Welcome to the Opera Limited Second 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, Matt Wolfson, Head of Investor Relations. Please, begin.

Thank you for joining us today. With me today, I have our co-CEO, Song Lin; and our CFO, Frode Jacobsen. Before I hand the call over to Song Lin, I would like to remind everyone that in 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. You may refer to the Safe Harbor statement in the company's earnings release for 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 provide an additional tool for investors to use in evaluating ongoing operating trends and results. These measures should not be considered in isolation or as a substitute for financial information prepared in accordance with IFRS. We have also posted unaudited supplemental information on our Investor Relations website that includes historical results of Opera and our investee Nanobank. On a personal note, this is my first earnings call since I joined Opera. I just want to say how excited I am to arrive in a thriving environment with the team I've already gotten to know well and they're shooting for value creation opportunities in several key areas. I'll do my best to keep everyone updated on where we are in the future direction of Opera. We will be live tweeting highlights from the call @InvestorOpera, 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 and then Frode will finish up with financials and our expectations going forward. Song?

Sure. Thanks, Matt, and great to have you onboard. And then, thanks everyone for joining us. I will say that Matt has picked up a good quarter and a very exciting time to host his first Opera investor call. We have delivered strong results for the quarter, exceeding the high end of our revenue guidance with revenue up 87% year-over-year and up 17%. This is the already record high first quarter. So further we'll, of course, talk in detail about our numbers. But in general, Opera's revenue is nicely balanced between search and advertising, both of which continue to show strong growth. Further, not only is our core browsing business performing better than expected, but each of the multiple initiatives we're being backed on is taking root and showing great promise, whether that's expanding our reach in mobile and computers or into entirely new categories like gaming. And what's really satisfying is to see the success we are having as we introduce and scale products and services into new markets. On the mobile side, for example, we have Opera News which continues to show great traction. As you know, we have launched the product in African markets. And this year we started to scale it in US and several European countries. In the United States for instance, Opera News is constantly in the top 10 most downloaded news app on both Google Play and also the iOS app store, ahead of many household legacy media names such as CNN and The New York Times. Another good example is Opera Football, or Soccer, for those in America. It's a new content portal, we just launched in June, powered by the same AI as our News product. Even though it's a very short time frame, it has already grown its audience to…

Thanks, Song Lin. Our browser-plus strategy keeps delivering and our financials follow. By offering products that resonates with users who want a more personalized browser experience paired with content and gaming initiatives, we continue to achieve strong results as evidenced by revenue, yet again, exceeding the high end of our prior expectations and guidance. I'll recap the highlights and then provide our updated thoughts on guidance for the back half of the year. Revenue for the second quarter was $60.2 million and represents a new all-time high by a good margin. Our year-over-year growth rate was 87% and the sequential growth versus the prior quarter was 17%. We expect to continue to see sequential growth for the remainder of the year which results in record revenue in each subsequent period. Our current revenue mix is split almost evenly between search and advertising. Specifically in the quarter, search was $29.8 million, accelerating to 69% year-over-year growth. This was driven by monetization gains for both PC and mobile browsers, as well as favorable comps, due to COVID. Advertising was $28.9 million, accelerating to 128% year-over-year. This was driven by strong monetization from Opera News and our mobile browsers. Keep in mind, that COVID impacted advertising revenue in Q2 last year more than any other quarter. So while we naturally do not expect to continue at such annual growth rates, we do believe we have created a strong foundation for continued healthy growth for the remainder of this year and beyond. Finally tech and other revenue was $1.5 million. Year-over-year, this revenue category has been reduced by $0.5 million although with almost no impact to profits as the decline relates, primarily to low-margin professional services to OPay. As Song Lin mentioned earlier, user growth was particularly strong in North America and Western Europe,…

Thank you. [Operator Instructions] We'll take our first question from Lance Vitanza -- I'm sorry Lance Vitanza with Cowen. Please go ahead.

