Q2 2023 Opera Limited Earnings Call
Welcome to the Upper limited second quarter 2023 earnings call.
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 period you will need to press the star one on your telephone keypad. If you want to remove yourself from the queue 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.
I'd like to turn the call over to your Speaker today, Matt Wilson head of Investor Relations. Please go ahead.
Yeah.
Thanks for joining us as usual I have with me today are co CEO song Lin and our CFO sort of Jacobsen before I hand, the call over to song 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 may refer to the safe Harbor statement in the company's earnings release for details our commentary today will.
Also include non Ifr S financial measures, including adjusted EBITDA, which are different from our consolidated financial statements that are prepared and presented based on <unk> for US. We believe that the use of non <unk> financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends. These measures should not be considered in.
Isolation or as a substitute for financial information prepared in accordance with Ifr US. We've also posted unaudited quarterly historic financial results of opera on our Investor Relations website will be like hosting highlights from the call Investor Opera. So please follow along there during the call and in the future with that let me turn the call over to our co.
CEO song Lin, who will cover our second quarter operational highlights and strategy and then further will discuss our financials and expectations going forward.
Sure Stan Smiths and tend to everyone for joining us today.
So we are very pleased to announce another very strong colo, which exited its all up here goes to issue guidance.
Cost of revenue and profitability.
The both the hobbled deal is off to a great start and we are happy to be able to race.
I'll also nickel did three guidance today.
Second quarter revenue richest $94 1 billion.
In English.
21%, although the previous year.
This was our 10th consecutive quarter, although the 20% topline growth.
Adjusted EBITDA was 25 million a.
22% margin.
The second column builds upon all approvals.
And communicate our strategy of focusing on growth in the rest of the market, which has the potential for the greatest about it.
So to those of you who haven't been following the opera sorry. This is nothing new.
Annualized ARPA was 1.1 $7 in the second Niccolo.
An increase of 25% some payoffs to lost deal and up 8% relative to the whole school.
While all told you the base it was a relatively stable we continue with our user base mixed shift.
How often do those ways to use those in western markets representing 15%.
The total user base.
Although the revenue grow 25% compared to last deal.
<unk> 57 per cent or the total revenue.
And continues to benefit from the underlying growth in our audience extension business on top of all of all advertising.
So its revenue grow 13% in the second Niccolo javan by continuing to use our gross you must have markets.
Oprah has a track record it's all been debating I had all the process that common ways of operating systems.
And the bringing new user friendly technology to each browsers.
Whereas all long history altogether, you lost a rapid access to the Internet is most in demand levels. We have expended all existing program for all browsers news and gaming products taking.
Taking advantage of all the solutions as well as new and existing partnerships.
Yeah.
To make sure our users to get the best technologies and solutions available.
False park not Braves opened the eyes.
All of the chassis body and I'll close collaboration has already yielded some impressive results.
When you decided to go back to the joined bolt and redesign all flagship desktop browser.
J P. The UX and UI to both improve the user experience and the propeller platform for current and upcoming AI tissue as well.
Well it is ultra one way managed to create a powerful feature rich browser that dynamically adapts to all users needs.
Designed to embed or the current technologies and leave considerable room for more we are excited a bottle or one and a high quality platform.
Oh yeah.
Rossi.
These are really designed the browser was met with overwhelmingly positive feedback from both users and pick a media.
Ultra was what the fastball Brussels to include our browser are real.
Has a well connected and current event well generative I saw this also in town and poultry are real marks the beginning of the new kind of royalty easterners offer you those.
<unk> allows users to collaborate ways, while browsing the web channel.
Generally in textbook coach.
Or do you think they'll product clarus households.
I really is based on Oprah O M component on infrastructure, which is connected to ultimately I see BT technology, you have tissue really is further enhanced by additional capabilities.
Yeah, that'd be live results from the web.
Z Composedly infrastructure is also easily scalable.
Allow that react to connect to multiple animal models and in the future well expand by integrating sabadell capabilities, such as direct and who those threat of insolvencies powered by L. P pause nose full monetization.
