Q2 2022 Opera Ltd Earnings Call
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Welcome to the Opera limited second quarter 2022 earnings call.
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I would now like to turn the call over to your Speaker today, Matt Wilson head of Investor Relations. Please begin.
Thank you for joining us as usual I have with me today are co CEO song Lin and our CFO for the Jacobs and <unk>.
Our executive Vice President of browsers Christian kilometers has joined us to shed more light on our segmented approach the browser market and how we think about the gx browser evening opportunity in front of us 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 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 I FRS financial measures, including adjusted EBITDA, which are different from our consolidated financial statements. They are prepared and presented based on ifr ups. We believe that the use of our non I F. R. S. Financial measures provides an additional tool for investors to use in evaluating ongoing.
Operating results and trends these.
These measures should not be considered in isolation or as a substitute for financial information prepared in accordance with ifr ups.
We've also posted unaudited automate historical financial results have also from 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 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.
Yeah.
So long.
Sure.
How about this is Elaine and thank you everyone for joining us today.
Again, I'm very pleased to show a strong well results with you.
Like many business were offset by a more challenging economic environment.
Including one in Europe .
And I'll be more cautious given the pressure on consumer spending.
Bob Altra is still a relatively small player in huge market.
A lot of room to grow.
Starting with locals.
<unk> gross strategy has proven to be very good.
And our performance demonstrates once again.
So our results for the Codell well ahead, although given the heightened on guidance and then just a record revenue was function of housing growth in Bolthouse, Brussels, and ultra mills and all epic audience extension disagreeing, an additional avenue for us to monetize all out of it.
All of our relationships and the performance inside.
In terms of adjusted EBITDA, our reported revenue.
Find ways lower than expected marketing spend has allowed us to deliver a margin of 21%.
Which is five four points higher than the 16% and the bulk of our guidance range.
For some time, we have talked about how they focus on improving the quality and the value of all the base invest.
Investing in product and market that allow us to monetize in the huddle room.
Comparing.
Currently the base to well they stood in the second column Sunday liking.
I called it yet and when the world was relatively more stable way, having increased our European gives off by almost 100%.
And I'll use all the America bought nearly 700%.
Africa has been stable to slightly growing while weigh heavily deals the volatile follow up our user base in Asia, mainly from South Asia.
Haynesville high often use off and greater returns on investments.
So while all user base has decreased.
That's helpful Al financial performance Mike.
The rationale for a growing audience in Europe , and America, Chile ops, because although the same cameras all annualized a pool from Brussels and micro mills has grown overall eight 2% leading to overall semiconductor on the gross you read nail some argue that base.
And that's before healthy doing all AD hoc ethic audience extension.
If you look at all for us such as advertising revenue Oh, all combined revenue growth. Overall. This philosophy, yes has been one go down 5% and 27% CAGR.
I'll keep mobile strategy and.
Let's talk about this before in the context of what drives our product road map is taken in patients.
Identify how opera can meet a specific set of needs.
A specific audiences, that's generic general market dwell sauce by their very nature cannot.
This strategy also means that our product can and do successfully compete with all well talking about the broadsoft optimize fault. Nonetheless has threatened developing market mobile use us.
All PC game off in Europe and U S.
So Chris you want to talk about holiday translate these pigmentation into opportunity shortly.
Our strategy also has positive originally effects.
Monetization.
Think about advertising for example.
Paul touched on gaming browser opera Gx.
That's way have a highly engaged audiences like no audience has a particular set of interests and we can reach that audience, whereas position and we can also manage all resolved without having to rely on cookies all unique use of I D.
Is that an inherent efficient structure that advertise all appreciate it.
Oh. He's also appreciate it you get well solving them advertising death, they find highly relevant and in some cases, you would actually see Cogs for example, that's right I'll blend upcoming video games.
Sagar, because our advertising is contextual advertising, where do not necessarily need to collect as much Costco NATO somebody's loss, which respects they'll strongly dahl for privacy.
Finally, our offer as offering gifts outperformance out of that lost access to greater audience.
This audience extension less bile acquire not just all owned and operated sites, but possible humans raise wages strong suppleness cabalistic.
From a profitability perspective, since there are no sales or marketing expense associated with it.
Relatively anemic and scale, we are already asking me the same EBITDA margin.
As you know the rest of our business.
So ultra is still E. All the stages.
Against all known Tom I don't know, how this strategy Boston Baseball all advertising revenues continued to grow and representing 55% of our overall revenue and 49% year over year growth compared to the same colo authentic cause they want.
