Welcome to the Opera Limited First Quarter 2024 Earnings Call. [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 go ahead.

Thank you for joining us. As usual, I have with me today our Co-CEO, Song Lin; and CFO, Frode Jacobsen. Before I hand the call over to Song, I'd 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 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 an unaudited quarterly historic financial results of Opera on our Investor Relations website. With that, let me turn the conference call over to our Co-CEO, Song Lin, who will cover our first quarter operational highlights and strategy, and then Frode Jacobsen will discuss our financials and expectations going forward. Song?

Thanks, Matt, and thanks to everyone joining us this morning to review our fourth quarter results. 2024 is already off to a strong start with revenue of $102 million, driven once again by organic growth paired with cost discipline, resulting in $25 million of adjusted EBITDA, representing a margin of 24%. Both revenue and EBITDA exceeded the fourth quarter guidance that we outlined on our last quarterly call. Our user growth strategy remains focused on quality over quantity. We continue to see growth of users in rest of markets, GX users and other high-value users globally, offset by declines in low monetization mobile users in emerging markets. Annualized ARPU was $1.34 in the fourth quarter. It's up of 24% year-over-year. This was primarily driven by the growth of users in high ARPU markets as well as continued growth of Opera GX broadly, which consistently attracts highly monetizable users across markets. In the fourth quarter, search revenue was $43 million, up 14%. This category has consistently grown in the mid-teens and faster than broader search market, enabled by a continued focus on growing the highest value users. During the quarter, Google exercised its option only to extend our current search revenue partnership, a sign of the value of this relationship to both parties. In the fourth quarter, advertising revenue was $59 million, growing 21% year-over-year and representing 58% of total revenue. Advertising revenue continues to benefit from both our owned and operated, meaning our browsers, as well as our Opera Ads business. There is a clear trend that the digital advertising industry has put more focus on high user intent events, be it the shortened journey of a user or the payment activity in association with a travel booking. Being a browser, we are best positioned to capture these interactions, giving…

Thank you, Song. 2024 is off to a solid start with Q1 exceeding the guidance ranges we set just 2 months ago. Revenue grew 17% year-over-year, nicely ahead of the 15% midpoint growth we had guided. Net of continued FX headwinds, we saw an even stronger underlying constant currency revenue growth of 23% or 6 percentage points higher. Advertising remains our strongest growth driver, though search has also been performing ahead of the underlying market growth, clearly showing the benefit of our high ARPU user focus. In terms of costs, marketing costs came in slightly below expectations as did the other OpEx category. Salary costs came in as expected, while an investment in scaling new advertising revenue streams in our browsers drove up cost of revenue for the quarter. In total, we managed costs to stay on budget, resulting in the revenue overperformance translating to adjusted EBITDA overperformance as well. Tax cost of $4.6 million was 19% of adjusted EBITDA, which was somewhat elevated, mainly due to our tax assets which reduced in USD value when local currencies weakened. Our cash generation was particularly strong in the quarter with operating cash flow reaching as much as $31 million or 125% of adjusted EBITDA. This quarter, we made an all-cash investment to establish our new AI data center, representing an unusual amount of CapEx for us, while we were still able to generate free cash flow from operations of $8 million or 33% of adjusted EBITDA. Cash generation fluctuates more than EBITDA from one quarter to the next, and as the year progresses, our year-to-date cash conversion rates will stabilize, similar to what we saw last year. We paid our semi-annual dividend in January, $0.40 per ADS or $35 million total. Of the total, $25 million was offset against our Star…

[Operator Instructions] Our first question will come from Lance Vitanza with TD Cowen.

Congratulations on the quarter, guys. A lot to go through here, but maybe we could start with the DMA in Europe. I find this very exciting. And you mentioned a 63% increase in new iOS users just from February to March. Now I understand it's off of a very small base. But could you talk a little more about the opportunity there? Just how many iOS users are there in Europe, and what's your -- what's Opera's penetration like today? Where do we think that could realistically go over, let's say, 3 to 5 years or whatever you think the right time frame is? And then also, what are the odds that we see a similar kind of DMA framework? You did talk -- I think Song, you talked about you do see other markets potentially embracing this kind of a framework. What are your thoughts there in terms of the U.S. at some point?

