Q1 2022 Opera Ltd Earnings Call
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Welcome to the Opera limited first quarter 2022 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.
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Please be advised that today's call is being recorded lastly, if you should need any operator assistance. Please press star zero I would now like to turn the call over to your speaker today, Matt Wilson head of Investor Relations. Please go ahead.
Thank you for joining us with me today I have our co CEO song Lin and our CFO <unk> Jacobsen before I hand over the call to song Lin I would like to remind everyone that the conference call today, the company will be making statements about its 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.
I refer to the Safe Harbor statement in the company's earnings results for details.
Our commentary today will also include non <unk> financial measures, including adjusted EBITDA, which are different from our consolidated financial statements that are prepared and presented based on <unk> Rs. We believe that the use of non about where non ifr dress financial measures provides an additional tool for investors to use in evaluating ongoing.
On the operating results and trends these measures should not be considered in isolation or as a substitute for financial information prepared in accordance with <unk>.
We have also posted unaudited quarterly historical financial results of opera on our Investor Relations website will be live tweeting highlights from a call at Investor Opera. So please follow along there during the call and in the future with that let me turn the call turn the conference call over to 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.
Matt So thank you everyone for joining us today.
We are excited to report another strong quarter, all that's come in above our expectations. Both in terms of revenue and adjusted EBITDA.
The momentum and the scale we have achieved.
One continuing to pay off.
Our revenue has grown.
79% was supported by a 20% growth in social revenue largely these deals by strengths in western markets and the acceleration of the advertising revenue rose to 64%, Yeah, Oh boy he'll now representing 54% all total revenue.
Our advertising revenue benefits from the same underlying trends as such though it is magnified as auto Nielsen monetize only through advertising and additionally, les can leverage sulfhydryl inventory as we solve all advertisers throughout the opera ads.
X platforms.
Well continue our strategy of focusing all he was also a high upper markets and those that use loss, which we believe are most engaged providing us with ample monetization opportunities.
As a result of this strategy are to grow 54% of yellow, but youll all that annualize the basis weight.
Gradually offset the 9% reduction in our overall user base as it relates selectively wrong, our marketing initiatives.
User base in the U S. The rest of America, and Europe , continuing the growth trajectory from tenant 21, low key products like <unk> and not for news happening very simply this fall and we saw revenue growth across every region, except for more in depth at eastern Europe .
Yes.
With our strong results as a clear validation of our focus on <unk>.
<unk> and delivering differentiated products that appeal to that Mou those in every geography.
The combination of both our western and then your module market user base represents pretty compelling mix.
We are able to generate an immediate and meaningful incremental revenue newer products, while benefiting from the underlying growth of online services.
LNG markets.
So in this context, I'm confident that ultra core product offering well have crazy strategic value.
We can't see the future once he lead us at all is that our digital future well be defined by increasing use all personalization.
Ultra CNA is that independent of Belting company has always been in differentiating ourselves through technology innovation.
We have several and developed and launched products and services that meet the needs of specific use cases.
Specific to use those statements.
Whether that's a different they become indications whole mouse gaming news, all privacy and security offering.
Sulfur has a history of objective since he's building a broad social choice for people, who actively chose Yale Brussels.
The trend is struggle and a molecule that level.
One example is gaining.
Not long ago way Landstar Gx browser.
Typically they're designed for gamers.
As of this call will have a two minute mobile and 14 million do you think gives us a sequentially increase of roughly 15%.
Almost a double from a year ago.
The <unk> is higher than for any other product.
And $2 $7 I analyze the basis.
And beyond the Gx Lassalle, all again, they cost me a deal now has over 500000 developers and the Gx games.
Overall 1 million monthly active users.
And while <unk> is more than three times can be optimum for altra as a whole is revenue mix contains only a fraction of the advertising relative to such one compelled to our other Brussels.
Later, this year well begin to introduce payload advertising ges as well as other into multiple dose to empower both again did a pulse and yeah not alike.
While we are cautious on the near term financial impact.
Expected to ramp over the course of the year.
This is a common thread among them.
All of our products.
The identified a use case with clear value.
We launch and scale it and then with having to both existing and new monetization structuralists.
As we look ahead bill a clear applications for our model also as it relates to multiple aspects of Lyft three trends.
