Good day, everyone, and welcome to Opera's Second Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now hand it over to Mr. Derrick Nueman, Opera's Head of Investor Relations to open the call.

Thank you, and welcome to Opera's Second Quarter 2019 Earnings Call. Today with me today are CFO, Frode Jacobsen; and our COO, Song Lin. Before we begin, I refer you to Safe Harbor Statement in the company's earnings release, which also is applied to this conference call today as management will make forward-looking statements. Our commentary today will also include non-IFRS financial measures. We believe that the use of these non-IFRS 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 IFRS. Reconciliations between IFRS and non-IFRS metrics for our reported results can be found in our press release that was issued today, a copy of which can be found on our Investor Relations website. With that, let me turn over the call to Frode.

Thanks, Derrick, and good morning, afternoon and evening, everyone. We are excited to share our results and talk about our progress. We delivered a record quarter progressing across both our new initiatives and browser offerings. Our growth is accelerating as we have invested more in our business. We are becoming even stronger in Africa and other emerging markets across multiple dimensions, including our browsers, our Opera News, content platform and our FinTech offerings. And we continue to launch new strategic initiatives, which will be additional levers of future growth. Let's start with our second quarter results, which demonstrates our continued execution and accelerated growth. Revenue growth accelerated to 55% year-over-year compared to 30% last quarter and exceeded the top end of our guidance range. Our user base continued to expand with smartphone users up 24% year-over-year and Opera News users up 61% year-over-year. We are aggressively investing in product developments, new initiatives and marketing, while still achieving adjusted EBITDA within our guidance range. And finally, these strong results and the accelerated momentum in our business have enabled us to meaningfully raise our full year guidance. Before getting into more detail on the quarter and the enormous opportunities in front of us, let me quickly recap the four components of our growth strategy. First, we are focused on the continued growth in our browser users and news platform, specifically driving more smartphone and PC users and increasing engagements. We achieved this through investing in product innovation and marketing, and through distribution and partnerships. This is important, both in terms of the direct value that we derive from our users, but also the scale of these user bases is a real advantage in terms of our ability to successfully launch new revenue streams. Second, we are focusing on increasing monetization. Opera Ads,…

Sure, Frode. Hi, everyone. We are very pleased with our Q2 results. We continue to grow users, utilize our scale to launch the new products and further expand our market opportunities. I'll start with Opera News. It continues to scale and this quarter, we have exceeded 160 million monthly active users, up 61% versus the year ago quarter. As important, users of our standalone news app has increased over 3.5 times year-over-year to 37 million. We are now the only news app that is portable across all major markets of Africa, and we are the most preferred news app in key markets, including Nigeria and Kenya with more than 78% brand awareness. We have also become the most downloaded app in the news category in India, highlighting our expansion since the start of the year. Beyond that, Sensor Tower actually identified Opera News as the most downloaded news app globally in the second quarter. After a couple of quarters of actively launching in new countries and languages, we believe we are now at the stage to further strengthen our presence in key markets, providing even more local and related news contents and city levels. As we look forward, we think the combination of continued product innovation, recent OEM distribution agreements, marketing efforts provide us with an opportunity to meaningfully increase our local coverage, relevance and further engagement over the next several quarters. As we also scale Opera News, monetization becomes increasingly important. Last quarter, we spoke about the launch of Opera Ads and its potential to drive multiples of current advertising revenue on Opera News. I'm happy to report that while still early, we have made a lot of progress and more than doubling advertising revenue on our news app from Q1 to Q2. Our initial efforts in Opera Ads…