He's also available you know little about Brazos for Android and iOS, allowing users to enjoy it hey, I apologize Ghazi an adult.
It has proven to be a hit with you those.
They are clearly enjoying the experience.
As evidenced by a lift in total time spent as well as increased subscribers.
And page views positions.
Oprah is looking forward to developing more part D edge AI solutions.
Foster, bringing a rail to all major platforms, whereas all projects on the immediate horizon.
The bar continues to be set high as we strive to be the vanda all technological innovation.
Oh, just continues to grow its user base.
Another 9% sequentially due to the 4 million during the Colo ways and analyze up who all three point.
$3.10, an increase of 7% compelled to Z I think in the call I'll turn it on Youtube.
Monetization rose fossil MPC that Nobel <unk>.
I'm grateful that they used polyol on the PC side.
He edition to be engaged you gave us <unk> has a very attractive demographic.
Dominant lead Gen D.
Ladies all projects, we have enabled those gay most to differentiate themselves from others in the way they are internet experience matches, both the look and feel all the Dell braudel setup.
And connect them directly to the services they use.
So all in all I native generation. These are individually that extends from the physical world to a digital one and would provide the G X as a key part of that expression and these firms.
So in this call we have added even more features to all projects, whereas thousands of new boats and LIBOR peoples.
And when you think some of all your last well appreciate the additional the AI to gx in time to help what is their whole market in the coming school year.
The pace of innovation, so far this year, all showcases our ability to react and take advantage of rapidly evolving technologies and offer unique browsing. They started centuries to argue those.
As we move through the remainder of the deal you can expect this to continue with our real time into more Brussels, Neil AIC shows and skills to be rolled out.
And just continuing its growth as the leading browser for demanding gave us.
What is that let me turn the call over to food.
Thank you Tom.
I will then turn to some additional details on our numbers and capital returns within yet another strong quarter for opera.
Our Q2 revenue benefited from solid underlying growth of both advertising and search revenues in spite of FX headwinds.
As a result, we came in just above the high end of our guidance at $94 1 million or 21% year over year growth.
On an FX neutral basis, our year over year growth would have been about 28%.
We do observe example, so volatility amongst advertisers in the current macroeconomic picture, but our underlying user base mix shift towards higher ARPA users continues to benefit our trajectory even as western users still only represent 15% of.
Our total user base.
In line with our revenue performance adjusted EBITDA also came in just above the top end of guidance at $20 5 million or a 22% margin.
Overall, our cost categories came in according to our expectations with a slight shift from marketing expenses to cost of revenue items.
We generated operating cash flow of $15 5 million in the quarter.
Which is net of $3 4 million tax prepayments.
Free cash flow from operations, which subtract capex items and lease payments from our operating cash flow was $13 2 million.
During the quarter, we launched a recurring dividend program. The annual dividend is 80 cents per ADR to be paid semi annually.
The record date for the first 40 cent payments Wilson June with payment in July .
Our first recurring dividend amounted to $36 million in total of which $11 million was paid in cash to a D. S holders and 25 million was offset against our receivable from the sale of Star X.
We did not repurchase any shares under our buyback program in the quarter as previously communicated further buybacks would be conducted in an opportunistic manner as we focus on dividends as our main avenue of capital returns.
Finally, our balance sheet remains very healthy with $98 million of cash and no corporate debt.
In addition, our receivables from the sale of Star ex totals $32 million present value.
Which is presented net of the first dividend offsets and which will continue to reduce our cash expense of dividends until it has been fully consumed.
We continue to value our nine 5% stake in okay at 163 million presented as held for sale.
In total that adds up to $196 million of balance sheet value. In addition to our cash position.
Now turning to our updated guidance for the full year 2023, and the third quarter.
Given our continued strong trajectory, we are yet again, raising our guidance for the year on both revenue and adjusted EBITDA.
We continue to reflect caution given the broader macroeconomic picture, but the core trajectory of ultra and our products and user base.