Opera News continues to grow in the high yield monetization regions and we're particularly pleased with how the product is now also taking a meaningful foothold there in Brazil.
In terms of vertical focused at all means based on the same core technology suitable remains the most popular but over the past 12 months. We have also introduced other verticals such as cricket and basketball as well as generic news and sports sites. So in total these services have more than 10 million users.
They argue did that same adjuvant meals engine to begin aggregating meals related to gaming Jackson browser as well as our plans to introduce a section for relevant content all battery, but also asking the last stop shop for news market data and trend analyzer.
Yes.
These are examples of the constant improvements were introduced to ensure that our users have the best makes references.
<unk> two in house, such features integrated pulse night stay dolls, and Neil Christie Shaw.
Security and privacy are becoming crucial concerns.
The actions.
And while all that through but also it would be rolled out and develop a ballgame, we're starting to bring <unk> into all of our products starting with a market share of wallet tech stack across both mobile and desktop Brussels.
Please stay tuned for updates here.
We are also ensuring that we have the right to us to maximize our ability to monetize our audiences and in particular continuing to improve our advertising Tech staff.
All in all I noticed that all advertising revenues continue to grow as a percent of overall revenue.
The way to the improvements we continue to make our athletic business to leverage our advertiser demand.
Non native inventory combined with crazy audiences without building value.
<unk> markets.
That's a trend we expect to continue.
So all in all way out in terms of litho cost our core businesses give us the opportunities we see ahead.
Since we last spoke during our fourth quarter results. We have also sold our equity stakes in both National Bank and salary costs.
The decision to monetize those financial investments was a denial to remain laser focused on our core business and the opportunities we are seeing in front of us.
Recently, we were presented with opportunities to take sales and smoking gains for our shareholders illiquid assets.
The town market and so they chose to act.
All sample through the well detailed results, but the resulting cash payments to opera over the next two years will offer us significant operational flexibility.
So.
Again, all products and initiatives.
To show Great momentum and waiting that's ABRAZO has never been more relevant than it is today.
A very exciting time ahead of us and Oprah and ways that let me turn to all through them.
Thanks Amanda.
Starting with revenue, which came in at 71 6 million for the quarter.
This was ahead of our expectations and the previously issued $67 million to $70 million guidance.
And of course, it was particularly strong in light of the headwinds associated with the war in Ukraine, and how that in turn affect regional monetization and has strengthened the U S dollar relative to other currencies in which we ultimately generate most of our revenue.
We estimate that the work resulted in a 2 million dollar revenue headwind in the first quarter predominantly due to changes in exchange rates.
Underlying impacts had less time to materialize and only affected the later parts of the quarter.
The reason, we still exceeded guidance in Q1 is able to maintain our pre-war guidance for the year as a whole is the core machinery office business performing ahead of expectations.
Operational expenses came in largely according to expectations, resulting in adjusted EBITDA of $7 3 million.
So exceeding the top of our guidance range.
Recently, Europe seems to divest our former ownership stakes in both Meadowbank and started maker, allowing.
Allowing us to realize about $70 million of value creation or over $110 million in the aggregate, including our partial sale and hope.
Last year.
A common question I received is what we intend to do with the cash.
Ahead of collecting any proceeds from the sales of banner Bank and started maker, our cash and marketable securities already stands at $182 million.
Taken together with the 215 million, we will collect them these sales.
Adds up to nearly $400 million, which is indeed, a significant amount relative to our current market cap.
In addition, we still hold a 644% ownership stake in opaque, but in line with our decision to focus our attention on our core business. These shares are also classified as held for sale.
All in all this makes for some interesting calculations of our implied enterprise value trading multiples.
For now we have a $50 million buyback program in place of which we've utilized 3 million by repurchasing 569000 shares in Q1, we.
We consider our buybacks to be an excellent contributor to ROI for our shareholders.
In terms of the broader perspective, we have chosen to prioritize our efforts on the realization of our investment gains with less sense of urgency in terms of committing the resulting proceeds.
The dominating value creation potential of ultra and <unk>.
Core business and the opportunities we can see from our varied strategic decision.
Having a strong balance sheet in this context only adds to our flexibility to drive investor returns.
