably well almost up to 50%. So, some major growth, very excited. But of course, we see that we potentially will be even more growth in Q4, which is our focus, because we have also decided now that it's the right time to make user even more easier to discover Aria and also to be able to use it without having to register account for instance and miss initially. So, all those will probably have some major impact on the Aria usage, which we are very excited about and closely monitoring upon. Yes, so I think that's part of what we're quite excited. I have not heard of the second part of your question.

I can address that. It was about investments as I understood it in the Q4. And I think the key point we want to make there is that it will be in our core product portfolio. That's what we always do with ongoing development of course, but now with new releases on both two of our very key products with Opera One and GX, our marketing budget will follow. So, we guide for a substantial increase from Q3 to Q4 in marketing still within sort of the original guidance of marketing spend for the year, but we have reserved budget for the fourth quarter and that opportunity.

Thank you. It appears we have no further questions at this time. I'll now turn the program back over to Song Lin for any additional or closing remarks.

Sure. Again, thank you all for joining us today to cover some of the highlights from the third quarter. We have been looking forward to share the results with you and to update you on our trajectory for the rest of the year. We think the third quarter really demonstrates how we have navigated Opera into a position with continued and strong underlying growth, and how we stand to gain from our focus on users with the highest ARPU potential and monetization areas that are truly scalable. We wish you a good rest of the day and look forward to reconnecting on our Q4 results.

Thank you, ladies and gentlemen. This concludes today’s event. You may now disconnect.