And our next positive impulse to our outlook and our range is used.
On full year revenue, we now guide $380 million to $390 million up from our last range of $373 million to $390 million, which corresponds to a 16% revenue growth at the midpoint.
Our annual adjusted EBITDA, We list our guidance range to be 80 to 84 million up from 77 to 83 million, representing a 21% margin at the mid points.
In terms of cost expectations, our commentary from prior quarters still stands we expect marketing cost to be higher in the second half and build in a bit below $120 million for the year.
Cost of revenue items will likely remain around current levels relative to revenue, resulting in a percentage in the low twenties.
Cash compensation expense is still expected to increase modestly relative to 2022 and all other opex items before adjusted EBITDA.
Remains expected to come in at just above $30 million for the year as a whole.
For the third quarter, we guide revenue to $97 million to $100 million, which is 15% growth at the midpoint, We guide adjusted EBITDA to $18.5 million to $25 million translating to a 20% margin at the midpoint.
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Overall and to conclude we are.
We've obviously never been more successful and we are very pleased with our product lineup road maps and our growth strategy.
We are also proud to combine healthy growth with healthy profit margins and cash flows and how that directly benefits our shareholders through our past major stock buybacks and a special dividend earlier this year and most recently with the initiation of a recurring.
Dividend.
While it's certainly a period of near to midterm macro volatility.
It's also one of the most exciting periods for altra as a company with the emergence of new technologies and developments of new ways to better serve and engage with internet users.
So we'll do our best to fire on all cylinders as the year progresses and look forward to keeping you posted.
So that's it for me and I'll turn the call back over to the operator for questions.
Thank you as a reminder to ask a question. Please press the star one on your telephone keypad.
Your question. Please press the pound key when posing your question. We ask that you. Please pickup your handset told all asked about sound quality.
Take our first question from Mark Argento with Lake Street. Your line is open.
Good morning, guys nice quarter, just wanted to drill down a little bit on your expectations for <unk> growth going forward looks like it was up a little bit here in the quarter.
And you continue to try to increase your exposure to the western markets is that you know is that a sustainable trend.
What kind of what are you guys how.
How do you think about strategically about ARPA growth.
Sure.
Your overall strategy trying to get more exposure to the west.
Hey, Mark Thanks, I can begin in terms of our guidance, we continue to build in.
The trend of ARPA growth.
We see our momentum in western markets and our growth there is happening actually across a P. C. G X.
And mobile products.
So that's an important driver for us and in addition, we have gx, which is indeed, a success story, but I think it's still under indexing on advertising relative to our classic.
Classic PC browser or is it just the newer and its development. So we do see headroom there.
Great.
Terms of the.
Because the relaunch of our alpha one.
But it AI tools.
I mean, any trends, you're seeing or you're getting decent adoption utilization of those tools. You know what are what's your goal I guess for that for that product.
The opportunity to kind of mainstream dot browser, whereas the browser side.
Yes, it's Tony here.
So yeah, I think as mentioned where our clients are still early stage, but.
It is very encouraging, but what we see I'm more like amount of users who haven't used it.
We haven't seen that that they are actually.
Very interesting because we know there are discussions about what the impact is going to be to see how it does rather use of behavior. So what we see at least even from the orders stages that are before we actually introduced AI and afterwards, even for the same agreed probably use us there are very nice upload those tons.
Although both DAU user engagement time spent and even saltwater is somebody else right. So all the numbers that lead team.
I think it makes sense because the more like a you know because he would actually enable us all to you.
As always are with and compete on a more natural way and in terms of cost to bring more exposure to all the information and there's no cost very relevant for us as a browser because at the end of the day, but also the gateway allows you to discover more information and if AI can actually help them, it's very natural for us.
They spend more time on it. So we are very positive and the other major I would say interesting of course is that he is also a major differentiating pods because what we saw is also that is actually going to I'll put one point since it's a very good tool to use it as a way to getting you use also because now people also see that the Optionality multiplies Jason.