Yes. So yes, it's Song. I'll just make few comment. It's a big topic, right? So I think, number one, in general, we are very excited to see the trend because I think Europe, of course, is a key market, and there's almost a leading role in many of those, I would say, the metal methods to make sure that there's a bit more fair playing ground. So I think we're happy that the EU has been taking this approach. And we are even more happy that it proves to everyone that there is effect. Because many times, we saw that there are some actions taken by government, nothing happens. And in this case, I think Apple -- we are very happy about them as well, and the result is also quite satisfactory, I would say, probably more than many people though, right? So I think that's very encouraging. And like also just a comment that like we also see a general trend that those things also happening in other markets. I guess -- I mean, I'm no expert on this, but I guess we all know that just last 2 weeks, I think the DOJ also has a case against Apple. Well, it's of similar nature right in the U.S. And then some of the things are exactly the same. So we just saw that -- I think there is a good chance that -- more likely also from Apple point of view, I guess, if they already great open this up in one market, my feeling is that they have a whole open that it's more natural also for them to open up worldwide, which then of course can make a real difference. Because only in the EU, of course, is still the limit, even though you saw…

And you did mention that there would be an increase, understandably. I would hope there would be an increase in your iOS investment spend. And I just wanted to check with Frode. Is that -- presumably, that was already kind of anticipated. And so we think about the guidance that you had sort of talked about for the budgeting and the marketing spend over the course of the -- over the balance of the year, I should say, there's no incremental upside to the guidance?

In terms of marketing spend, I would say we already reflect the Western markets. Europe, North America, that is where we spend the majority of our marketing spend. It correlates with the revenue and where our revenue growth is really coming from as well. So even though it still represents only 17% of our total user base, that is where we continue to investing in as part of the strategy that we've been following for the past years.

Okay. And then just on the GX browser, you called out some dilution in the monetization as GX expands in non-Western markets. I imagine that's actually a good thing despite that. But I'm wondering, if you were to control for the geography, do you have a sense for what the year-on-year growth in monetization might have otherwise been? I think it was 10% overall, but kind of market-by-market, so to speak, or emerging markets versus --

Yes. We typically don't go into that level of detail. But overall, I think for the company as a whole, I think we'd see an ARPU growth at about twice that. So I think that's a good indication.

And just again, just directionally, is the growth kind of comparable in each market? Or is -- are you seeing monetization growth now greater or lesser in one market or the other?

I think we see across the regions that we are doing well on monetization growth. And for GX in particular, I think we continue to advance on greater ad revenue drivers as it has historically been very search driven in isolation. It's still not, let's say, caught up to our other products in terms of mix between advertising and search, but we are progressing on that.

Okay. Last question for me. Iceland, we talked about the economics quite a bit back in February I think it was. And it seems like the pace of incremental CapEx investments is pretty well contained. Then we saw Meta announce another big increase in its CapEx budget. And so I'm just wondering, what are the chances that we start to see these big data center investments pop up more frequently quarter-to-quarter, year-to-year, et cetera?

I don't think I would expect any cash flow surprises there because -- because even if we did want to expand it over time, there was a significant lead time on that.

Our next question will come from Mark Argento with Lake Street.

Congrats on a nice quarter. Just a couple of quick ones here. Anything to read into the kind of more accelerated timetable on the Google renewal? I know you guys had mentioned that they had triggered that. And then I just want to touch on what's outstanding right now on the buyback.

Frode here. I can begin. In terms of the buyback, we have fully consumed our most recent $50 million buyback plan. So I think now it's a bit watch and see as we have historically always done, and sticking with the tradition when we announce something, then we execute pretty quickly thereafter. In terms of the Google renewal, it was of course a nice gesture of them to renew it this early in the year as they had the whole year. At least from my point of view, I think it's just a nice recognition of the joint potentials that we also have with Google.

That's helpful. And then just quickly back on the browser. It sounds like GX continues to perform well in North America. You get -- in terms of any uptake on the mobile side or on the desktop side, especially with more AI product or more AI technology rolling out, how do you see the non-GX browser as potentially a growth driver for you?