Thank you, Song. Let me now talk about the second quarter and our updated guidance and then we'll open up the call for questions. Opera delivered record revenue, up 55% versus the year ago quarter, reaching $61.7 million. This was a meaningful acceleration compared to a 30% year-over-year revenue growth rate in Q1. Search revenue represented 35% of the total or $21.4 million, up 8% year-over-year. That said, as communicated over the past year, while we expect search to continue to grow, given the growth in FinTech, advertising and new initiatives, we expect it to become a smaller share of our revenue over time. Advertising revenue increased to 26% of the total or $16.2 million, up 18% year-over-year. The acceleration in growth rates was driven by direct ad sales, such as Opera Ads and our increased user base. FinTech revenue represented 19% of the total or $11.6 million. This increased significantly from the first quarter as Kenya continued to scale really well and as our launch in India has significantly exceeded expectations. Additionally, it's worth highlighting that during this second quarter of operating experience, we've adjusted our revenue recognition of FinTech to reflect updated estimates, taking a more conservative view of late fees and penalties. Our second quarter results are inclusive of this change and our Q1 revenue, as represented in our year-to-date figures, saw an adjustment of $1.4 million. Retail revenue represented 12% of total or $7.6 million, up slightly versus last quarter. And finally, the technology, licensing and other revenue category represented 8% of the total or $4.9 million. Total operating expenses were $64.5 million in the second quarter and I'll go through the main components. Compensation expenses were $15.6 million, up $4.5 million or 40% versus the prior quarter. This was primarily driven by increases in cash-based…

Thank you. [Operator Instructions] Our first question comes from Lee Krowl with B. Riley FBR. Your line is open.

Great, thanks for taking my questions and congrats on very solid quarter and outlook. Just wanted to start off on Opera News, you guys kind of talked about some localization efforts that you guys are putting in place. I wanted to kind of clarify if that implies that you're trying to expand to additional markets? Or if it's kind of a transition to focus on just expanding the markets you have to some of the city initiatives you kind of mentioned in your prepared remarks?

Yes. Also, this is Song Lin. I think I will try to answer that question. So yes, I think we have actually approached or expanded to most of the markets in Africa, for instance, with Opera News in the first half of the year. And as also mentioned, we have also been expanding really extensively into South Asia, Southeast Asia and that actually drive us to be the most downloaded news app in Q2. So we're quite pleased about that. And then the specific comments that I had with regarding to local news is then more to how to build up -- like build up on that expansion, that we want to go deeper to be able to be more even more relevant and even more local. To give you an example is that, Nigeria, for instance, is our biggest market in Africa. We have already big team in Lagos, but then we are not really satisfied about it. I think the next step will be to approach all those other cities, some of them are even very big like Kano and a few others. And we want to make sure that we are relevant in those major cities, have buildup almost the ecosystem of our -- of the editorial people, some are affiliates, how to make sure that we provide the best content most relevant to the local guys. So I would say, to answer your question, we have been very aggressively expanding to all the different kind of markets. But then in the second half of the year, I would say we want to also double down the key countries and then go to the city level and make sure that we are very well engaged and be locally even more relevant in those markets, so I think that's our plan.

Got it. That makes sense. And then, I guess, implied in your press release, you said user base growth well beyond current levels. Does that imply expanding beyond kind of the Africa, Southeast Asia regions? Or is that just specifically in those regions and just continuing to expand the user base in current markets?

Yes. I think when it comes to Opera News, I would say that in Opera News for now, we'll maintain our key focus in Africa and also South Asia, Southeast Asia. I don't think -- I think in second half, our plan is to go deeper in those markets and then to like see a good potential for us to grow in those markets in comparison to try to go to even new more markets.

Got it. And then you guys obviously called out last quarter and the quarter before the incremental marketing investments in 2019. You guys kind of also signaled that there was perhaps additional investments not specifically related to marketing. Maybe could you guys kind of quantify the additional investments you guys intend to make versus the prior kind of call out on Q2's call?

