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. Please be advised that today’s conference is being recorded. 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 will include 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, which is inherently subject to uncertainties beyond management's control. 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. We believe that these measures provide an additional tool for investors 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 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 updates on our investments and our expectations going forward. Song Lin.

Sure, thank you, Derrick. And thank you, everyone, for joining us today. 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 excites me the most is that it validates our strategic approach to growth, both in our core business and our new initiatives, and that the Opera team continuously executes every day. Last quarter, I highlighted that the strength of our core business positioned us to not only outperform during a period of significant uncertainty but also gave us the ability and confidence to invest in initiatives that potentially drive substantial growth for Opera in the years ahead. The plan is to repeat this 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 solidly by 8% year-over-year and even growing sequentially. This is the seasonally strongest quarter. This is a very strong indication of the strength of our core business. Adjusted EBITDA was better than expected as the revenue outside built to the bottom line. We have also been growing users by 12% and 14% year-over-year in Africa and Europe and CIS, our core regions of focus. Second, I would like to comment that our initiatives are showing excellent momentum. I'll start with our European payment device. In February, we launched our in-browser smart shopping functionality, providing cashback and payment solutions for shoppers. This is an area of huge potential for us. It's no surprise that more and more consumers are looking to transact online, and the COVID-19 pandemic has only accelerated this trend across multiple categories in various markets. We already have a good track record in this space through OPay and Nanobank, and we remain very excited about the European potential within Opera. The adoption rate is encouraging, with both new user transaction volumes and GMV growing nicely. Although it's still early-stage, the fact that we have a great user base constantly transacting in our browser presents a massive opportunity to scale in this very relevant space. We will add new features and roll out to more countries in Europe as the year progresses, positioning us to contribute meaningfully to our revenue in the next year and beyond. I would also like to talk about gaming. Our efforts in gaming are just beginning, but the Opera GX gaming browser now has over 9 million monthly active users. What sets our ambitions in gaming apart is that we have a holistic view of the gaming ecosystem and are innovating on multiple fronts. We will continue to add gaming features to Opera GX to enhance the gaming experience and allow us to grow the gaming user base. At the same time, we are also building out our game maker studio platform, making game development accessible to an increasingly broad community, driving engagement. We believe that just as easy-to-use applications and tools have allowed anyone to design and launch a website or record music or video, the same accessible design tools will enable more people to design, play and share their games within our ecosystem, creating a full-circle effect. These are our first steps toward building our gaming platform or even a potential gaming metaverse. We are very ambitious, and given the size of the market, we will continue to innovate and expand in this space. Lastly, Opera News has had a significant impact. As we mentioned last call, the continued success of Opera News leads us to conclude that we have the potential to expand its geographical footprint into developed regions, starting with several markets in Europe and the United States. The results continue to be positive, and we have now achieved several million MAUs in these markets in just a few months, as reflected in corresponding Google Play rankings in all the countries. While still evolving our product and go-to-market strategies, we believe we have developed a strength of know-how that has proven capable of driving rapid growth—mostly in user base and also for strong revenue growth trajectory, reflected by the fact that news revenue grew over 260% year-over-year and 30% sequentially in Q1. We expect this strong revenue growth to continue in the quarters ahead, powering our bullish view on our revenue growth potential. So as we look ahead, we remain confident that the strengths we see in our core business will continue. The history of the browser and what it can be is still being written. I believe that Opera will continue to play an outsized role in shaping this history. There is significant room for not just growth but innovation in browsers that are optimized for how people will use them. Whether it's shopping, gaming, looking for news, or managing digital life with a focus on privacy and security, we cherish that people always expect more and better. Opera's browser is preferred by well over 300 million users worldwide. As we push forward with our initiatives in payments, gaming, and news, based on our core strengths, we will maintain our strong, innovative approach. Succeeding in any one of these initiatives represents a massive value creation opportunity. But we are, of course, aiming for success across all three. As we think about the possibilities in front of us, we are excited about our core business and the potential for all our initiatives. Our guidance indicates we see a very exciting period of accelerated growth ahead of us. With that, I'll bring it to Frode for the details.

