Q3 2022 Opera Ltd Earnings Call
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Welcome to the Opera limited third 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 to ask a question. During this year. If you will need to press star one on your telephone keypad.
You want to remove yourself from the queue. Please press the pound key please be advised that today's call is being recorded lastly, if you should need 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 begin.
Thank you for joining us.
As usual I have with me today are co CEO song Lin, our CFO <unk> Jacobsen before I hand over the call to solve and I would like to remind everyone. During 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 state.
Things are based on current expectations and how we perceive the current economic environment and are inherently subject to economic.
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 S. R S financial measures, including adjusted EBITDA, which are different from our consolidated financial statements that are prepared and presented based on I F. R. S. We believe that the use of our non <unk> financial measures provides an additional tool for investors to use in evaluating ongoing operator.
Results and trends these measures should not be considered in isolation or as a substitute for financial information prepared in accordance with I S. RFS.
We have also posted unaudited quarterly historical financial results of Aqua on our Investor Relations website will be live tweeting highlights Mccall at industrial Aqua. 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.
Photo, who will discuss our financials and expectations going forward.
Sure. Thank you on that sure excellent so I think the math thank.
Thank you everyone for joining us today.
Like again I'm very happy to report all in good solid quarter results with you today.
And Saddam global macroeconomic environments away, well able to generate record revenue and profitability.
It is a do the indicator that our strategy of focusing our products on the highest value loss.
And enable the growth.
In a challenging environment.
Our third quarter revenue exceeded the high end mobile guidance range by overall, two minimum wage a 25% EBITDA margin exceeding the high end mobile EBITDA guidance by more than 4 million.
We believe this momentum puts us in excellent position.
As way until the seasonally strong fourth quarter.
Total revenue grow 28% year over year, driven by record revenue from a bolt such and advertising.
All our strategic choice to focus on better monetization in particular in the U S and Europe has created an underlying tailwind.
Helps shield us from the strong FX headwinds deal to a strong U S dollar and pricing pressure in the market.
This choice combined whereas the audience extension provided by our ultra as the platform, resulting a striking well ahead of our expectations.
For several quarters now where you have articulated our strategy all blah blah blah.
Rachel applies to both the emerging market as well as the developed once.
This is our strategy he knows to pay off.
For the first time annualized op, who exited the one dollar.
So 10% sequentially to $1 and fix them.
Advertising revenue up 41% compared to last deal now represent.
8% of our total revenue our advertising business on our owned and operated sites benefited from all high value footprint field in particular by the sixth season of all gaming browser opera Gx.
This extension is a natural supplement to our no advertising inventory.
We believe that deleveraging so part of the inventory as softly band that you all I know is a very healthy combination.
We will continue to generate stable margins and the grille, a meaningful EBITDA contribution from the opera ads platform.
On top of all the advertising trajectory.
So do you have now showed also healthy growth of 15%.
This is last deal.
Growth in search revenue was primarily driven by our expanding P. C footprints in North America.
The revenue outperformance leads to greater than anticipated EBITDA.
So after stepping up our marketing expense in deliberately wanted to attract a higher value though.
We have stabilized.
Deep in Italy, one levels.
The leverage in our business model.
Demonstrating what we said and at the time that the EBITDA margins would indeed expand in 'twenty two.
So we.
We strongly believe there is a desire by yourself for features that the larger system that deepwater barrels also do not awful.
And as a result are seeing strong demand for independent the browser choice.
All gaming browser GFS is a good example of identifying large subsequently.
Whose needs are not met and who seek umbrella that battlefields, whereas the bolstered our need and online person us.
Overtime, we believe that we can introduce other products.
<unk> can find a user base and be successful at <unk>.
<unk>.
Zia Gx browser now has over $80 million with an annualized up all across.
Across PC and mobile, which is the highest monetization browser all suitable products.
<unk> offers a differentiated advertising proposition that we are starting to take advantage of.
It is Australia engagement and discovery engine.
You also typically see call it the advertising that we can solve them whether it's the latest the trailer for a game or the release date or ballpark potential call Gx, one al puts it all front and central.
We are also able to monetize the gx beyond that just the advertising, whereas the affiliate links to purchase games downloadable content and in game currency.
Our user growth continues to be strongest in the Americas.
As also costs.