Sure. Lee, Frode here. So I would say we -- when it comes to this year of sort of starting this program of acceleration, there's sort of the single most important aspect of it in terms of sort of financial implications has been the investment in additional marketing and distribution of our products, and we expect that to sort of remain the same. However, I think what we have seen is with sort of the trajectory on some of these initiatives and newer products. Opera News, we have just discussed. Micro-lending is another. That sort of led us to allocate and build up teams perhaps faster than we have thought. Opera Ads is an example of that, launched about 3 months ago. OList is another and then we have some other initiatives that we haven't yet announced. So I think this, you see most clearly in -- when you look at our compensation costs, of course, you have an effect of that. And -- but what we are seeing is that within the guidance that we gave for the year, we're able to sort of carry that investment and sort of plant more and more seeds for future growth.

Got it. That makes sense. Speaking on Opera Ads, I know it was kind of initially limited to 1 or 2 launch markets. Talk about the penetration of additional geography for Opera Ads. And then, I guess, you guys kind of talked about the mix of advertisers, maybe how that evolves over time, particularly as it relates to OList?

Yes. Sure. So I think I can briefly comment on that. This is Song Lin. So yes, I would say like this, so for Opera Ads itself, actually in the latter half of Q2 and even now, we have indeed actually penetrated into other markets as well. For instance, we have already very good clients, which are using us in India, Indonesia, which is also our key market on Opera News. So I think that is good. However, I would also say that we are also trying to double down on some of the key markets to go up -- to go even deeper. And for those, like the SME initiatives, I would say at this point is more focused on specific markets here in Nigeria, for instance. So I think the rationale is just that we find tremendous good opportunities of those SMEs out there, which they have no means to properly outline advertisement due to different challenges that they are facing and itself is also a huge market potentials that we see that there is no way why we don't grasp. Here, we have -- just to give you a sense that in Nigeria alone, the SME is probably maximize 20 million of them by some government estates and then they almost occupy half of the GDP of total Nigeria, right? So we feel that it's really just the tremendous untapped opportunity. If you look at all of those different sectors like cars, real estate, it's really very exciting areas which we feel that has a great potential and we want to be part of it. So for those, I think we need to go to deeper in the local markets and that will be very country specific. While Opera Ads itself on top is more like -- is now becoming global initiative. I hope that's making sense.

Yes, yes, that makes a lot of sense. That's some good color. And then just my last line of questioning on OKash. Just kind of your thoughts or updated learnings on kind of the credit loss expense. Obviously, as you grow the new markets, there is a learning curve, but I guess, maybe talk about how you guys have been able to optimize the delinquencies and late payments maybe in Kenya? And how you can kind of leverage that in new markets?

Sure. So I will say if you look at our losses as a percent of revenue as one metric, that did increase from Q1 to Q2. I think it is -- that business is scaling so fast, Q1 was sort of nearly 4x what the business was in Q4 before Opera took it over. And then, again, now in Q2, we have more than doubled it one more time. So there is definitely an aspect of learning here as we go. And as we see -- as we did now with India this quarter, opportunities to sort of launch and get a good start in new and, of course, massive market. So I think we do expect -- as we learn more, we do expect some fluctuation in this number as we sort of mature in this, hoping that sort of Q2 is on the high end of what we'll see in the following quarters. But for now, it's so early and it's growing so fast that it's something that we are also sort of -- we are learning sort of every week.

Got it. And then obviously markets like India are fairly significant. What are the expectation for additional markets in the second half for OKash?

So I would say for 2019, our expectation is that our two current markets will be the ones that will be most important. We are also live in Nigeria, but you could say that the back and the ability to transfer money to and from customers is less readily available there compared to, for example, Kenya where we went first with Safaricom M-Pesa and other local partners in India. The interesting thing, of course, is that OPay is scaling so tremendously in Nigeria. So with that, we have a partner that is very close. But when we look at 2019, I think Kenya continues to do very well and sort of just the scale of the Indian market is, of course, enormous, like compared to Kenya, you have more than 20 times the population. And so we are getting started there, and we are very excited about that.

Thanks. Thank you for taking my questions.

Thank you. Good questions.

Our next question comes from Liping Zhao with CICC. Your line is open.