Yes. It's Song on. I'll just comment. So yes, I think as we also commented a bit that -- I mean, first of all, of course, Opera One is the primarily AI focused browser now. And also, they are launching their latest AI features drop. It's always on Opera One and Opera One developer build. So I think it's -- yes, I think now it's almost becoming one of the leading major browsers which have the fastest and all this access to all the AI technologies, which we are very proud of. So yes, I think especially among key opinion leaders and others, that has already been established and definitely helpful to have growth in non-GX browsers. And then even more, I'll comment that for instance, iOS, now one of the major officials, we have the broadcasting is actually they support AI which that's the highest we've gone. So I think all those that provide -- yes, we feel that is a good opportunities for us to grow. And especially if we can also capture the iOS opportunity because as you know, iOS are by definition becoming really a high segment. And those users are also typically quite conscious about the features that we can provide especially around AI. So I think it's a very good playground. And even for GX, I just want to mention that GX also has a mobile version, and it's also doing very well on iOS. And I think we're also super happy that now there's more opening up, it means we can do more. So yes, quite positive about we feel in general.

That's helpful. Good luck the rest of the way.

Our next question will come from Eric Sheridan with Goldman Sachs.

This is Alex on for Eric. Just a quick one on marketing spend. There's been a lot of discussion broadly around the industry on elevated ad prices in developed markets and sort of competitive ad auctions. Obviously that's where you're focused on adding users. Can you talk a little bit about what you're seeing in the market and ad auctions? Which digital ad channels are working well for you? How has ROAS trended in recent months? That would be really helpful.

Yes, it's Song here. I will comment it, but maybe comment also from Frode as well. So I would say high level, I feel that we are rather competitive in marketing. I think it's also positive about why we actually have a bit higher adjusted EBITDA as a result. I think the reason just because -- if you look at -- if you are more like a traditional ads bio where you typically buy just search ads, or you typically buy, say, native ads, then of course you are pretty limited, and you are always facing all of the competitions, right, that there's not so much we can do. And I think for us, it's a bit different that as a browser, especially digital browser, away from the starting point, don't really rely heavy on this. It's just because we will never be able to compete in that way. So we, for instance, focus a lot more on the influencers that we work with other influencer and that features, and then we'll get elastic. So I think those things actually enable us to be able to acquire users in that way. And actually maybe not so much affect it or impact it as much by those, I guess, movements in the pure ad or marketing spend space. So I think maybe that's the biggest differentiation. However, it's almost from a monetization point of view, I just want to comment that we actually see an interesting trend, right, that's needed and just purely buying from social, whatever, is almost not as exciting because we saw that people -- advertisers are actually exploring record so-called high user intent event, which means precise and the time user will take actions, right? So when you go out to the web page, you want to buy something, you want something to show up. So that's actually interesting trends, which not so much on marketing, but it actually has a benefit for us on advertisement, which we start to talk about, that now starting from this year, we saw a lot of other guys approaching us for potential cooperation. And we are working with some of the junts on how to make sure we can put up ads at the right moment with high user intent, which is a very good context for a browser because as a browser, of course, we have good knowledge of what a user is doing at what time and so what kind of accommodation can give them. So I think that is actually one of the interesting trends that we discovered on the digital advertising space, which is definitely something are changing and we are very excited about it. So yes, so to this, I tried to comment at the same time.

That's helpful.

[Operator Instructions] Our next question comes from Naved Khan with B. Riley Securities.

So maybe just on the DMA implementation and the trends you saw. Maybe you can provide some color on the existing base if you were able to retain that? And then what are you seeing in terms of usage after people who kind of set Opera as a default versus previously maybe not being a default? Let's talk about that a little bit.

Yes. It's Song on here. I think I was previously commenting that. Yes. So I don't think we have to disclose the separation of our iOS results. It's not irrelevant. It's merely in the range, so it's still big. But as we also commented that for total, of course, it's still small. But then even that, right, if you saw especially with incremental users, then there are also major uplifting on the existing active user base, which we are very happy about. And then I think what we see is that -- yes, so -- and you are right in the sense that a lot of users are to set the default browser. So first of all, we do see a significant increase of default browser users, which is actually very common. Like in most other platforms, we saw a bigger portion of our users set browser to default. Now it's possible the ratio is a lot higher, which we're also very happy because, yes, that has direct impact on positive uplift because they're simply such more and they have a chance to expose to end users more. So all in all, all that very positive. And I think the only thing that had we say, of course, it's only at the beginning because now it's only EU and it's also a bit fragmented in many countries. So we feel that -- we rather feel this is probably the pioneer of where we're heading to and some even bigger markets, like U.S., which we are highly anticipating. So let's see how this develops. And in any case, one is coming with growth because it's -- the incentive is large for us to move forward to.