Unintelligible use also in urology market material. They are starting to see signs of abuse all base stabilization in those regions and significantly higher up levels.
During the quarter way enabled our web through wallets for Altra, maybe bringing the wallet to potentially tens of millions of euros.
A major event for both Oprah and the industrial more broadly.
He's a long term play, but demonstrates the power of all engaged audience around the walk ultra.
Altra is very proud to help millions of use also get align and enable them with web three way. We also operate that directory wallet with a single SDK across all product retail products to make a phone call improvements Pascal and more cost effective.
With that I will handle the call over to Frida to discuss our financial results and outlook sell through them.
Thanks, Tom.
As someone pointed out our quarterly business performance was well ahead of our expectations earlier in the year. We were pleased to maintain guidance after Q1 and a dramatic startup the year end.
Later, we're proud to race it after Q2.
Following this Q3 over performance, we are yet again in a position to indicate even greater expectations for the fourth quarter and the year as a whole.
Quarterly revenues came in at a record $85 3 million, which represented 28% year over year growth and a solid beat versus our previously issued guidance of $81 million to $83 million.
This was achieved despite a major headwind, namely the strengthening U S dollar.
On a constant currency basis, we estimate that our year over year growth would have been over 40%.
The over performance was mainly caused by two factors not fully reflected in our expectations.
Revenue from Eastern Europe remains more stable than anticipated and our audience extension revenue continues to grow faster than anticipated.
Adjusted EBITDA was 21 4 million or 25% margin substantially ahead of our $14 million to $17 million guidance.
In addition to stronger revenue, we benefited from marketing expenses coming in below expectations.
At the same time the growth of our upper Ed Spud four led to a couple percentage points more cost of revenue relative to what we had expected.
In sum the cost mix more than mess out opera ads has very limited other incremental costs.
Then turning to capital allocation and returning cash to shareholders.
At the end of the quarter, we announced that we had reached an agreement with 361 of our pre IPO investors should we acquire is $23 4 million a D. S equivalents is 26% stake in opera for $128 6 million.
This transaction closed earlier this month and 360 is no longer a shareholder and no longer represented on our board of directors.
Following this transaction each remaining share constitutes 26% more ownership of our approach.
Than it did before.
In terms of our $50 million open market buyback program launched earlier in 2022, we repurchased 900000 ideas.
$4 4 million in the third quarter.
Year to date, including shares we have all ready repurchased during the fourth quarter, we have repurchased a total of two 9 million and yes, just for $14 7 million under this program.
So this leaves our total shares outstanding at 89.7 million Aes equivalents.
Hey.
In total combining all our open market repurchases and the 360 transaction, we have repurchased more than 28% of Aes equivalents outstanding after our 2018 IPO in 2019 follow on offering.
And we continue to see a large disconnect between the intrinsic value of opera and the value observed from the current trading in our stock and I'll highlight a couple of factors worth noting in addition to our core business performance.
As of September 30th, we held $201 million of cash and marketable securities up.
From 187 million at June 30th.
Our 360 payment is due in November which will reduce this balance to $73 million before being listed by the underlying cash flows off the fourth quarter.
So that's the most relevant cash number to consider.
Talk opera has held investments and three private companies over the past years, Okay Star X and then it'll bank.
Last year, we decided to initiate processes to realize our gains on those investments.
We sold a two 6% stake in opaque for $50 million in 2021, but still hold a remaining 6.4% stake in the company classified as held for sale.
Earlier this year, we fully exited our investments in the other two star X and then it'll bank with payments to be made in installments we.
We have collected a total of $37 million on these two and the present value of payments still to be received its $168 million.
So in light of our total shares outstanding now being less than 90 million assets combined with a resilient and growing business with expanded margins and a strong balance sheet of cash and financial assets.
It is our opinion that upfront is substantially undervalued by the markets.
And as a result, we are happy to continue repurchasing our stock.
Now moving to our dogs gear.
Given the momentum in our business, we are raising both our revenue and adjusted EBITDA guidance.
Our full year revenue guidance is now $323 million to $326 million, representing 29% year over year growth estimate points.
We are also raising the adjusted EBITDA range to become $62 million to $64 million for the year.
That represents a 19% margin at the mid points.
In other words for both revenue and adjusted EBITDA. The low end of our updated guidance is above the high end of our previous guidance.