Good evening. Thanks for taking my question. So my first question is related to OList. Can management share the operating metrics of OList so far? So for example, the MAUs of OList and number of paying business users, et cetera?

Yes. So this is Song Lin. I think I'll just briefly comment in that. We actually just launched it in August, so we don't even have it for a month available. It's very -- it's at its very early stage. I think we commented a bit on -- actually reported that just a few weeks -- 2 or 3 weeks after we launched it. We have already have a big sum of advertisers, and we will have almost 0.5 million at these teams with 50,000 advertisers on board. I think to be honest, at this point, because it's only 2 or 3 weeks after our launching, it's more an indication of our strength in the local market and how fast we can grow there instead of reflecting the actual potentials. Like, high level, I guess, I was just commenting that we see this as a tremendous big opportunity. There's a very big untapped market, and we are very confident that within the next few months, we'll fast grow it and then hopefully we can bring you more information in our next calls.

Okay. So this is only launched in Nigeria for now, right? Are we planning to go out to other countries in Africa or even other continent?

I think Africa will obviously be our key focus for this initiative. I would say Nigeria is probably by far the most important at this point. But yes, we do also see the relevance of this in some of other key African markets. So we'll probably most likely be there, but for now, I think we'll try to grow it in Nigeria, the biggest market at this point.

Okay. My second question is about the sales and marketing expenses. As Frode mentioned before that the sales and marketing expenses has increased due to the user acquisition. So what's the trend in the second half? Are we expecting for the similar level as Q2?

So we don't want to give very specific guidance down to the cost component, simply to maintain sort of a little bit of the flexibility to optimize as we go. Our marketing and distribution activity is obviously monitored very closely on a frequent basis by both the relevant teams, ourselves here on this call and our CEO, Mr. Yahui Zhou. So we have given a range previously, sort of implied up to the $70 million, $80 million range that we may go to this year and so that is still the -- what we are operating under as a potential range.

Okay. My last question is about the personnel expenses. So we also see an increase on that. My question is how many full-time employees are there with the company now?

It's a bit of a long story. So we have added substantial number of employees in the company. So in the, let's say, 20% to 30% range probably versus where we were at the end of 2018. At the same time, we are also scaling very rapidly with, let's say, local teams, in-market teams, call centers, collection agents and so on and so on. These are not our employees. They are more hired through agencies and that has become -- they have already far outgrown, let's say, the employees of the company.

And Brenda, this is Derrick. To add to Frode's comment, these people are focused on our growth initiatives. So they're focused on things like Opera News, on OKash, OList and some of the things that we'll talk about over the next 6 to 12 months. So they're really focused, by and large, on things that will contribute to revenue that aren't being seen today.

Okay, thank you. That's all my questions. Thanks.

Thank you.

Our next question comes from Hillman Chan with Citi. Your line is open. Hillman your line is open. Please check your mute button.

Hi, this is JoAnn Ding [ph] from Citi and I'm asking questions on behalf of Hillman Chan. So my first question is about Crypto Wallet. So how's the usage and the penetration of Crypto Wallet on the browser use -- for the browser users, please? And how shall we think about Crypto to Opera in the very long term and will we be doing more features for Crypto?

Okay, sure. So -- yes, this is Song Lin. I think I'll try to comment on that. So yes, we actually don't have numbers in hand that we disclose at this point about the usage of Crypto Wallet. As I said that it's -- what we position this at this point is more like a very product-differentiated offering with a focus on high-end Opera for Android browsers and also our PC browser with the most targeted user base in Europe. So we find that it has very good receivables. We have also both in our existing user base because we find those are very good match between our user base and some of those users, which are a bit more on the -- they try to -- they want to use the differentiated product offerings. And then I think it's also -- we are also very welcome within the blockchain communities, and so we're able to launch with quite a few partners. But high level, I would just say that since it is a very pure product offerings, we are not really thinking about other things at this point. We will just grow it and work with the partners to do more integrations to build up gradually our ecosystem, so just to make sure that users can use it in a very good and smooth way, and we think this will continue for the next few months to come. So I think high level, just to sum it back, is that what we see on that is more like product-differentiating offerings and also ecosystem play where we're trying to work with the partners to allow easy access of those facilities. So that's what we see at this point.

