Welcome to the Opera Limited Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's call 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. As usual, with me today are 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, in the conference call today, the company will be making statements about future results and expectations which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such 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 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. We have also posted unaudited quarterly historical financial results of Opera on our Investor Relations website. 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 who will discuss our financials and expectations going forward. Song?

Thank you, Matt. Sure, excellent. So thank you, Matt, and thank you everyone for joining us today. Like, again, I'm very happy to report our good third quarter results with you today. Despite an uncertain global macroeconomic environment, we were able to generate record revenue and profitability. It is a good indicator that our strategy of focusing our product on the highest-value users has enabled growth even in a challenging environment. Also, quarter revenue exceeded the high-end of our guidance range by over $2 million, with a 25% EBITDA margin exceeding the high-end of our EBITDA guidance by more than $4 million. We believe this momentum puts us in an excellent position as we enter the seasonally strong fourth quarter. Total revenue grew 28% year-over-year, driven by record revenue from both search and advertising. Our strategic choice to focus on better monetization users, in particular in the US and Europe, has created an underlying tailwind that helps shield us from a strong FX headwinds due to a strong US dollar and pricing pressure in the market. This choice, combined with the audience extension provided by our Opera Ads platform, results in us tracking well ahead of our expectations. For several quarters now, we have articulated our strategy of focusing on the highest-value users, which applies to both emerging markets as well as developed ones. This strategy continues to pay off. For the first time, annualized ARPU exceeded the $1, up 14% sequentially to $1.06. Advertising revenue, up 41% compared to last year, now represents 58% of our total revenue. Our advertising business on our owned and operated sites benefitted from our high-value footprint field, in particular by the success of our gaming browser, Opera GX. Audience extension is a natural supplement to our O&O advertising inventory. We believe that leveraging…

Thanks, Song. As Song Lin pointed out, our quarterly business performance was well ahead of our expectations. Earlier in the year, we were pleased to maintain guidance after Q1 and the dramatic start of the year. And later, we're proud to raise it after Q2. Following this Q3 overperformance, we are yet again in a position to indicate even greater expectations for the fourth quarter and the year as a whole. Quarterly revenue came in at a record $85.3 million, which represented 28% year-over-year growth and a solid beat versus our previously issued guidance of $81 million to $83 million. This was achieved despite a major headwind, namely the strengthening US dollar. On a constant currency basis, we estimate that our year-over-year growth would have been over 40%. The overperformance was mainly caused by two factors not fully reflected in our expectations. First, revenue from Eastern Europe remains more stable than anticipated and our audience extension revenue continues to grow faster than anticipated. Adjusted EBITDA was $21.4 million or a 25% margin, substantially ahead of our $14 million to $17 million guidance. In addition to stronger revenue, we benefited from marketing expenses coming in below expectations. At the same time, the growth of our Opera Ads platform led to a couple percentage points more cost of revenue relative to what we had expected. In sum, the cost mix more than nets out as Opera Ads has very limited other incremental costs. Then turning to capital allocation and returning cash to shareholders. Towards the end of the quarter, we announced that we had reached an agreement with 360, one of our pre-IPO investors, to acquire its 23.4 million ADS equivalents, a 20.6% stake in Opera, for $128.6 million. This transaction closed earlier this month and 360 is no longer a shareholder…

[Operator Instructions]. And we'll take our first question from Lance Vitanza with Cowen.

This is Jonathan [ph] on for Lance. Congrats on the quarter. My first one is, it's great that revenue has such a strong performance despite the lower-than-expected marketing expense. Could you maybe share a little bit – what were the primary drivers that led to lower marketing expense? And I know that we can expect same levels into the fourth quarter, but can we expect marketing expense also generally decrease into 2023 or remain stable or maybe would it be higher?

Overall, roughly, our marketing spend this year is roughly on par with what it was last year, which was represented a big step-up in marketing costs as we targeted our efforts towards Western markets. So what we are achieving this year is to sort of maintain that spend level, not really grow it, but then reap the benefit on the revenue side. So we're not yet giving guidance for next year, but at least that's an indication of the level that we are remaining at. And in terms of the next quarter, as I mentioned, we build in about $30 million of spend, so a bit less than we had this quarter. That's what we think is most prudent to expect.