In terms of quarterly operating cash flow, we generated $13 5 million, which essentially represented our adjusted EBITDA combined with a slight reduction in our working capital.
Now moving to our guidance.
We are maintaining our full year revenue guidance of $300 million to $310 million, a 22% increase estimate.
We continue to expect adjusted EBITDA to be between $50 million to $60 million.
The same thing in the 18% margin at the midpoint.
An increase of 19% compared to 2021.
We expect the quarterly headwinds from Russia installation of Ukraine to approximately doubled from the $2 million in the first quarter and represents around $12 million in headwinds for the remainder of the year, bringing the total impact to about $14 million or just below five.
Percent of the midpoint of our guidance.
However, the strong underlying performance in our core business is expected to offset those effects and we consider this a very healthy indication also when looking beyond the current year.
For the second quarter, we expect revenue of $71 million to $74 million representing.
The 1% year over year growth at the midpoint.
Relative to Q1, we assumed a stable to declining cost base overall.
Cash compensation is expected to increase about 15% following teen growth in salary adjustments and cost of revenue items combined are expected to increase to represent approximately 15% of total revenue.
This is expected to be offset by reduced marketing spend and a slight reduction within the other cost items.
As a result, we expect $8 million to $12 million of adjusted EBITDA in Q2.
Overall, and so we are very pleased with these results and our strategic direction.
There was a lot to cover today, but I hope you found this call to be useful in conjunction with our release and we're now happy to move to questions.
Thank you as a reminder to ask a question. Please press star one on your telephone keypad to withdraw your question. Please press the pound key.
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Our first question from Lance Vitanza with Cowen.
Hi, guys, thanks, and congratulations on a strong quarter.
I guess I have two basic questions for you. The first is on the Russia, Ukraine situation beyond the human tragedy I'm just wondering if you could help us think through.
The revenue implications in a little bit more granularity and I appreciate the guidance that you gave.
For the for the total impact, but on the one hand I just want to try to understand how this is playing out on one hand, we have presumably displaced Ukrainians on the other hand, we have a Russian population that is presumably economically bankrupt due to global sanctions and then there's the currency or exchange rate impact I.
It's the latter two problems that are more relevant from the standpoint of op risk business is that right and could you quantify or maybe just talk in percentage terms how each of these.
Specific issues kind of add up to the revenue drag numbers that you talked about during your prepared remarks.
Hey, Lance.
Hum.
So youre right and in the first quarter as I mentioned almost essentially.
Foreign currency.
Translation, just from the strengthening of the strengthening U S dollar.
Especially we can estimate.
Looking at the remainder of the year.
The FX impact and let's say the underlying business impact will be about the same same size. So.
About $12 million for the remainder of the year about half and half.
FX versus business impact.
Okay.
Are you still doing business in Russia and are there any thoughts of suspending operations. There until the conflict is resolved in other words until Russia rejoins the global community.
This is Darren can probably also chime in here.
We do continue to offer our products in Russia.
So we've spent a lot of time thinking about it obviously, it's very close to all of them.
In terms of being in the region Polish and all of the Swedish European footprint.
But.
So.
What's the right thing to do kind of decision and limiting information both.
Availability it seems like the wrong step to take.
So that's how we thought about it.
And then you've given US a base case in your and your outlook for <unk> and for the full year, how should we think about a realistic case I mean is the stress test to simply take the 10% of the revenues that you've sort of said come from the region is the stress test is simply take that revenue out of the equation.
<unk> full stop or if we were to do that would there be any cost removal that would go away.
Is that too.
Too conservative way to look at it again I'm trying to get to something like if things get worse as opposed to <unk>.
Meet your forecast.
Yeah, I mean, we do build into our forecast that things will get worse right.
So.
Correct as you say there wasn't opening expectation soft representing around 2000.
10% of.
Our revenue this year.
Probably with the.
75% to 30% margin on that because we do of course also invest.
User base.
Cross, both European and Eastern European markets.
So there is cost associated with it too.
But as of now we don't see the scenario going to zero unfolds. So so.
We can tell you what we presented today is the most realistic expectation. Okay. Thanks, Glenn let me turn to something a little bit more hopeful.