Between ultra and ultra one zebra instilled a process Oh, yeah, you know on the P. C, which is of course, a very positive mega trends that as people begin to get it more now the broadcast the play of defense and the specific ways AI. So all those are playing out very positively.
But again, it's still early stage, so I think the what ill call them to see how this develops and we will roll out globally and more of it.
Iterations of the AI just to make sure all that will be even fossil.
Yeah.
That's helpful. And then one more just kind of housekeeping question for Florida in terms of the dividend, yes, we're instituting a recurring dividend first but first installment first 40 cent dividend.
Guys are not ignite jets the receiver.
The receivable the bank going forward.
Is it a full 40 said dividend or maybe just walk us through.
Yeah, I think the <unk> receivable was about $57 million before this dividend just as a reminder.
We sold a star X our stake in <unk>, which is also the biggest shareholder in opera and that is why we use the offsetting mechanism.
So the first dividend that as the pre IPO shareholder there part of it would've been $25 million.
And so that reduced the <unk> receivable to about 32.
At at the end of the quarter.
Well, we'll see continue to see at 40 cents per dividend issuance through Youll see about a $25 million reduction in that until it is that's being consumed. So it will last us into about mid 'twenty to 'twenty four.
Got it.
Helpful.
Okay.
I know you carry it on the balance sheet.
You know available for sale I think is a classification any additional thoughts on I'm not at that stage.
The valuation marks.
You know what do you guys think about.
That business is worth.
More importantly.
What do you do with that stake long term.
Yeah.
For the for the first half we had another look at it and in general we felt comfortable with the valuation that we set back in March I believe four for year end 'twenty two.
I think the company is doing well and it's proceeding we're not in.
In a rush to sell it per se, but if there is an interested buyer. We also no longer really play a strategic role.
For opening its operations.
I think our role was more important and in the early days as a founding member of the company. So then in terms of just our own simplification, but we'd be happy to sell it at the at the right price.
Alright, I appreciate it thanks guys.
Yeah.
And we will take our next question from Lance.
The intent that with TD Cowen Your line is open.
Thanks, Thanks, guys and nice quarter I have two questions I guess, the first is back on the idea of how much headroom. You think you have in this transition into the western markets, which obviously is fueling.
The rapid growth that we've seen so if I do the math right. It looks like you've got about 47 million users in the in the western markets Yeah.
Just 15% of of the 316 million user base that you reported in the press release, so that works out to about you know rough numbers, an estimated 8% penetration if I just divide that 47 million by the total population of the of the Western markets. So I'm wondering you know I I imagine opera.
Is it at school isn't to be a you know a real mass channel brand, but do you think that where do we think that that penetration rate could conceivably go overtime. I mean is there an opportunity to double that to 16% or is.
Is that too aggressive or too conservative or how should we be thinking about where this could go over the longer term. Thanks.
Yes, so yes, it's only they all have commented. They then they can also add the right. So no I think youre right that I think it's a function more like it is him anyway Russell so possible of course ultra as really one of the biggest European brands. It's just the fact that we have such a huge user base right. So what it is.
Positive.
And then you like not so many companies like us that so many of those but I think you're also right that even though we're happy growing and we have a big user base your even your western Walt it's still only 17% right.
So we feel that I agree with you that we feel they are still a lot of.
We are still in very early stage of penetration, both well Gee excellences, let's see he's always like how often do those well I E.
You mean other monkeys came out always buy the harpoon. So we're very excited about it.
I think he is only very beginning stage and also for products like ultra widen powered by AI for he says.
It's a very like again payload for very sophisticated user base and again its also in other states. So.
So I think yes way, we still have a lot of room to grow.
And the out of home and I guess, he just that of course, oh well that neither.
The way, we still have a you know the.
A huge amount of your loss, which are not in the area are categorized by let's say western markets, but of course they are also.
I have also potentials, especially with AI at both of our potential I believe and also potentially the market is also evolving right. So I would also say well you know a very nice mix all that both are they still have a lot of room to grow.
For the rest of the market lost silver and very early stage.
