Welcome to the Opera Limited First Quarter 2021 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. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]. I would now like to turn the call over to your speaker today, Derrick Nueman, Head of Investor Relations. Please begin.

Thanks for joining us today. With me I have our Co-CEO, Song Lin and our CFO, Frode Jacobsen. Before I hand over the call to Song Lin, I would like to remind everyone that today’s conference call, 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 we 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 those details. Our commentary today will also include non-IFRS financial measures, including adjusted EBITDA, which are different from our consolidated financial statements that are prepared and presented based on IFRS. We believe that the use of our non-IFRS financial measures provides an additional tool for investors to use in evaluating on-going operating results and trends. These measures should not be considered in isolation or as a substitute for the financial information prepared in accordance with IFRS. We have also posted unaudited supplemental information on our Investor Relations website that includes historical financial results of Opera, and our investee Nanobank. With that, let me turn over the call to our Co-CEO, Song Lin who will cover our operational highlights and strategy and then Frode will finish up with financials and update on our investments and most importantly our expectations going forward. Song Lin.

Sure thank you Derrick. And, thank you everyone for joining us today. So as you know, from our announcement earlier this month, Opera had a very strong beginning to the year. Obviously, I'm pleased with our financial performance. But what I'm most excited about is that it validates our strategic approach to growth, both our core business and our new initiatives, and that the Opera team continuously execute every day. So last quarter, I highlighted that it was the strength of our core business that positioned us to not only outperform during a period of significant uncertainty, but it's also what give us the ability and the confidence to invest in initiatives that have the potential to drive substantial growth for Opera in the years ahead. So what I'm -- what I'm about to say, will sound familiar in a good way. And the plan is to repeat the pattern in the next few quarters to come. First, our core business continues to deliver exceptional results, thanks to strong execution. Frode will naturally give you more detail shortly. But here are some highlights. Revenue was strong with search and advertising growing solid 8% year-over-year, and even grow sequentially. This is the seasonally strongest fourth quarter. This is a very strong indication of the strength of our core business. Adjusted EBITDA was better than expected as the revenue outside build to the bottom line. We have also been growing users by 12% and 14% year-over-year, respectively, in Africa, and Europe and CIS, our core regions of focus. Second, I would love to comment that our initiatives are showing excellent momentum. I'll start without European payment device. So in February, we have launched our in-browser smart shopping functionality, it's been providing cash back and payment solutions for shoppers. This is an area…

Thanks, Song Lin. The continued acceleration of our product, both in terms of engagement and resulting monetization resulted in a first quarter that exceeded our already high expectation. I will recap the highlights and then provide our refresh on guidance. Revenue for the first quarter was $51.6 million. This compares to $40.2 million of revenue in the year ago quarter, and also grew sequentially compared to last quarter, despite seasonal headwinds. Specifically in the quarter, search was $26.7 million accelerating to 36% year-over-year growth compared to 13% last quarter. This was driven by our record PC users and monetization gain. Advertising was $23.4 million accelerating to 40% year-over-year, compared to 16% last quarter. This was driven by strong monetization from Opera news and our mobile browsers. Finally, tech and other revenue was $1.2 million. Year-over-year, this revenue category has been reduced by $2.4 million, although with almost no impact to profit, as the decline relates primarily to low margin professional services to OPay. Our operating expenses pre-adjusted EBITDA were $47 million. As expected, we saw significant increases in marketing spend, as well as some growth in personnel expenses, due to our efforts to expand Opera News into Western markets, and around Dify and Gaming. Adjusted EBITDA was $4.6 million in the quarter. This was better than expected, with the over performance largely following the upside from our core search advertising revenue stream and some marketing and personnel expenses shifted to the second quarter. Net of D&A, share based expenses and other items net income was 0.6 million for the quarter. Our operating cash flow was positive at $7.3 million, supporting an overall increase in our total cash and marketable securities of $9.1 million versus the prior quarter, to a total of $143.3 million. Then moving to our investments that continued…

Thank you. [Operator Instructions]. Your first question comes from the line of Lance Vitanza with Cowen.

Hi, guys, thanks for taking the questions. Congratulations on the quarter. And I guess I’m going to start with -- well, thanks for posting the supplemental financial information. I found it very helpful. Can you talk about the impact of COVID in the year ago quarter in 1Q 2020 versus the expectation -- versus what you saw as we move throughout last year? In other words, we know obviously there's a bigger impact in the second quarter of 2020. But was there much of an impact in the first quarter? It doesn't necessarily look like given that 1Q 20 revenues were actually up over 1Q 2019, but perhaps, ex-COVID they would have been up more. How should we be thinking about that?