The divestitures of Meadowbank and star maker, and the partial monetization of okay. You've obviously got a long way towards streamlining the business streamlining the story and obviously you talked about how you're classifying the remaining okay. Jake as held for sale.
You discussed maybe the timeline for potential monetization of that the remaining stake and remind us what's the book value of that stake I think you might have called it out in your prepared remarks, but I missed it.
No.
To begin with the letter I think it's about 80 $485 million that we have on our books from.
Okay.
You can double check later.
In terms of timeline, when we classify something as held for sale. The implicit expectation is within 12 months.
So with them within 2022 is the implicit expectation.
And then just lastly for me then.
You started to sort of walk through the math on the call I was actually going to be my question, but if I if I start with the $600 million market cap rate is $115 million is at about $5 20, a share I guess, it was $600 million ish market cap back.
Back out the cash I back out the PV, if I, even just if I use the PV of the of the stake rate as opposed to sales rather that you saw.
And then I take out the book value of the <unk> stake I'm getting to about $150 million implied or valuation for the browser business and I'm just doing that correctly I mean that just seems too low or.
Wondering if you have any color.
We're trading at like points.
Three four points three 4% revenue and.
No no like one five.
So just an ebitdas towards these institutions something like that 1.6 or more concerned.
I mean, it's the rate Youre going your EBITDA margin is going to be higher than your revenue multiple.
Yeah.
Yes.
Yeah.
Okay.
Yes, thanks, guys for taking the questions I'll get back in queue.
Sure. Thanks, a lot.
Thank you. Our next question will come from Mark Argentino with Lake Street.
Okay.
Hey, Good morning, guys just a quick question on <unk>.
Dovetail a little bit.
The capitalization and the strategy going forward so.
Our modeling Danielle.
Sure Colby.
Roger business amended leverage that in other parts of all here just going forward, how do you think about deploying.
Deploying capital in this strategy.
Do you anticipate a similar type of strategy.
Investing debase harvest or maybe doing something more substantial and by larger more.
<unk> businesses.
Hey.
Hey, Mark.
Good question.
<unk>.
To comment on it I think the investments that we had the two we've sold an algorithm that we are proud of them because like you mentioned.
To a great deal.
We were able to create that value for upper.
By participating in these companies co founding etc.
And so it is a good example of how the browser business that we have.
It's a strategic asset that we can launch products and services from of course, we focus mostly on what we do internally with opera news and our gaming initiatives, but these for some specific opportunities we had in earlier years that they would.
I have done well for us the one I think when we look ahead we are.
We are definitely more focused on what we can create internally and as part of okta.
I don't see the same situations.
Participating in the launch of separate companies.
I don't have any indication that.
But there are opportunities in that space right now.
So it's more of an internal focus.
Alright, and then just one follow up in terms of monetizing stage.
The incremental $211 million or so.
We need to tax effect that at all or is that actual.
You guys should receive after.
So you collect all the proceeds.
There is a there is no tax on that so these are entities essentially shares that we sold.
Which which was not taxable gain.
Yeah.
Right I appreciate it.
Good luck.
A different sort of environment for you guys.
And your exposure to <unk>.
Sure.
For work going forward.
Thank you.
Once again as a reminder, if you would like to ask a question. Please press star one to join the queue.
Our next question will come from Alicia Yap with Citibank.
Hi, Thank you good evening.
Hi management, Thanks for taking my questions and also congrats on the solid waste out.
Hi.
There are some headwinds in Europe .
A couple of questions first of all.
I think you mentioned about.
From Russia, and China and also.
Our guidance on all of that.
But I'm just wondering Uh huh.
Hot on AGA appetites are something especially with the attic house, where that goes.
Sure.
No it doesn't.
And would that actually become more cautious on spending.
So that's the first question.
And then.
Questions also on that too.
Follow up on the use of our cash with the incoming cash and all of that.
Hi, Steve.
How should we think about you know.
All right.
Future plan.
On the cash use would that be.
Sure Kash.
Okay.
Or would you plan on.
Some acquisition pocket that fit into your offset.
Yes.
Yes, absolutely expandable.
Expanding into the Gx browser, which you got to worry about.
Or will you also be interested in acquiring content studio.
Thank you.
Yes.