Okay. And then maybe a quick follow-up for Frode. Maybe just talk about the opportunity you're seeing for marketing spend. It came in a little bit lighter, I think, in the first quarter. How should we kind of think about that going out? And do you see some new channels you can deploy ad dollars into?

So we had expected Q1 marketing spend to be very similar to Q4. It came in 2% below. So I think it was quite on expectation. And for the rest of the year, we continue to expect like $1 million to $2 million of incremental spend quarter-by-quarter. So keep ticking up as the year progresses. I think in terms of the channel mix, we expect to continue what we do today, which is to work with influencers and to turn, keep turning more of the spend into Western markets and other high-value populations, and then in particular for Opera GX and its global growth.

Understood. And then for Opera GX specifically, maybe is the growth you're seeing in some of these new emerging markets, is that primarily word of mouth, or how much of that is advertising? And how does the monetization there kind of change over time? Do you think that it's early days and it might actually improve as you become a bigger presence in a certain geo? Or does that -- just give us some thoughts there.

Sure. I mean in terms of word of mouth and distribution mix, we do benefit from a strong brand once we have started to build presence. So that we also show a chart in our investor presentation to sort of illustrate the size of the organic inflow of users. But it does require investment to start building a presence and in the example of GX, raise awareness of that product. So we do -- we definitely do that. I think the second part of the question was around monetization opportunities. We are in process of expanding the monetization of Opera GX. I think the Q4 to Q1 ARPU was almost flat, down a couple of percentage points, something like that, which is very strong given the seasonally strong fourth quarter. The product does benefit that the users it attracts outside Western markets are relatively more affluent than the average user in those regions. But let's say if ARPU was constant and it continues to grow internationally, that of course would be a headwind. But fortunately, we've been able to grow the underlying ARPU faster than the, let's say, the geo mix impact.

Understood. Thanks a lot guys.

Our next question will come from Vicky Wei with Citi.

Congrats on the solid quarter. I've got one question. Since the announcement of adding experimental support for 150 local LM driven from 50 families to Opera One browser in developer stream, any color you could share which are the top 5 favorite models from the users you see on your Opera One? Any indication how some of these usage of models could help on future financial growth? Or will this be more enhancement tools with limited monetization?

Yes, it's Song here. So I'll comment. So first of all, I would say I think it's more like -- number one, I would say this vision is rather a reflection of way, but also many ones like us, many leaders in the industry feel, well, the AI is heading to that it is always will be a combination of you have this very powerful large language models which are hosted by the guys who have OpenAI and the like. But then also in combination of, I would say, local models, more like -- well, I think a typical example is Llama and a few others. I think the reason just because -- really just because there's always the case that you want to give some help very fast. And then for privacy and other considerations, you do not want this to be uploaded to a cloud. And also there are some cost considerations among those. So I think all the mix there for some -- for some actions that will be taken by remotely, and those are the actions which will have to be done locally. So I think that's where we are heading to, and we feel that we're quite happy and proud almost to be the major ones to go to that path I think really just because we are rather independent. We don't have any more like possible other players, I understand there's some other considerations, right? They want some other cloud or whatever. But for us, we just tell what is user need, right? So I think that's quite important for us. And then in terms of models, I think the typical ones, Llama, of course, will always be very popular. It's one of the most powerful ones from Facebook, from Meta. And then you…

I can maybe chime in from the monetization point. I think being able to take these types of AI features mainstream, that can attract to us exactly the type of user profile that we monetize the best, right? And that we expect that these offline models will exist in combination with the online models like Aria because of the needs that require essentially updated information, access to product, access to other live things that won't be captured in an offline version. So slightly different use cases.

Okay. So if there's no other questions, I'll just say that thank you all for joining us today. We have been looking forward to share this quarterly update with you. It is ultimately exciting times. And as you see, we innovate and evolve quickly to seize the opportunities ahead. There will be lots to talk about as the year progresses, so stay tuned, and thank you for your time.

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