Hi, Lance, thanks for the question. In terms of what's our continued operations with the browser news and the other products that we've been discussing today, we did not really see much of the COVID impact in the first quarter last year. It affected Nanobanks business for sure. In terms of the assessment on collectability, is that right at the end of the quarter, but it was really towards sort of the very end of March, not affecting the quarter as a whole, much for pricing. Yes.

Great. Thanks, so this growth is really on a, it's not just a recovery balance, this is growth over a period where, where you were already pretty strong and growing. So, okay, so then the guidance seems to reflect if I'm hearing you, right, only the strength in the core business, but really not much contribution from the growth initiatives. Yet, we know that you're plowing a lot of money into new growth initiatives. So could you talk about and I heard the comments that you made Frode, just a minute ago about getting to, a size that is, a multiple of the size of the company today. But could you talk a little bit about what, how should we think about the medium to longer term potential of these growth initiatives per se, right, because we know the core business is also growing, trying to figure out how we should be modeling, what some of these other new initiatives could ultimately contribute?

Sure. So if I begin with the total, the overall picture, I mean, for us, all of these three main areas that we are investing into, represent substantial upside to, to value creation process both in terms of creating much used content, business and Western markets, in the broader gaming ecosystem that we are working on, as well as the Europeans, the payments, products and services around Dify. So we think all of them, we consider massive opportunities. But I think over the past quarterly calls we've had, we've, we've been clear that we don't really make much of it into our guidance for 2021, we, we tend to be very conservative on that and look internally, mostly at what run rates are rescaled to sort of extend the year with and the impact that can have on 2022. So I would point to 2022 as the first year of really seeing material impact of these new initiatives.

Okay. And then maybe, go ahead.

Just and what I would say is, you start looking at, the revenue growth of the core, which is, historically been, 20% loss, and then you start layering in some success here, you start coming up with very good revenue growth, right. The second comment I'd make on these investment is, today we're investing money because they're very new. But as they scale and get bigger, the incremental margins on these businesses are really good. So the idea is longer term, you're going to end up throwing off more cash flow than what you would have done otherwise, assuming they're successful.

Thank you. If I can just squeeze in one more question about the JVs. And is maybe this is a multipart question, but on OPay, I'm wondering if there was perhaps a seasonal impact there. And I may be misinterpreting the release. But, and forgive me if I missed a comment on your prepared remarks, but it looks like growth, at OPay, perhaps slowed in the first quarter. Given that you didn't call out exactly what that growth was, but perhaps that's just due to the fourth quarter being seasonally strong for a payments related business. But I'm wondering if you could elaborate on that. And then with respect to Starmaker, where, it's growing at a multiple. I'm just wondering if you could talk about what's driving the growth there. In other words, are you launching new markets? Is this a big new marketing campaign? Or are there other things that are sort of fueling that? I think it was 3.5x growth that you called out in the release?

Sure, I can begin. Derek, go ahead.

No, Lance, I was guess on OPay, they did more total payment volume in March and December. So they're continuing to grow. I think we're being a little more cautious on what we found OPay and allowing the team over to OPay to sort of give those details out. Because I know they're trying to drive a higher profile for themselves because they think about the future. Frode, you want to take…

Yes, so maybe I’ll also comment to be held, right this is only for OPay, right. So I guess to actually what they're saying more true that OPay is actually growing tremendously. And [Indiscernible] are growing but even more importantly, there are some of other aspects of their business like app users and a few others are actually growing a lot many times, which is the focus for now, which you could also talk about issuing Kadoma other rights. So I think actually reality is because they were just, we just want 20% -- to live in front of them and they are now, they are always an independent company. They just prefer to hold themselves to actually announce those excellent results themselves instead of way, talking too much about it on own remarks. I think that's actually the reason, but they are actually doing very well in Q1.

Thank you for clarifying that actually. I appreciate that.

Your next question comes from the line of Mark Argento with Lake Street Capital.

Hi, Song Lin, product, just wanted to drill down a little bit on the success you're having with Opera News. Maybe talk about kind of where you've been making investments and been seeing the uptake in conversion in terms of monetization?

Yes, so Okay, so this is Song Lin. I’ll try to give the first and he can then further come up with numbers, I guess. So, high level, I guess the comment is just that we are already been very successful in Africa. So as also commented in the quarterly release that, for this year, especially Q1, for instance, we have been focusing on expanding into Western markets, which, which hasn’t been doing really good. I think in the comment we just made that we have been growing very nicely in terms of users, well we are just super happy to see that we are able to, based on all possible no house, of course, we have to localize the market, because each of those market are very different, like, German is very different than U.S. But we're able to actually localize it, and then be able to provide a very good solid numbers and conversion retention. So all the performance remarks, actually very good. But maybe worth mentioning is that we're also on top of very happy about the monetization, because typically, we saw a bit drag between possible user and now monetization, but perhaps because of our past experience we are able to actually almost grow the users in line with the in the world of motivation, so that I would say the extra point that I would call, which is more positive, which actually also is the reason why we think we're doing better or be better than all the other guys, and then also possibly will also rise guidance for that.