For the fourth quarter, we expect revenue of 88 to 91 million, representing 23% year over year growth at the midpoint and adjusted EBITDA to be $17 million to $19 million, a 20% margin at the midpoint.
In terms of cost expectations, we build in another one to two percentage points and cost of revenue and we maintain our previous expectation of around $30 million and marketing cost, even though Q3 came in lower.
Compensation cost is expected to be relatively stable, while we build in a slight increase in other opex following expected seasonality and corporate costs and general activity grows.
Overall, I'm very proud of our recent accomplishments strategically operationally and ultimately financially.
We continue to execute on our strategy to grow users and high RV markets and concentrate our efforts in emerging markets on the most monetize users.
In addition, we are well underway to focus our company around our core operations and leveraging our games to invest in her own stock through buybacks.
And with that I turn the call back over to the operator to take questions.
Thank you and 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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We will take our first question from Lance Vitanza with Cowen. Please go ahead. Your line is open.
Hi, Good morning. This is Jonathan on for Lance Congrats on the quarter.
My first one is it's great that revenue has such a strong performance despite the lower than expected marketing expense.
Could you maybe share a little bit what were the main drivers that led to lower marketing expense and.
I know that we can expect.
Same level into the fourth quarter, but can we expect margin expected also.
As you know the decreasing to 23 or remained stable and maybe it would be higher.
Hey, Jonathan Thanks for your question.
Overall, roughly our marketing spend this year.
It is roughly on par with what it was last year, which was which was represented a big step up in marketing costs. This week.
The targeted our efforts towards western markets, So, which we are achieving this year as well maintain that spend level not really grow it but then reap the benefits on the revenue side. So we're not yet giving guidance for next year, but at least it's an indication of the level.
That's we are remaining at <unk>.
And in terms of the next quarter.
As I mentioned, we built in about $30 million of spend so a bit less than we had this quarter.
But that's what we think is most prudent to expect.
Okay got it.
One more.
The EBITDA performance this does.
Right.
Just like you guys said it would.
In 'twenty one.
And now with the.
The accumulation of additional cash that the company will generate because of this.
Surely the company is exploring investing into other client opportunities right or if there's a time that it's prudent to hoard cash given the general.
Outlook of our global business.
I would say the most obvious potential that this we have demonstrated through our actions have been to buyback our own stock given how we've been priced.
We announced the most significant buyback we could have ever done.
In the quarter past exiting.
360 in addition to the buybacks rolling in the market.
So at least we feel that that cash has been put to very good use.
Got it.
In terms of our our other shareholders.
And then of course, we continue to run the profitable business, but but it's.
I don't want to speculate and potential M&A, we're always open for good deals and that's been good.
Okay that makes sense. Thank you congrats on the quarter again.
Thanks.
And we will take our next question from Alicia Yap with Citi. Please go ahead. Your line is open.
Hi, Thank you good morning, and good evening, Thanks for taking my questions and congrats on that Sallie Mae and the guidance raise.
Two questions first is I'm.
So where should we reconcile that discrepancy.
Between what you saw from the slow downs after acts rather more for some of the BK U S platform company, where since our really solid.
Growth this quarter.
And then.
For Q guidance would that be fair to assume that both search and also at the ash rather than you know Mike.
It might be to celebrate and later on.
Not ball or such.
Such actually maintained quite stable and the deceleration is coming from the actual revenue.
And then my second question is any preliminary views on how we should think about the growth momentum for 2020 to tender for Q growth momentum actually.
The tape out for us to get into taking it from me. Thank you.
Yeah I think.
And Sean maybe I'll take it after that.
Yeah, Okay. So until I can Mike Hey, Tony I'll, maybe I'll just try to take this.
I mean more like I think Kim.
It's a different aspects all teens right. So.
In terms of Salt I guess, we are more than willing to say, it's a good well because the way I guess, 15%. They are focused on the LDL I think that's more like a bunch of holes.
User growth, especially in key markets right. So like if they are much bigger than us so closely in terms of scale, but we're able to grow.
Growers say modules.
In Americas year over year, and that'll cost hospital.
The gross regimen class that all despite the global headwinds. So I think so part of it is definitely called out the growth of user base.
In key markets.
I would say is for some other like as it's partially also related with this of course is that the way I'm willing I'll use obesity market.
But I would say the other part of course is also fast all that.