We're also in a very good position that the window of the emerging market.
Material. We can also capture all the right part of it so I think from both angles are quite optimistic.
Optimistic on this and that's also why I think our number one focus is still to keeps evolving our product.
And it gets modules because and that's not always the key and provide all the basis.
Great Hey, Thank you for that and then couple of other questions. If I may. The next one is on the cash position, which it at 98 million that came in a little bit better than our I think we were looking for 90 million and so I'm. Just wondering I know you mentioned you did there were no share repurchases so that was.
Part of the Delta I think we still we were still expecting maybe a couple of share repurchases in the quarter, but was there any other one time items that sort of favorably added to your cash position in the quarter anything there that we should that's worth calling out.
No I would say the cash flow for the quarter was actually very straightforward.
The increase in AR and AP offsetting one another are Q2, and Q4 will be the same dose or the tax paying quarters.
So there's a tax component in there, meaning that actually the conversion from adjusted EBITDA to cash flow as its best in Q1 and Q3.
So I think it is followed our internal expectations keep in mind that the.
Dividend that where it was issued in June was payable in July .
So that $11 million is still included in the cash on June 30th.
Okay. Thank you I had one other question in the press release, it mentioned something on the noncash comp that I couldn't quite follow share based remuneration includes grants made by offers majority shareholder made by operas majority shareholder is that.
Wasn't quite sure what that math and it goes on to say that it represents in expense, even though Opra has no obligation in connection with these grants in that they do not represent dilution for shareholders I'm not sure that I've seen that before can you expand upon that for a minute.
Yeah sure I'll do that so couldn't lunesta biggest upper shareholder has issued grants into Midland and they consolidate opera holding more than 50%.
To some of our staff.
<unk> members.
The upper has no expense with that once those grants.
Become exercised they will not lead to any dilution for our shareholders, but at least in <unk>, which we present. According to we are supposed to reflect the fair value of the grants that are awarded to offer simple use even though it has no practical implications for us.
Okay interesting and then last question for me if I'm looking at the guidance for the third quarter, the 15% revenue growth at the midpoint that checks out but then the EBITA at are at around 19 to 21 million I.
Didn't you report a little bit more I think EBITDA in the third quarter of 22 was was a $21 million is that right and so I'm just trying to figure out you know 50% growth EBITDA is not really scaling. So was there something remind me was there some sort of one time good guy in the <unk> 22 numbers.
We need to be sort of backing out of our math when we think about the year on year EBITDA cop.
I think the key thing is.
To look at our communication around expenses and the biggest factor that changes throughout the year is when and how we spend our marketing dollars. So we have sort of maintained our expectation for our total spend and always communicated that it would be most.
Or we would increase it in second half relative to first half simply because oh first scaling gx and how that evolves and the launch of upper one and sort of having that out in the market and learning the lessons before we before we'd take out the full potential on the marketing.
So I would almost say the opposite that I mean, we are increasing our adjusted EBITDA expectations quite meaningfully after the strong Q2 relative to what we had guided for the year before.
So so we actually feel very good about it is it's just a conscious decision about when in the year, we spend the marketing.
We think we get the best.
Get the best return on that spend.
All right.
Oh God, yes.
Little bit more so now.
Further below.
Technology is also that it's almost like we're all just call me.
Well I hadn't thought about that as the bulk of that we feel that of course, if it was we can absolutely you're right on building out more user base because of course at the end of day, that's well yelp, even more revenue and profit in the future. So that's I think that's what really basing our guidance, but then of course at the end of the day you can always you know that they are all about how you know what.
High profile and holiday.
They asked to assist as well benefited from us in the long run but.
But it's nice to actually be able to have that too.
Understood Yeah, and I guess, then just to sort of put a final point on this are you seeing anything that would make you feel that the sort of the longer term EBITDA margin targets, you know or you know or are under any pressure.
Yeah.
No I think this is progressing well according to expectations and sort of the.
Feel comfortable about the level that we operate them.
Perfect. Okay. Thanks, guys.
