Welcome to the Opera Limited Third Quarter 2023 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.

Thanks for joining us. As usual, I have with me today our Co-CEO, Song Lin; and our CFO, Frode Jacobsen. Before I hand the call over to Song, 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 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 historic financial results of Opera on our Investor Relations website. We will be live posting highlights from the call from our Twitter account, at 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 third quarter operational highlights and strategy and then Frode will discuss our financials and expectations going forward. Song has a cold this morning and his voice skids out, I will step in and finish his prepared remarks if necessary. Song?

Yes. Sure. Thank you, Matt. So yes, I'm going to call up my voice on coming to safety. But anyway, thanks, everyone, for joining us today. We are very proud to announce our third quarter results with both we have billed and adjusted EBITDA exceeding the high-end of our product lines ranges and our business and product line have been stronger and more strategic than ever. So in the third quarter, we generated $102.6 million revenue compared to the $98 million to $100 million, we have guide it that marks our levels [indiscernible] of 20% top line growth as well as the milestone of exceeding $100 million of quarterly revenue. What's even more exciting is that, the power performance was fueled by accelerating business strength during the quarter, adding to the trajectory and potential of results ahead. As you will see our refreshed guidance range is full year and Q4. Now, we can begin about the high-end of ranges for both revenue and adjusted EBITDA. So the health of our revenue over performance is visible in our adjusted EBITDA with coming at $23.8 million, a 23% margin compared to the $18.5 million to $20.5 million we have guided. Profit over performance was in otherwise, even stronger than the revenue over performance, fueled by product-driven strength leading to lower market than expected. So overall, we continue to credit our financial success to our ongoing focus of growing the highest value users combined with [indiscernible] cost management. The share of our user base that our Western users continue to increase in the quarter, which in turn contributed to an ARPU growth of 11% when compared with the prior quarter or 24% year-over-year to a new high of $1.31. Advertising revenue grew 24% compared to last year representing 39% of total revenue. The…

Thank you, Song. Starting with our financial results, we are very content to see how our product strength and growth strategy translate into yet another record quarter. Year-over-year growth rates for both search and advertising remain at the level we achieved in the prior quarter, which is well ahead of what we had guided. The fact that we saw a stronger-than-expected intra-quarter acceleration from month-to-month bodes well for our outlook, as you can see in our refreshed guidance today. All in all, we are very pleased with the resilience of our growth model and the trajectory of our company, even in a volatile macro environment. We continue to benefit from our user shift towards higher ARPU populations, whether geographic or as Song Lin talked about with gamers. The rotation of our user base has low monetized users churning out and higher monetized users coming in. As a result, we came in above the high end of our guidance at $102.6 million in revenue or 20% year-over-year growth. On a constant currency basis, our year-over-year growth would have been about 5 percentage points higher or 25%. In terms of profitability, we benefited both by our revenue overperformance and the fact that we did not fully utilize the buffer we have built into our marketing spend expectations. Consequently, adjusted EBITDA also exceeded the top end of guidance at $23.8 million or a 23% margin. We generated operating cash flows of $16.2 million in the quarter, and our free cash flow from operations was $13.4 million. The revenue strength within the quarter increased our accounts receivables, but that cash flow impact as a consequence we are happy to live with. During the quarter, we returned $53 million to our shareholders. Our first regular dividend was $36 million, of which $11 million was cash…

Thank you. [Operator Instructions] We'll take our first question from Mark Argento with Lake Street. Your line is open.

Yeah. Good morning, guys. Nice quarter. Just a couple of quick questions. Obviously, you saw some really nice growth and strength in the ad business this quarter. As you think about the opportunity in the ad market, especially with GX growing as nicely, where do you see that kind of mix going forward of kind of add versus search revenue? I think in the quarter, ad revenue is almost 60%. How should we think about that mix going forward?

I can start. I think we continue to -- so we're very pleased with the core strength of both revenue streams advertising revenue at some point past 50%. Now it's close to 60% of revenue and a scaled even faster than search. And I think as a big picture that is probably the trend that we would expect for sort of the near to midterm.