All in all all products and initiatives continue to show great momentum.
Wiping zebra also asset that will be more relevant than it is today.
We are driving profitable growth not robust I assume all of the business.
That has an exceptional track record of weathering the Bravo market challenges, that's jumping off the day.
While the public market has been slow to give us credit for all and growth in revenue and profitability.
For those listening today I know I speak for everyone at the April one.
I say, thank you for your business.
Continued success.
Woke up every day to seize all opportunities.
We continue the strong growth of our Pearl.
So with that I will hand, the call Walt the question, who is all you did go in Gaza.
Core products for the scale of our company wide.
We wanted to take the opportunity to shell. Some further reflections on how we approach the competitive landscape.
But he's got all some of his thoughts on the opportunities.
Around the extra also for gain on sale I'll hand over to Christian.
Thanks Lynn.
Since this is my first earnings call I'll introduce myself by saying my background software engineering and product management and I have spent the past 15 plus years soft part of deal for us.
I lead our browser product the world with the main hub being brooksville Poland.
City tone, and a great hub for talent as well as in a couple of locations in Sweden, and most recently Scotland.
When we met a couple of browsers, we don't mimic or pay to the big fragrance called system default like chrome and Safari off some of our competitors, but you can see what has happened to them. They lost significant market share specifically among high value users seem does a rebel geographies and we have taken more than our fair share.
That's dropped which we are naturally pleased with.
The whole premise of being an alternative browser is still represent a real alternate use.
Eldon has set appraised the browser of choice for people, who wants to choose their browsers. So we'll do our best to be different we lead with innovation and functionality of selling points, which works quite well actually that means promoting or technological advantages and features such as privacy and data saving capability.
These or any other productivity features that we can go.
And we continue to do our best because so people who care enough to try an alternate 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 doesn't bake in browsers that really work for dose people such as gx for gamers.
It's been a fantastic Socs system has enabled us to drive nearly 50% revenue growth from our nature browser market over the past three years compared to the same normalize the base that some of them just the retro.
Our core product remains our flagship browser, but through clever architecture and tech work, we've been able to turn out where they seem to building blocks.
Able us to create an even more important to operate our specialized browsers, you know, they're a lean and efficient way.
To summarize we have a flux of browser lots of innovation that you contemplate elsewhere with solid user engagement retention and on top we developed a way to use it in a very cost effective way of the foundation for in this sector in the browser, we would like to launch like we did with opera Gx.
In terms of what's ahead for Oprah.
Highlights two areas of focus first the creation of new versions of our browsers. It's only just begun with gx and they'll work with the 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 market.
We will announce this new segments and products in the future.
The second area, our existing gaming initiatives.
Opera Gx continues to exceed our expectations. We now have $14 5 million desktop users to book 5 million mobile users, resulting in a year over your user growth up 78% for all of G X.
Our gaming users also represent our highest RPC users with our pool also totaled $89 more than three times our company average.
But that product alone has not withdrawn the rate of $50 million revenue per year and most of them. We are very proud of.
Also as indicated earlier, we continue to improve our ability to monetize this highly specialized highly engaged audience.
We have started when they've been more stark between inventory and gx like happy hour flagship browser visit increasing advertising and other non search revenue you know where gaming browser. We're also working on engagement and gx corner, which we eventually plan to monetize we're offering innovative new features for our users superior.
Our customization options and are developing the subtle 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.
Number three the Occassional gamers are hardcore gamers, who play games a few hours a day by gaming hardware Baidu 12, currencies, who show up almost everyday.
We say it's quickly becoming one of the biggest gamer audience is online and this is a very active user base enables us to integrate with other segments players to create an even larger gaming ecosystem.
But we also know that gaming is not the only highly engaged audience and we continue to invest in identifying new segments and developing products for those segments.
Summing it up it's really exciting times for us where they're happy to drive foot brought forward and I'm excited about our plans here will continue to build a great product cultural high value users and drive revenue growth.
I saw over tool for the no and then on their own for the Q&A at the Yadkin pace and no one wants to Doubleclick.
I know this topics for them.
Thanks Christian.
As someone 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.
<unk> of 71 to 74.
The over performance was mainly caused by two factors not built into our expectations revenue from Eastern Europe has remained more resilient than expected and our Ed Tech Forum deliver very strong results.
Overall, while about 85% of our revenue remains Oh no. 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.
So some of that reduction was timing related.