I think for a company our size right I think we'll add right size well I guess outside we're buying the right niche and we are big enough to make impact in terms of being able to answer every quarter. Unlike saga.
On the other end the way I'm not I guess as the big to the point of well we cannot provide the macroeconomics are either.
Well I believe and so I think land sweet spot well way way are agile enough that that's why we have good excellent technology and we have good knowhow. We have good user base, we are able to extend it well north of that the big like Google or Facebook or to be able to almost and not able to combat that the macroeconomic so I think that's the.
Panelists weigh test board flatten now but of course, I guess, we just need to continue to deliver and drive very hot.
That's my take on that.
I think you also asked questions about Q4, so I would say it's been like this I think.
I mean, I would always think of is a buffer because there's just too many uncertainties right now for instance.
You know how bad the ethics lobby and also lately, it's hard to really predict how how are some of our past matsuo performed right. So I think it's always prudent and two <unk>.
To do predictions on some of the revenue because we are ultimately also you know it depends on the whole ecosystem.
So I think that's pretty much what we saw is less than what we see a strong let's say deceleration I want them all but the more that's just have to be prudent on that because all the macroeconomics.
And then yeah.
I think it's more that than anything else otherwise I think the way I mean, good growth trajectory.
But yes, well have to see how pupil play Alta I guess allopaths I'll call it that way.
Because I had them before.
That also says that that to grow to go with 7% dwell how about anyway. So so I think it is that I think it's a bit too early maybe to comment on.
Next deal because it because I think you are going to become a bottle of macroeconomics wells about it from that.
We are so far performing quite a bit below that.
Macro and.
Hopefully they'll continue on the trend lines.
But I think when you can see how Q4 goes and then we can maybe haven't been all assessment of walking before achieving next it.
Okay, great. Thank you song.
Oh yeah.
Okay.
Once again as a reminder to ask a question that is star one again, a reminder to ask a question that is star and one and.
And we'll go next to Mark Argento with Lake Street. Please go ahead. Your line is open.
So I'm running thrown out a nice quarter and.
That's on the big gas stock repurchase.
Just wanted to follow up on a couple of things for auto when you think about cash generation of the business.
Just help us think.
Think about the conversion of adjusted EBITDA and free cash flow, what kind of opex or other types of.
Cash.
Cash outflows are there theyre just draw that Oh here not a free cash flow number in our free cash flow yield for you guys.
I mean.
If you look at it.
2021 and 'twenty two year to date take our adjusted EBITDA less taxes actually paid.
Free operating cash flow amounts to about 90% of that.
So I think that's it.
Relatively logical rule of thumb in terms of what to expect.
And then our tax rate tends to be about 20%.
<unk> profit if you add back.
Stock based comp and it's been a bit higher this quarter.
Prior because of foreign currency.
Movements affecting tax assets ultimate super centered in tax liabilities, but.
But I guess those would be my guess.
Suggested guideposts.
Okay. That's helpful. And then just lastly can you talk a little bit about.
Kind of any variance as you know from a geographic perspective Europe worsens.
And then North America is smaller but growing fairly rapidly.
Any color you want to give on you know what.
You're seeing some strength or are you concerned.
I think.
The headline of the quarter and I guess, a year as a whole list.
Strategy to focus on Europe , and North America are really the Americas, and that's proven to work really well for us good momentum in that and that's something we've talked about from such a small position that we are able to to drive really good growth or had been able to drive really good growth in the <unk>.
The macro environment.
So.
I think that's the main main message.
We benefited from the benefit from both underlying ARPA growth.
And the geographic mix shift of our.
Our user base.
Great. Thanks, guys.
Thank you.
And there appears to be no further questions at this time I'll turn the call back over to sing a song Lin for any additional or closing remarks.
Yes, sure so like I like again, thank you again.
As everyone. It was a battle Coca Cola and we're excited about.
What is ahead of us as we enter what has historically been our strongest quarter of the year and I'm also very proud of the hard work from all of my colleague is allowing a pro to continue to outperform expectations.
Operational excellence.
With our strong balance sheet should create more opportunities.
Hum.
We appreciate your time and look forward to speaking with you again in the future.
Thank you and this does conclude offer limited third quarter 2022 earnings call. You May now disconnect. Your lines at this time and have a wonderful day.
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