And then just a quick follow-up there. In terms of the GX browser and the ARPU growth that you're seeing on that product in particular. Is that mostly domestic and Western markets? Or what's kind of the mix there? And are you -- how are you seeing that ARPU move up as aggressively as it has?

I think the GX user base is split between Western and developed markets, perhaps somewhat more tilted to Western than the user base as a whole. But it taps into high-value segments, also in emerging markets, which is participating in its strong ARPU. I think we've been pleased with the ARPU performance within both Western and non-Western markets on the product. It still remains a bit under under-indexing in terms of ad monetization. So back to your first question, that's also an example of the lever for driving faster growth on the advertising side looking at.

Great. Just one last one for me. In terms of the marketing spend in the quarter came in a little below what you guys had anticipated. What's the kind of the key KPI you guys are keeping your eyes on there in terms of conversion rates or monetization rates that kind of have you either leaning in or leaning out that spend in any quarter.

It's ROI-based and to some extent, also just our own capacity to drive sort of the brand efforts that we do. So, as Song talked about, for example, for GX, we have built a very sizable presence also in social media around the products. And I think the combination of the branding activities and the more tactical sort of distribution campaigns and distribution activities is very important for the best possible ROI on the spend. For Q3 as a quarter, we more or less came in as expected, which was a bit below what we had guided in terms of spend just because we like to always maintain a buffer that I think we've also historically talked about.

Great. Thank you.

Thank you. We will take our next question from Lance Vitanza with TD Cowen. Your line is open.

Hi. Thanks guys. Great quarter. A couple of questions here. The first, with respect to the focus on growing the highest value users. Did you mention what proportion of your MAUs are in those markets today? And if -- could you repeat that? And then where do you think that, that sort of split could ultimately go as we think out three, five, 10 years?

Hey Lance. Yes, so at least in our investor presentation, I'm not sure if it's updated online yet, but you'll see the updated that. So, for now, Western users represent 16% of the user base, up from 15% in the prior quarter. It's not such an excellent stat just because it typically moves with decimals. And then every couple of quarters, maybe we've been adding a point, but it is up relative to the Q2 average. And I think you'll also see in the timeline. So, I think we the number of users over time. And this year is unlike the past many years, we had a growth also from Q3 to Q4 were normally because of seasonality, Q3 relative to Q2 is quite flat.

I mean is the way to think about that, though, I mean, 15%, 16%, regardless, those don't sound like big numbers. Does that suggest that there's a lot of headroom there for continued growth? I mean do you see -- is the target to get to, I don't know, 30%, 70%, that kind of a split? Or where should we be thinking this kind of go over time?

We don't really have a very defined ceiling just because we still have the perception that we remain still a quite small company. We talked a bit about the sizing for Opera GX as well. So -- but looking ahead and also looking past -- for the past couple of years, our strategy is to keep growing in Western markets. We continue to have very good momentum on that and to grow high-value users broadly, such as gamers, for example.

Okay. On the marketing spend, my question on marketing spend, do lower than expected, a little bit lower than our estimate. And just to what extent was that perhaps driven by timing and maybe a decision to just sort of push some of the marketing spend from 3Q into 4Q? Is there any of that that we should be thinking about? I mean I know you mentioned that you're going to be a little bit over $30 million in the fourth quarter. I'm just wondering if that's a result of maybe some investments that got pushed.

No, it's not really a timing item when you look at the implicit marketing guidance for the next quarter, it's the same to a bit down relative to what we had in our prior implicit Q4 guidance.

Okay. Great. And then last for me, you talked about the stronger than expected acceleration within the quarter as you go month-to-months in this past quarter. And I'm just wondering, clearly, it sounds like products and technology at Opera had a lot to do with that. But was there perhaps also some improvement in the overall advertising backdrop that helped you that was improving throughout the quarter as well? Or maybe the way to phrase it is, is the macro backdrop helping or hurting you these days and which direction do you see that going?