Yes, sure so its only Hal and I also tried to answer a bit so.
Yes for your first question of Advertiser sentiment.
I guess is more what do we see that I think in general we feel the advertiser already in Europe are still quite strong the way we see it the only impact is the most awards may be.
Exchange rates that of course, with the euro actually being a bit weaker compared to the U S. And you may all about use of course, that's the that's more of the impact of which for those talking about.
Yes high level, they feel that at least to what we can see it's still going strong and thats. What indication holds way why we would have all keep still going strong and makes it exciting patterns and also keep us all for your guidance.
And all of that so we have to keep a little closer look.
How that changes and I'd be saying yeah.
So that's why as a general high level.
Observation.
And then I guess further has already pretty much answer at a bit about the.
Cash costs.
<unk> to us.
The importance is to demonstrate that this is a positive investment that has to be able to bring us good value and then we're also able to bring that into cash. So I guess, if I could maybe cover a demonstration of the work that might be done without reading about the excuse the company and so hopefully there'll be more E mail for you know for the rest of America.
To be able to see it.
Why are the in depth I think it's fair to say.
Allstate way this will give us more flexibility to be able to invest into a more strategic staff without the way up because the online game getting people into us.
I guess, we wouldn't mind, if there is a potential target or anything to acquire but we don't have anything.
And this ends and we're just happy that if you could give us some flexibility.
Thank you song I understand.
Especially at this moment you may not have identified.
But I.
Just wondering maybe you can help us from a let up in what you are thinking about the strategy or what if you look at your Opex at that.
Kind of like divesting Arden.
The non core and then focusing on trying to advertise.
Into the next year.
Yes.
One of the things that you feel your business needs to be spread a strong tenant.
And then also something that you will see the one that to explore into or you have opportunities to explore.
Thank you.
So yes sure.
Very relevant question, so I would say a high level.
First of all our Gx field.
Although it is growing very fast and it's also in line with perhaps office overall strategy to provide personalize the browser or a particular segment or in this case, you're getting off on.
So I'm quite certain that they will continue to deliver any spend on the gaming cycle.
Both in terms of growing our continued to grow our gx user base, but also in.
Growing our gaming platform and also all gaming and juice.
And if along the way we have to work with Bob gave me pause or gaming companies All studios.
And provide better economies, we will do it so so I think it will actually decline.
Proud and also confident about we're able to make a difference they are.
Like yes, I think that you will see probably more announcements product wise. So they don't have this year.
And then I think on top of it it's more likely to continue.
Maybe we could almost be a continuation of the same strategy that we feel they are similar verticals that way to make a difference we mentioned about let say for instance.
Where do getting that we think it can be perhaps as importantly gagnon.
And we're even more right. So there's a huge potential then we will also.
Invest R&D restaurants into it in end of the day, where Tech company. We are very good and tech data readout of so I think hopefully we should be able to also create some.
Some of it all sitting in a very attractive and personalize their products, which will be appealing to the energy losses. So I think this is really what we're thinking about we have not really spend our time on thinking about the acquisition of Argos.
That's what I mean, because to us it's very important to have the wind by technology and the rest of course, if there are some good candidate like that's the case when they buy it when we bought I've only have bought again. Thanks. All engines that are that of course is that we do company.
<unk> wishes I wish you well.
Most of all because I guess the bulk of this deal to gain by technology and by innovation.
Oh I see.
Okay. Thank you Tom.
Yeah.
Sure. Thank you.
Thank you. This concludes today's Q&A I would now like to turn the call back over to sung Lee for closing remarks.
Sure so on.
Like like again, thank you again for joining us today its.
It's just an exciting time for altra, otherwise I think we are able to demonstrate that our corporate outsourcing is a good business.
Together with our content and the gaming initiatives that's been great.
And with even more numerous and growth and drive us still to come and now I think we're able to also demonstrate we have strong cash balance and also good visibility now.
So those casualty lines from our the vessels, which will give us two ways.
Much more visibility about our actual strengths as a company. So you know way wed hoped.
We will continue to deliver above expectations.
So I always appreciate your time.
I look forward to speaking with you again in the future.
Thank you ladies and gentlemen. This concludes today's event you may now disconnect.
Yeah.
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