Great. Then as a -- the key precursor to revenue, is it? Is it downloads of the app? Or what, you know, how do you guys actually stimulate uptake? You spending money to drive people to download the app in various regions? Or what do you kind of doing specifically to get that business to grow from a user perspective?

Yes, so I think, yes, so I think from an end user point of view, I think it is aggressive performance marketing. But I think the key is just that, based on the know how’s that we have accumulated in the past year we are able to do the performance marketing roles, marketing, you're very efficient way. And I think that's number one. Number two is that retention is really good because it's very tightly connected, that if you say I have a very poor one, or 15 or sort of retention that will cause it no, no way you can grow, it doesn't matter how much money you spend. So I would say it's a combination of very effective performance marketing, but then tied tightly hand to hand with the ability for us to have a very high retention of those users, [Indiscernible].

Great, and then just….

And then I could supplement maybe I can supplement. It's of course a product launching in a new geography goes through a free a few stages. We are now in the initial stages of launch where we of course, we use marketing, and we use performance marketing, as Song Lin talked about to build a presence. And then over time, as we've seen on our other initiatives, and products, then you move over to the organic part of it playing a bigger and bigger role. And I can assure you that the investments that we are making are carefully assessed on a daily basis, monitoring the impacts and sort of return that we are generating on that investment.

Right. And then just a quick follow up on the ad, the bounce back and ad revenues. Can you talk about some of the end markets that you're seeing come back? I know you had some decent exposure to travel on an area that you've seen come back in the various markets you operate in?

I think high level on the advertising drivers we see a couple of things. So that of course we benefit from more from more user growth on products but it is the per user monetization that that is driving the revenue growth the most. Within that there are a few components. We are experiencing a strong demand for our inventory and the traffic that we can drive. There are certain partners that are scaling, scaling faster than other than others, typically online related businesses. And we're also seeing the impact of a geographic mix changes when Europe is growing very well, for example, that that drives the average monetization per user.

Great, very helpful. Thanks, guys.

Your next question comes from the line from Alicia Yap with Citigroup.

Hi, thank you. Good evening, and good morning. Thanks for taking my questions. Congratulations on the strong set of results. I have two questions. First, I think in your guidance you mentioned the second quarter, the strong guidance seems to be more alluded to the search recovering. But I assumed the ad revenues was also growing very well. But on the sequential basis, if you can give us some color, in terms of whether social accounting was better on the sequential basis versus the app, and then understand, you mentioned your full year guidance, despite raising to the new guidance range, but you also mentioned very, very little revenue that they informed the new initiative. But just if you can give us some colors in terms of the timing, if we were to assume between the gaming and European Fintech, with gaming, revenue will be coming more near term and more medium term versus FinTech is a little bit more longer term than the gaming. So any color you can help a friend in terms of the timing of the revenue that come in. And on the more let’s say, by the time they reach a certain, decent contribution will, the FinTech is actually a bigger proportions, or the gaming will contribute a bigger proportion. Thank you.

Thanks, Alicia. So first talking about the second quarter guidance. The starting point and the Q1 revenue achieved in both search and advertising, we are very pleased with both, both the from 36% to 40%, year-over-year growth into a very solid result in the quarter and of our expectations. When we look into the next quarter, on a sequential basis comparing to Q1, I would definitely point to advertising being the expected biggest driver of the increase we are guiding from Q1 to Q2 this year. In terms of the full year and the new initiatives. So as stated, We have been very cautious and baking in baking into high expectations offer new initiatives this year, but to the question of what will impact our results first, and what we are cautiously considering as we set our guidance for the year, I would point to the advertising revenue effect in particular, around the Western markets scaling of Opera news, as that is sort of an immediate impact of building your user base in the U.S. and European markets. That probably will be the first one to materially benefit our financial statements and something that we should be seeing also in 2021.

And any just follow up in terms of gaming versus FinTech, which one will come more near term, and then which one will be a bigger contribution longer term?