Thank you. Thanks, operator. Thanks, everyone. Guys congratulations on an excellent quarter. We were in the midst of the pandemic, we saw this explosion in engagement, but unfortunately the advertisers had left the marketplace. So I think there was some concern and I'll just speak for myself that as we exited the pandemic advertisers would return, but that engagement would also go back to its old levels and that Opera would ultimately be no better off. The performance in the second quarter would seem to argue against that. I mean advertisers are back in a big way, Opera has hung on to its increased user base. So is that a fair characterization? What is your outlook over the back half for MAUs and engagement levels? And do you think they will hold into 2022?

Hey, Lance, this is Frode here. Thanks for the question. I'll let Song comment of course on, sort of, the products and the trajectory that we are on. I will say as you pointed out, when the pandemic hit we were of course affected in the near term, but we have been talking about sort of this shift from offline to online, and how that benefits a company like Opera and our – with our ability to drive traffic. And it's very pleasing to sort of see the provision of sort of advertising returning at least more towards normal paired with the strengthened user base. And from a financial point of view, the geographic – the impact of our good trajectory in both North America and Western Europe has obviously benefited us in terms of revenue growth. So we are now well beyond the levels that, we were at prior to COVID. I looked at the average search and advertising revenue in the three quarters immediately prior to COVID, as a relatively representative baseline. And our revenues in search and advertising are now 48% higher than that level.

And so let me go on to the EBITDA side first half. So lower than we had modeled, but as you pointed out earlier, in line with guidance you tightened the range for the full year which I think you have said in the past would be something you would do, if the marketplace opportunity was there. So – and I know you talked about the increase in the marketing spend and how you expect a positive ROI there. But I'm also just wondering, are you seeing perhaps some of the EBITDA move? Is some of that reflecting inflationary cost pressures? Is there any sort of – are you seeing higher unit costs, or is it really just no? This is really your decision to plow revenues back into the business to further build the revenue base? And then I guess, just related to this – I might as well get this in there now too. In the past, you've discussed the sort of after the hyper growth phase and that you sort of – you expect margins could be back in the 30% area EBITDA margins as the business matures. And I'm just wondering, if there's been any change to that sort of longer-term thinking? Thanks.

Sure. So putting marketing and distribution aside as a discretionary spend and something that we tweak and fine-tune on a weekly basis the remainder of OpEx is very much in line with the expectations from the beginning of the year. And as you can see is relatively stable in the overall. So if that answers the question. So this is – to us this has been about we had at the beginning of the year. And after the first quarter, a pretty good idea about the number of people we would need, sort of the – and sort of the operating costs in terms of salary hosting and other parts of our business. And the underlying sort of product development and development in the new services that we are developing that is moving ahead as planned. And then it's the more tactical nature of when and how to drive awareness marketing and downloads that are affecting the OpEx base, and how we ultimately view the EBITDA for the year.

Great. And then, if I could just squeeze in one last question on the cash flow statement. It looks like cash flow from operations was actually positive $6 million despite the small – despite breakeven EBITDA. So I'm just wondering, if there were some sort of working capital stuff in there that we should expect to reverse in the back half of the year should we be modeling a more neutral or even perhaps a negative CFFO in the back half of the year?

So at the starting point, I would say, I tend to expect operating cash flow to be relatively similar to adjusted EBITDA. I think the positive cash flow we see is more a reflection of good collections that we had and a bit more of a catch-up more than its being to forward leaning. Having said that, of course, when we scale up our marketing and distribution spend, we do carry some payables into the next quarter.

Thanks, guys. That's really helpful. I appreciate it.

[Operator Instructions] And we'll take our next question from Mark Argento with Lake Street. Please go ahead.

Good morning guys and a nice quarter as well. Just a couple of quick follow-ups on the kind of -- you're thinking about ROI and the incremental spend what kind of payback period you guys typically calculate, or how do you calculate kind of that return on elevated marketing spend?