While opera continues to enjoy nice and profitable growth, we need to take additional caution in our gross 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 eight to 12 million guidance range and representing a 21% margin.
Then moving to our strategic investments to farmer and one curves.
During the first half of the year, we divested our equity stakes in both Meadowbank and star maker or Star X.
Our stake in storage 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 'twenty to 'twenty, three and the end of 'twenty 'twenty four.
Our stake in nano banks, well sold it in March or $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.
Superior Gen 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. This increased by $4 6 million to 131.7 million to compensate for the extended payment period.
Our third and final strategic investment Okay remains classified as held for sale.
As a reminder, that's a six 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 $126 million a D s's for $6 $7 million, including the 570080 S has repurchased in Q1 and another.
600000 to date in Q3, we repurchased a total of two point 43 million, a b s's for $12 $7 million thus far.
That leaves our total shares outstanding at $113.5 million a D S equivalence 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 30, we held 107, sorry, we held $187 million of cash and marketable securities up from 192 million on March 31st our operating cash flow was well below adjusted EBITDA. This.
Quarter, most importantly, because of the reduced marketing spend and 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 million to $319 million.
Assenting, 26% year over year growth at the midpoint.
We're also raising the lower end of our adjusted EBITDA range to $53 million to $60 million for the year.
That represents an 18% margin at the mid points and an increase of EBIT dollars up 95% compared to 2021.
For the third quarter, we expect revenue of 81 to 83 million, representing 23% year over year growth at the midpoint and adjusted EBITDA to be $14 million to $17 million.
On the cost side.
Hi, This is Matthew I'll jump in for photo just I think he got disconnected.
There on the cost side, we planned for higher marketing cost relative to Q2, and we expect cost of revenues kickoff to a couple of percentage points relative to revenue with the growth of our AD Tech platform. We expect some reduction in salary cost, but on the overall other cost items are expected to be quite stable versus Q.
You too.
In sum we are very pleased with these results and 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 at these calls.
Yeah.
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 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.
Hi, Thank you good evening management, Thanks for taking my questions. Congrats on the really strong results I have two questions.
One is against this inflationary environment and then also the macro weakness and yet you managed to raise our full year revenues and also the EBITDA guidance can.
Can you maybe help us.
Let it be what drives such a tight budget off yet.
That's M alcohol is that because of low based on loss share or is it because some of that we opened in English she actually started to punch it built the higher ASP.
And also just wondering if any macro weakness that.
That could potentially affect you in the coming months.
Hmm.
Maybe I leave out my second questions as well so it's small Christian Christian welcome and thank you I think we got a good sense I know you mentioned quite a lot on the performance on the G X.
Perform but I'm, just having a broader questions.
I mean, the opening a post pandemic market a trend that you.
So they could see for your gaming business and also wondering you know any slowdown that you see fucking business.
Yeah.
Hey, Alicia this is pro that are backing the call after I got disconnected.
I can begin answering your first question.
I think.
We we observed in the broader economic environment and we 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 opportunity that we see is almost it helps us that.
We don't necessarily need to follow the total market right.
So so I think that's it.
That's a key part of the reason why.
We keep doing essentially what we did in Q1, our wishes to also wishes to grow with our.
Alright expectations and continue to to set the expectations for the quarters had a bit higher than what we initially saw.
Yeah.
Thank you.
And for the four <unk> four for gaming I can I can read the size that.
We actually already so adult for remote learning adult lockdowns.
Of course, it changed the behavior of the game or it's not the only game there. So all the online users because the people who are no longer locked in their houses.
Hello.
But.
I can only say that what we see is that we see continuous growth and we see the Daimler popcorn more effect that bar, but he went to school and or starts then the pandemic.
So we don't see for gaming or is this are you mostly done is the younger people, we don't see real real impact here.
I see alright, great. Thank you very helpful.
Thank you. Our next question will come from Mark Argento with Lake Street. Your line is now open.
Hey, Good morning, guys, just a couple of quick ones.
You had mentioned that you saw a lower marketing spend in the quarter.
Drill down.
Drill into that a little bit.
Juxtaposing that relative to the strong 31% growth we saw in North America.
Yeah. So okay. So it's only Hal I am not sure if I captured all that but at least I'm not asking you to call out there on the marketing spend and all I can kill too so.
I think it's really just about all I think it will be more smartphone you can actually identify the right yourself.
And then you know also that you'd also which wade will yield the highest of all time. So yeah. It's I think we're pretty much on land bucket you bet.
The changing just because we have been small and you can get the Rockies off and annualized price. So that we actually have Ohio, Ohio.