One more. The EBITDA performance is just amazing, right? Like, it's growing just like you guys said that it would in 2021. And now with the accumulation of additional cash that the company will generate because of this, surely the company is exploring, at least investing into other growing opportunities, right? Or is this a time that it's prudent to hoard cash, given the general outlook of global business?

I would say the most obvious potential that we have demonstrated through our actions have been to buy back our own stock, given how we've been priced. So we announced the most significant buyback we could have ever done in the quarter past with the exiting of 360 in addition to the buybacks rolling in the market. So, at least we feel that that cash has been put to very good use in terms of our other shareholders. And then, of course, we continue to run the profitable business, but I don't want to speculate in potential M&A. We're always open for good deals and as we have always been.

Congrats on the quarter again.

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

Congrats on the solid results and the guidance raise. I have two questions. First is how should we reconcile the discrepancy between what we saw from the slowdowns of the ads revenue for some of the bigger US platform company versus our really solid growth this quarter? And then, based on your 4Q guidance, would that be fair to assume that both search and also the ad revenue might decelerate a little bit from 3Q level? Or will search actually maintain quite steady and the deceleration is come from the ad revenue? And then my second question is, any preliminary view on how we should think about the growth momentum for 2023? Can the 4Q growth momentum actually be a good indicator for us to read into 2023?

Maybe I'll take it, Frode. It's Song Lin. Maybe I'll just try to take this. So, I think it's a different aspect of things, right? So, for instance, in terms of search, I guess we are more than, say, Google because we are, I guess, 15%. They are 4% year-over-year. I think that's more like a function of user growth, especially in key markets. So they are much bigger than us, of course, in terms of scale, but we are able to grow, say, more users in Americas year-over-year. And that, of course, constitutes the growth, which makes us better despite of the global headwind. So, part of it is definitely because of the growth of the user base in key markets. While I would say for some other, like ads, it's partially also related with this, of course, that we are growing our user base in key markets. But I would say the other part, of course, is also a factor that I think we – for the company our size, I think we're at the right size, I guess, as far as we find the right niche. We are big enough to make impact in terms of millions of dollars every quarter, unlike startups. But on the other end, we are not, I guess, as big to the point where we cannot fight the macroeconomics, even if we are doing good. So I think [indiscernible] we are agile enough as far we have good technology, we have good knowhow, we have good user base, we are able to extend it. We're not that big like Google or Facebook to be able to almost not able to combat macroeconomics. So I think that's the kind of [indiscernible] we're having now. But of course, I guess, we just need to…

[Operator Instructions]. And we'll go next to Mark Argento with Lake Street.

Nice quarter and congrats on the big stock repurchase. Just wanted to follow-up a couple of things. Frode, when you think about cash generation of the business, can you just help us kind of think about the conversion of adjusted EBITDA to free cash flow? What kind of OpEx or other types of cash outflows are there? Just trying to kind of hone in on a free cash flow number and a free cash flow yield for you guys.

If you look at 2021 and 2022 year-to-date, take adjusted EBITDA less taxes actually paid, operating cash flow amounted to about 90% of that. So I think that's a relatively logical rule of thumb in terms of what to expect. And then, our tax rate tends to be about 20% of operating profit if you add back stock-based comp. It's been a bit higher this quarter and prior because of foreign currency movements affecting tax assets, ultimately, presented in tax liabilities. But I guess those would be my suggested guideposts.

Just lastly, can you talk a little bit about kind of any variances from a geographic perspective, Europe versus – I know North America is smaller, but growing fairly rapidly? Any color you want to give on where you're seeing some strength or areas of concern?

I think the headline of the quarter and, I guess the year as a whole, is that the strategy to focus on Europe, North America, or really the Americas has proven to work really well for us. Good momentum in that. And as Song talked about, from such a small position that we are able to drive really good growth or have been able to drive really good growth in a tough macroenvironment. So, I think that's the main message. We benefit from both underlying ARPU growth and the geographic mix shift of our user base.

And there appears to be no further questions at this time. I'll turn the call back over to Song Lin for any additional and closing remarks.

Yeah, sure. So, like, again, thank you again for joining us, everyone. It was another record quarter and we're excited about what is ahead of us as we enter what has historically been the strongest quarter of the year. I'm also very proud of the hard work from all of my colleagues, allowing Opera to continue to outperform expectations. The operational excellence, taken together with our strong balance sheet, should create more opportunities in the quarters to come. We appreciate your time and we look forward to speak with you again in the future.