Hi, Frode here again. So, for each campaign we run those by product geography and the type of campaign, we're always looking at the ROI of the campaign. We are seeing an overall positive ROI on the initiatives that we are driving. There are, of course, product variances and there are also geographic variances and there are maturity variances in terms of learning as we go. But when we look at the big spend drivers in marketing, the biggest increase both relative to last year and relative to the last quarter was up for news followed by the browser side, of course. We are seeing positive ROIs in all the key markets where all the bulk of the spend is happening. We're seeing -- in terms of Opera News, the payback time of within four quarters now in western markets and for the browser side, it's less than that. The difference is, of course, that on the browser side, we are growing from sort of more established product and more established user base whereas on the news side in western markets, we are essentially establishing a new foothold. And it does require investment to sort of get that flywheel off the ground. So, we're actually very pleased with the returns that we have seen even in that quite early stage of launching those products.

That's helpful additional color. And Song Lin you had mentioned in your prepared remarks I believe that you guys launched Opera Football app. It sounds like you already have 10-plus million users on that which is pretty impressive. Do you anticipate more of these kind of thematic kind of products that leverage the core AI the news app? Are you going to do more of those? And how easy is that to monetize and sell that ad inventory?

Yes. So, that's a very good question. So, I would say it's the same experience that we have also seen in the browser right, for instance, we have a generic browser and then we launched the GX for gaming which is fantastic. I think it's more I would say reflecting the trends that we see that people like the -- people are becoming more segmented that they would actually -- instead of appreciating a generic product, which is fine that we actually see a great opportunity in those different segments, right? So, we apply that in browser to great success. And the same is what we applied for news right? Like Opera Football is essentially a news service right? It is one category of news. So, we find out that if we be more targeting if a segment is out to dedicated content score and audiences is actually performing really well. So, yes, so high level I would say, I think you are right that -- we think it's a great trend that the world is moving to more segmented, more targeted, more personalized products and Opera Football is definitely one of them. I mean we have big confidence on that. It's a big [Indiscernible] on it in a very short timeframe. And I think yes, I think moving forward since we have that great base technology that is powered by news I think we should be able to also provide even more segmented content coming forward.

Thanks Song. And just one last one. You guys got over $200 million I think worth of cash now and it doesn't seem like you're going to be burning any cash over the near-term. Any incremental thoughts on uses for that amount of cash?

Yes. We do have a very strong cash position with as you said over $200 million in cash and marketable securities. And as we have demonstrated so far, we have been funding our growth initiatives by the underlying cash generation of a very profitable core business. So, when we think about our priorities for cash, of course, they include the flexibility to seize growth opportunities, in line with our strategy and the strengths that we have, that we want to build on both in terms of organic opportunities but also to be in a good position to make select acquisitions such as YoYo Games one that we did at the beginning of this year. And then in addition to that, as we've shown in the past we have been happy to buy back our own stock and there's always a trade-off there obviously, in terms of preserving liquidity but those are the two priorities.

Great. Thanks, guys. Appreciate it.

And we'll take our next question from Alicia Yap with Citi. Please go ahead.

Good morning, management. Thanks for taking my question. This is Vicky Wei on behalf of Alicia Yap. So I have just one small follow-up question. So we see the top line revenue guidance and management also comment about let's say, the user be heavy shifting. But we wonder, how is the delta variant cases impact the business recovery momentum by region, because as we see from the third quarter revenue, it does not seem there is any impact on app revenue spend by your advertisers. And would you please provide more color, let's say, by region? Thank you.

I would say overall, when COVID hit and as the recovery began it affected emerging markets more than it did western markets. The recovery was also faster in Europe, North America for example, than in Africa. By now Africa, as the key emerging market strategic region for us represents about the same share of total revenue as it did prior to the pandemic. So we have moved into a more normal state again with -- in terms of that. And the rest of the mix is as we have discussed, more driven by Western Europe and North America growing the user base there at very attractive monetization levels.

Thank you.

[Operator Instructions] And there appear to be no further questions at this time. I will turn the call back over to Lin Song, for any closing remarks.

Sure. So yes I guess, thank you guys again for joining us today. We think it's a great quarter that we are able to deliver. And -- but I think even bigger potential waiting for us. So appreciate your time and looking forward to speaking with you again.

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.