So I think we I'll try not to go into sort of the specifics of exactly estimates that we have for the year, which I think for now, I would say that with both we have been very cautious as we set our guidance for the year. In gaming revenues, of course consist already have been present in our financials from the success of the Opera GX browser. And that continues to scale very well and we're broadening that was an ecosystem, the game studio etcetera that we have discussed before. And on the FinTech side of things, we are already, being the browser of a very, very big number of transactions carried out from our user base. And that is something that we have already launched and started to tap into. But with the initial focus being on building that service, and preparing that service for scale, rather than focusing on let's say, the revenue contribution, or the near term margin that we can draw from that.

Alicia, this is Derek. If you consider gaming to include the GX browser, that's driving a ton of value for us today. I think we said last quarter that every million MAUs, they're worth about $2.7 million. So you can see our trajectory of adding a million plus, MAUs a quarter and you can see that contribution. And, on the FinTech stuff, we're in game with our smart shopping product is done when's that and, you know, our hope is to be in a couple more markets over the course of the year, and depending on when those and how quickly spend scales will really dictate what contribution we see this year.

I see. Okay, helpful. And then just one last, quick follow up. I think you mentioned your sales and marketing, some of the spending that you previously plan in post quarter had to click into the second quarter. So just wondering if you can share what was the reasons that it slipped? Yes, thank you.

Yes, maybe the word slipped this is not super accurate. It's, it's more a question of we looked at the year as a whole. And we look at the investments and the scaling that we want to achieve. At any point in time, we give the guidance based on our best expectations for what will happen over the coming three month period, and the year as a whole. And so we ended up spending slightly less on marketing and distribution in Q1 than we had originally thought.

I see. Okay. All right, then. Thank you so much.

Your next question comes from the line of Sarah Simon with Berenberg

Yes. Hi, I have a couple of questions. First one, can you give us some idea with something like well, whichever product do you like, what the delta is in terms of monetization of a user in let's say, Europe, versus Asia? Or, or India, or Africa, for example, because I'm guessing that's quite significant. And therefore, as you expand news into Europe and the U.S. it might lag, but it's clearly going to be much more significant in terms of the pickup in revenue than the pickup in in MAUs. So that was the first question. Second one. Can you just remind us how do you sell your advertising? Is this done? Is this programmatic or is it direct? That was the second and then the third was, you know that you obviously restated your numbers because you discontinued stuff in Q3 last year. Can you remind us what the growth was on the new reporting format in Q1 2020, and Q2, 2020? Thanks.

Yes, so it's Song Lin. I guess, Frode maybe I'll just answer the first and then you can comment on the last number one.

Sure.

Yes. So, you want to just a quick comment that I hear on the pressing of, demonetization. I would almost I guess it's also between European U.S. user versus the African user, right. So or like Asia, I, I already commented that if we compare, say, a user in Africa with a user in U.S., it's roughly I would say 10 times and European user is actually slightly less than U.S. depends on which country you are exactly quite different. Some of that is 50% of U.S. to be 80%, or even you call depends on different countries that – loss. But yes, so in general, if we use U.S. as a benchmark that I will say 10 times, and some people always say Africa will be a good comparison and about Central Asia. And when it comes to add value, so we have to use all of the ways that you're talking about the different regions. So I think we are -- we do have direct sales team, typically in country like Africa will be reliable on their sales team. While in some other country like in U.S. and Europe, we do have more programmatic. I would say it's actually very good. You call that. And we see that actually grow very fast. Something always the model reduced. And on top, of course, we also have the address [Indiscernible] approach, well simply just embed address -- and just monetize from Facebook SDK or Google SDK. So we have both of those are three available.

Okay.

Yes. So Frode then handing over to you for the yes, the number crafting?

Yes, yes, sure, sure. So in Q1 2019, we had $38 million revenue. And in Q1, monthly, we had $40.2 million revenue, which was about 6%, up would have been a couple of percent more, if COVID hadn't affected the end of the quarter, but that the most comparable period. Q2 2020 had a year-over-year decline. That was the quarter most affected by COVID.

So Q2 was down?

Q2 year over. So Q2 2020 was down 74% versus Q2 2019. Naturally driven by the COVID impact that we saw in that quarter.

Okay, thanks very much.

Sure.

Your next question comes from the line of a Lenny Brecken with Brecken Capital Advisors.

Hey, thanks, guys, for the call. I have two questions. One, can you talk about the deployment of the cash hoard that you have on your balance sheet and what the board is thinking about maybe doing with it? And the second is the new initiatives, I assume, or are acting as a drag on earnings in 2021? And I assume that's going to lessen in 2022, which is probably the core of the story and why all the analysts are trying to ask the various questions in understanding that. So can you help us quantify the drag on the new initiatives on earnings this year versus next?