Thank you. And our next question comes from Tom Champion with Cowen. Your line is open

Hi, good morning. Frode, I'm wondering if you could expand a little bit on the success of micro-lending in Kenya? And what are the factors that are driving the really strong growth there? And maybe how is India similar as a market? I think you mentioned maybe it was not expanding as rapidly in Nigeria, but it is in Kenya and India. What are the factors driving that growth?

Sure. Thanks, Tom. So to begin with Kenya, I think it's the sum of the assets that Opera brings to the table that has allowed that business to propel as fast as it has done. So of course, there is brand resemblance with the brand, and we are able to sort of promote this product -- promote that app through both our browser and Opera News offering. We are also sort of an established player in the market. We've been around for a long time. So you could say there is an aspect of a -- sort of a trusted brand behind it, which I think plays to our favor. And I would think that the sum of this is what's enabled us to scale quickly. Actually, the second thing to mention is that we having -- Africa having been so important to us for so long, I think we are doing a pretty impressive job at sort of the local presence and scaling that needs to be done and taking that up quickly. Within the span of a few months, we were live with sort of hundreds of the necessary, let's say, call center agents, et cetera, on the ground in the market, combined with a very strong tech offering driven centrally at Opera. So we're pleased with that. I think the second part of the question may have been the part on Nigeria. I think my meaning was a bit more -- Kenya is already scaled very big and is growing very nicely. There is very good and sort of broad adoption infrastructure in the market. We see the same in India, as we have launched sort of the trends. We will look at it down to sort of daily and weekly and monthly trends, very rapid acceleration. We are very excited about Nigeria being sort of the most populated, our biggest country in Africa, et cetera. So my comment was more -- if I was going to pick sort of the absolute dollar values that I expected to be the biggest this year, it would be those two. Nigeria is important to us. That is why that became the third country that we launched. We have sort of an evolving target list where we look at other opportunities, making sure we have licenses in place and so on. But at the same time, we learn as we go and we adapt according to that. But so far very, very pleased with the results of that business.

Okay. That's helpful. If I could maybe just sneak one more in. The roughly $12 million in FinTech revenue, is that all attributable to micro-lending? Or what else goes into the FinTech effort? And then how are you going to evolve the sources of funding for the micro-lending business over time? It sounds like you're mostly using cash on the balance sheet at this point, but can you talk about how that maybe will evolve longer term?

Sure. Sure. So yes, for now, within the sort of the business area of FinTech, micro-lending is the sole revenue contributor, so it's all tied to that. When it comes to funding the loan book, essentially the -- what we are looking at is the return on capital that we get from deploying our own cash. We find the returns to be attractive and we have sort of -- I think as we have scaled, we have sort of tested this, these loans have relatively short durations, typically a couple of weeks on average, never more than 30 days and so the capital is recycled relatively quickly. But yes, as also commented in my prepared remarks is, as we are in this growth phase, that does sort of lock up some capital. We are in the fortunate position that we have the capital to do that and having grown to where we are now in a comfortable way, but I think that is something that we will have to see as the business hopefully continues to grow.

And Tom, this is Derrick. To your first question, today it's all micro-lending, but I think there are going to be opportunities based on the success we've seen with OKash, OPay and then just how many users we have of our news app and browser. So I think there could be some things we're thinking about that drive additional revenues in FinTech and from a marketing and distribution perspective are pretty cheap.

Great, thanks a lot guys.

Thank you, and I'm currently showing no further questions at this time. I will turn the call back over to Frode for closing remarks.

Okay. From our end, thank you very much for participating in today's call with us. We hope you have a good rest of today.

Ladies and gentlemen, this concludes today's conference. Thanks for joining. And everyone, have a wonderful day.