And once again that is star Antoine if he would like to ask a question well take our next question from Alicia Yap with Citigroup. Your line is open.
Hum.
Management for taking my question, that's that's Kitchener chair from Citigroup asking on behalf of Alicia Yeah, I have two questions alright, what management and be able to provide some color on what level of incremental revenue opportunities.
Sure.
From our end.
AI teacher in opera browser in the next 12 to 18 months.
Are there any.
Additional insight, we expect to incur related to the AI that will have some pressure and expenses and how will that be affecting our EBITDA trend going forward.
Thank you.
Yes sure sure sure Yeah, It's only hill I think I'll just.
I'll take that call center for the Council commented at all and if so.
Yeah, I think like again, the whole industry is still embryonic stage, whereas they don't want to be in another question, but I think from what way or zelle or at least that's like again, so as a tech company and it isn't a vague and tech at both as a tech company, but also as almost entry points are all way up right with you.
Yeah, you know the very obvious.
The use of AI is just that allow people to.
Do you have access to more information in a more convenient way in general and that we see directly translates to a you know.
Hi, all time spend and also a more or less.
It's a high after the events that we see so I guess, it's a function of just because they can it's it's easier for them to get actually from Asia and the south consume it.
So that's a that has already evident in.
<unk> current you lost I know you built up in the house, we are very optimistic.
So that is one factor they kept begging I'll read it right and then I'll go first of all as you mentioned is also a bit that it also absolutely helps open up.
Opera in particular, so it was a false I would say, it's almost a bit industrial wide, especially towards someone which is all industrial actually but also as engine, but then I guess the second benefit is more towards to opera in particular because of course, you know b so part of it.
Can somebody brawls. So we're always trying to strive to differentiate it and now we just saw that the way the call me old AI, we are of course D.
Yeah.
While the palace also breaks off provides a native of differentiating a product for free to all the users. So that we see is very attractive and that we see that has already.
And he is very active in marketing and user acquisition and the phone, though making sure, though probably making you feel that's a browser is actually a very differentiating products. So that we see is very helpful.
User acquisition and in comparison for instance, we see that it's almost a lot talking about maybe more like maybe one of the one time difference well, we like engagement. If you don't actually coming from the channel well, they actually see a and come to US right. It's much more active almost a time difference between you'd all of which came from mobile channels.
Got it very helpful and that is also well oh well clients are optimistic about the development of ultra one and.
So I think those two past us when all of the major loss, which is benefiting and make us and willing to spend more time offline integrated product because there are a lot of potential.
Potential to begin from it and we have had a positive about it.
But you're also right that there are also of course, the backfill related was it so it's like against your biologic niche.
So, yes, I think well well that there will always be close to that house. So simple now it's still a very small presence, especially in comparison to say marketing cost. So it's still very nascent two blas about in the future I think that's also why we're walking now already with some other partners.
On the monetization because he and that'll do of course.
It's very nice to be able to associate the monetization was it I think that's also what we also mentioned a bit about one already trends are you betting many interesting links and if anything just the inflammation, which potentially monetize it by inflammation or it also has all the AI, which can of course in Iraq and leads to a good monetization to compensate.
Well potential cost of it so for now the motor walks and but again, it's still early stage and we just need to work with I'll pass.
Proposal two on that to see how what.
What kind of opportunity of weekend, we can create but the I think.
While standing positive about how this can grow, especially the two company like us.
Yeah.
Very helpful. I appreciate it thank you.
And it appears we have no further questions on the line at this time I will turn the program back over to song Lin for any additional or closing remarks.
Yes, so like again.
<unk> said.
<unk> said that just to wrap it up with a thank you for all your continued support and interest in Marlborough.
We're very encouraged by the early response to area and north of one and it was more to come.
And also the seasonal buffer chips.
And all but two it is all vertical more broadly and how we have been able to attract a valuable use us and scale our monetization.
We appreciate your time and we look forward to speaking with you again in the future.
This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful day.
Yeah.
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Hmm.
Hum.
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Okay.
Yes.