Yes, hi, Frode here. I can start. So starting with the cash on our balance sheet, I think we are not planning to use it for dividends, as we have stated in the past. We keep it to maximize our strategic flexibility, both in terms of having the having that support for any operational opportunities that we come across. Of course, now, even with these heavy investments that we are running in 2021, we are essentially also generating the cash that we are using for that. But it gives us that opportunity in the past we've also in a couple of instances launched share buyback programs where we have felt then we felt that that has been in the best interest of our shareholders. And we always look at M&A opportunities. So historically, there have been a relatively limited size and then focus more on the organic growth thereafter. In terms of the new initiatives and the drag on the profitability in the year, that is correct. We started the year by saying that the essentially we will take all the additional EBITDA generation, including from the scaling of our business and invest that in an additional, an additional in the driving this growth initiatives. But I think you only have to look back to like Q4 2020, we had at 28% EBITDA margin, still having investments in teams, etcetera at that stage, but giving at least an indication of sort of the margin picture of that business when we are not as aggressively as now scaling these initiatives. And then I think it's sort of, there's more successfully these businesses scale and confidence that we have in the ROI being positive of course that will continue to support our thesis for this year. It's a little bit early for me now to sort of say exactly how the details towards the end of the year and the beginning of the following will look in terms of margin picture, but we are seeing this as an opportunity to establish those businesses and create a strong foothold in them. And then as we talked about earlier in the Q&A session, then is moving over to more existing end market products. And it could have been more, let's say, stable P&L profile and margin accretion, also from those.

Well just one follow up. So I mean, I guess as an investor, I'm sort of wondering how a 40% growth company can trade at three to four times roughly forward sales, when many companies growing less than that are grading it twice that valuation. From the management’s perspective, how do you see the value of the company being unlocked? Is it the new initiatives, when you can finally gain leverage? Or is it something else that that you think is going to be the driver?

Yes, I think we are what we can focus on is, of course, driving the business in the best way we can. And, and being clear about our strategy for sort of how we are moving towards this scale and how we see sort of the potential and initiatives that can drive us to become multiple sizes, what we are today, which is what we are very focused on. We also -- we also try to shed light and relevant information on the investments that we hold, as we think they represent significant value upside to our shareholders. And, and of course, in being able to being able to document that value over time and being able to actually see a transaction or sort of that market validation of those, I think, can be very helpful.

Thank you.

Your last question comes from the line of Lance Vitanza with Cowen.

Hi, guys. Thanks for jumping back to me. I just was hoping to follow up I'd asked you for we kind of got cut off about Starmaker. And the question is, the growth that you called out in the release is obviously fabulous. I think it was 3.5x. And I'm just wondering what what's going on there? Is that new markets? Is that, a big new marketing campaign, or something else? What is it? How do you explain that that kind of growth? Thanks.

Yes, hi Lance, sorry you missed that part of your question before. Unfortunately, the answer is [Indiscernible] as the same as OPay. That it is its own company, it is sort of communicating its own results a bit on its own, and we try to stay within that. But as you mentioned, it's a tremendous growth year-over-year. It's more it's nearly 50% sequential growth versus the fourth quarter. It remains a profitable company. It's all online. And it's doing very well. But I'll be a little bit careful to try to give additional KPIs that the company hasn't been self-prepared to communicate. But Song, is there any other color that you think we could good share on Starmaker?

Yes. So I mean, I think I would just say that Starmaker is a very typical case. Well, it has been growing very fast from last year to this year, right. So then, of course, naturally, if you compare always the Q1 last year to Q1 say this year, it is, of course going to be huge return just because it keeps growing from Q1, from Q1, Q2, Q3, Q4, all through 2020. And continue that trending in Q1 2021. Right. So I yes, so is that a true reflection of all parties growth, all across the whole of last year? And that's a cumulative result that you are seeing. I mean, it's almost I would say, the equivalent of what you see in Opera News, right? That news, we also said is 260%, year-over-year, and we're probably hopefully we'll see more even in Q2, right. So it's actually very similar trajectory, that if you have something new and at a faster growing pace, quarter-over-quarter, that's what you see.

Fair enough. Thanks, guys.

That concludes our Q&A session. I will now turn the call over to Song Lin for any additional or closing remark.

Okay, So I think guys, we I think we have a great color. Our core business are doing well. Well, our new initiatives are scaling, really allowing us to predict a bullish future. And I think I just want to say that all of these, of course, are of course indispensable from the shareholders out there that all trust us and support us. So I just want to say that I appreciate you’ll support us always. We will do our best and you know and hopefully we can continue and we'll continue to execute it a bit. And hopefully we'll all have, great results to come. So like again, thanks for attending and have a nice day.

This concludes today's conference call. You may now disconnect.