I mean starting with the FX headwind that's worked against us for some time, just due to the strength of the US dollar. I think we saw the headwind decline a little bit now, let's say, only 5 percentage points in the quarter, but it remains a headwind given our very global exposure, for the ad market in particular. Song, I don't know if you want to comment on that?

Yes, I will try. But Lance, I’m sorry, it’s my strategy is not telling anyone. So -- but I would say, I think in general, we see a good recovery of travel, which is of our team feel free and our account is very strong, then people like at makes have also benefited from that, especially also during the summer time, right, what's coming in Q3. I think we also see a fair e-commerce towards the end of Q3 [Indiscernible] past Q4. It's also going to be okay. So I think that’s noticeable one we see. I think the rest are more like as they expected.

Great. Thanks, guys. I appreciate the help.

[Operator Instructions] We'll take our next question from Alicia Yap with Citigroup. Your line is open.

Hi. Thank you. So good morning and good evening. Congratulations to the strong quarter and guidance. So I just wonder, I know Aria is not directly monetized for now, but just wondering, how much of the strong performance in the third quarter are benefiting from the availability of Aria that help the user engagement that also lead to better monetization because of the increased time spend or also increase the inventory or even the higher ECPM? So any color that you can either quantify or qualitatively comment where Aria is contributing to some of that strong performance that you even see that month-over-month accelerating trends. So if any color you can share would be great. And then second, I was also wondering, even if this is also driven by the ad tax improvement, any preliminary color that you can share with us how would you expect the revenue growth to be for next year? Thank you

Song Lin, do you want to comment on Aria or?

Yes. Okay. So I can comment a bit on Aria. So more or like super high level I think as we’ve also discussed at the beginning of the scripts, so I would say the only effect of Aria is mostly visible in marketing. Well, of course, partly really why we are spending less than we want to keep more very low. So it's very positive is, of course, because Aria has increased people's awareness that being very attractive. We want see it. So it's quite similar as obviously on TXL, because of, it's very differentiating. And same applies Aria where is comes to competitive route. So go for this level. Also, that has been very helpful. That loan probably has already had some very positive very positive consequence of how we can be more profitable in this quarter, so that's good. Even Noah [ph] had discussed, I think -- we do see traffic increase on the engagement, those are search volumes and others that we're going to also have a monetizable impact. But that, I think we need to spend more time also those about valuation potentials as we try walking with partners. A – Frode Jacobsen: And then Alicia to answer maybe the second part of your question, I think it's still a bit too early to start giving guidance for 2024. So we'll hold that back into our next call, but we believe that sort of the growth rate that we expect to be able to achieve in the fourth quarter is at least a nice indication of the underlying speed of the business as it stands now.

I see great potential. Maybe just one last follow-up. On the 4Q EBITDA guidance and the [indiscernible] imply, which obviously is lower than the first three quarters that you already achieved. So I wonder if this is just more consolidative as a normal practice? Or is it some step-up spending because you mentioned the sales and marketing will be in the $30 million quarterly run rate, right? So it doesn't seem there is any kind of unexpected step-up spending that you budgeted in for this quarter? A – Frode Jacobsen: Yes, correct. We've always had sort of the marketing spend to increase as the year progresses and as we build the build more scale in the total, let's say, machinery around our marketing activities. So we've guided to exceed $30 million, you come in $3 million, $4 million $5 million above that once you add up what we have in the guidance. And comparing that an average spend per quarter year-to-date of below $27 million. So of course, we've maintained an average spend expectation for Q4 and the margin would be far higher.

Okay. All right. Thank you.

Thank you. We are showing no further questions in the queue at this time. I will turn the program over to Song Lin for any additional or closing remarks.

Sure. Thank you, guys. I think I'll just wrap it up. Thank you for all of your continued support and interest in Opera. So there is so much potential for Opera, and we are going for it. We appreciate your time today and look forward to reporting on our progress and the next junction.

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