Well you might have you might have now accepted and and also more like yeah. We saw that towards the end of Q2. If you travel time that it's not as efficient to spend the money that we don't spend so it's a it's something that all of that.
So this way.
So youre, saying that you saw.
The right ROI.
But then the market changed.
Pull back a little bit.
Yeah, so yeah, well actually to be specific I think what happened it just adds.
More like it's definitely offensive when you all said the follow the summer then you will be able to calculate that in the next few mouse. The recon work in La and then if you use our mobile apps like that that's all I thought, especially about philosophy that we don't do it by that point in time to give you. Another example that for.
For instance, gene chelicerate, even with you that you know of course now it's a you know it's a hockey them coming back and everybody is and is it backlog or the monetization actually but now of course, it makes sense for us to actually invest now because knowledge well, so I'll definitely and narrow bohai other times that would do it. So it's more it's more like normal.
Calculating the way when they are in more detail and rising smartphone volume that you lost.
Great. Thank you.
Thank you. Our next question will come from Lance Vitanza with Cowen. Your line is now open.
Hi, guys. Thanks for taking the questions and congrats on a really nice quarter and just to be clear I mean, our opera is certainly outperforming the broader market and and I guess, you're doing that despite exposure to Russia.
And Ukraine. So let me start there you you call 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 from that area than you had expected.
Any thoughts on or what that means for going forward do we think that like similarly D. Do you feel like you have a.
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 a too aggressive in your forecasting for the back half of the year as it relates to that area in particular.
Oh, Hey, Lance and thanks for that Yeah last last time are in the country since the war in Europe , whereas we indicated that debt.
We expected about a 4 million dollar overall headwind.
Per quarter, Brussow, 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 that 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 there'll be ultimately our revenue in <unk>.
So right now it's looking like the level of Q2 is.
Is continuing into the second half so so in sum that's a 6 million dollar.
Revenue improvement for us, but but we remain quite cautious and also how we reflected in our guidance because.
It is a very unpredictable situation.
Sure. Okay. So let me turn to the revenue per M. A U.
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. So.
But if I look over the past you know I don't know eight quarters or so it looks like that revenue per Mou 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 should we is 94 cents is that kind of like the new baseline and and three Q4.
Q, if anything maybe there 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.
So maybe I can begin just from a numbers perspective, but Christina please feel free to chime in.
Thank them.
We have experienced very strong ARPA growth, if we look at the year past, so the year ago quarter, and it's driven by both our like for like ARPA growth.
And the geographic mix composition of our user base.
Tilting more towards western developed markets. So the second factor of Geo mix was roughly twice as important as the like for like offer gross but Bose.
Doing well.
Performing very well.
Hum.
And when.
The comment that final comment to make is when we focus our user base in emerging markets on the more monetize civil users. Then then you have the impact of the reduction in some of these countries up to total amused, but the increase in the revenue.
Meaning that the resulting ARPA growth then naturally becomes very strong, but it is a validation we bleed off the strategy that we have.
Okay, and 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 are you know and 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 brought in a couple of million a D s's, but and I imagine that the answer is that you are limited by the under.
You're lying trading volume and the shares if that's the case and maybe you can 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 about presumably where where the volume wouldn't be a factor that it is on the buyback that you have in place.
So number one I I I can confirm that I believe that's the.
Limitation or that we did.
The buyback program.
<unk> operates under.
The caps.
And sort of what's the share of average daily volume and so on.
When it comes to a broader thoughts about what we can do yes, we do have a very strong balance sheet and it is a strength is strengthening over time, but with our operating results as well as the best we have.
It had been and have sold.
But we have not made any decisions on anything we if it so happens we will make sure to.
And then I'll sit down.
Okay. Thanks, guys.
Yeah.
Thank you once again, if you would like to ask a question. Please press star one on your Touchtone phone.
We are now holding again that is star one 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 song Lin for any additional or closing remarks.
Yeah, Yeah sure. This is somehow show yeah, I mean I got it. Thank you again for joining us it was a great call and we feel really good about what's to come.
Without content and gaming initiatives at all.
Very strong agribusiness lineup $200, even fall onto our gross saw strength in both our business and our balance sheet to allow us to pursue all this enforced it even if you're in a difficult operating environment shell up. We appreciate your time and we look forward to speaking with you again in the future.
Yeah.
Thank you ladies and gentlemen. This concludes today's event you may now disconnect.
Yeah.
Yeah.
Yeah.
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Yeah.