Thanks, Song Lin. The continued acceleration of our product, both in terms of engagement and resulting monetization led to a first quarter that exceeded our already high expectations. I will recap the highlights and then provide our refreshed guidance. Revenue for the first quarter was $51.6 million, compared to $40.2 million in the year-ago quarter, and also grew sequentially compared to the last quarter, despite seasonal headwinds. Specifically in the quarter, search revenue was $26.7 million, accelerating to 36% year-over-year growth, compared to 13% last quarter. This was driven by our record number of PC users and monetization gains. Advertising revenue was $23.4 million, accelerating to 40% year-over-year growth, compared to 16% last quarter. This was attributable to 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 decreased by $2.4 million, although with almost no impact on profit, as the decline relates primarily to low-margin professional services to OPay. Our operating expenses before adjusted EBITDA were $47 million. As expected, we observed significant increases in marketing spend, as well as 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, which was better than expected. The overperformance largely followed the upside from our core search and advertising revenue streams, as well as some marketing and personnel expenses being shifted to the second quarter. After accounting for depreciation, 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, reaching a total of $143.3 million. Moving to our investments, they continued their positive trends in Q1 and represent significant upside potential for Opera shareholders. As a reminder, our investments include Nanobank, with Opera holding 42%, as well as OPay at 13.1%, and Starmaker at 19.35%. Starting with Nanobank, for the quarter, it posted revenue of $15.3 million, up by about 10% compared to the fourth quarter, while dispersed loans represented $235 million in total value. Adjusted EBITDA was $5.5 million, representing an 11% margin, and post-tax profits were $4.3 million. We believe Nanobank will scale meaningfully in 2021 as it launches in new geographies and adds new products, both of which are in testing phase, especially as India starts to recover from the impact of COVID-19. As noted in our prior call, we expect to see more evidence of this in the middle to later part of the year. Our two other significant investments, OPay and Starmaker, continue to scale. OPay's total payment volume continues to grow, having increased from December 2020 levels of $2 billion, driven by new initiatives. One of the most exciting innovations is the OPay card, a debit card that ties to the OPay wallet balance, supporting offline use cases aimed at increasing the frequency of use. Starmaker continues to scale rapidly, with an annual revenue run rate of almost $180 million in the first quarter, up 3.5 times compared to the year-ago period. Now, moving to our forward-looking commentary, our core business continues to perform and grow ahead of expectations. This increases our confidence in our near-term and full-year outlook. Furthermore, we continue to believe that reinvesting most of our underlying adjusted EBITDA growth into our new initiatives is the right approach. We believe the ROI on those investments will enable us to achieve growth rates well in excess of 20% to 30% and accelerate our path towards becoming multiples of our current size. Translating our momentum into refreshed 2021 guidance, we continue to take a conservative approach by not including near the full potential from new initiatives, while ensuring potential investments are reflected. Based on the performance of our core business, we are raising our revenue guidance while maintaining our adjusted EBITDA guidance to provide flexibility for further growth. We now expect 2021 revenue of $230 million to $245 million representing 44% year-over-year growth at the midpoint, up from our prior midpoint guidance of 39% growth. Our adjusted EBITDA expectation remains at $10 million to $30 million for the year. In Q2, we expect revenue of $55 million to $57 million, representing 74% year-over-year growth at the midpoint. The acceleration in second-quarter revenue growth is fueled by strong continued results from our core search and advertising business. However, comparisons to Q2 2020 should also consider the significant COVID-19 impact on search and advertising revenue in the year-ago quarter. Tech licensing and other revenue have become substantially more comparable on a year-over-year basis than in recent quarters, as revenue from professional services was largely phased out by Q2 2020. Adjusted EBITDA is expected to be around breakeven in the second quarter, as we continue to invest aggressively in our new initiatives. Overall, Q1 was another strong quarter and a very healthy start to 2021. It's great to see the momentum in the business and how the acceleration of our growth trajectory is benefiting both our near and long-term outlook. We look forward to keeping you posted. Thanks. I think we can now take questions.

Thank you. Your first question comes from the line of Lance Vitanza with Cowen.

Hi, guys, thanks for taking the questions, and congratulations on the quarter. I want to start with your supplemental financial information. Can you talk about the impact of COVID in the year-ago quarter in Q1 2020 versus your expectations? We know there was a significant impact in Q2 2020, but was there much impact in the first quarter? It doesn’t seem like it given that Q1 20 revenues were actually up over Q1 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 our continued operations with the browser news and the other products that we've discussed today, we did not really see much of the COVID impact in the first quarter last year. It affected Nanobank's business for sure. In terms of the assessment on collectability, that was it right at the end of the quarter, but it was really towards the very end of March, not affecting the quarter as a whole much for pricing.

Great. Thanks. So this growth is really on a, it's not just a recovery balance; this is growth over a period where you were already pretty strong and growing. 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 spending a lot of money on new growth initiatives, so could you talk about, and I heard the comments you made, Frode, just a minute ago about getting to a size that is a multiple of the size of the company today. Could you talk a little bit about how we should be thinking 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 model what some of these other new initiatives could ultimately contribute?

Sure. So if I begin with the overall picture, for us, all three main areas we are investing in represent substantial upside for value creation, both in terms of creating high-usage content in Western markets, in the broader gaming ecosystem that we are working on, as well as the European payment products and services around Dify. We consider all of these massive opportunities. We've been clear that we don't make much of it in our guidance for 2021; we tend to be very conservative on that and look internally at what run rates we are scaled to sort of extend the year with and the impact that can have on 2022. I would point to 2022 as the first year where we could see significant impact from these new initiatives.

Okay. And then maybe, go ahead.

Just to add, when you start looking at the revenue growth of the core, which has historically been around 20%, when you start layering in some success, you start projecting very good revenue growth. The second comment I'd make on these investments is, today we're investing money because they're very new. As they scale and get bigger, the incremental margins on these businesses are very good. The idea is longer term, you're going to end up generating 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. On OPay, I'm wondering if there was perhaps a seasonal impact there. Forgive me if I missed a comment in 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. Can you elaborate on that?

Sure, I can begin. Derrick, go ahead.

No, Lance, I would guess that regarding OPay, they did more total payment volume in March than December. So they're continuing to grow. I think we're being a little more cautious about how we found OPay and allowing the team over there to provide those details since they are trying to drive a higher profile for themselves as they think about the future.

Yes, so maybe I'll also comment as well. OPay is indeed growing tremendously. And other aspects of their business like app users are also growing significantly, which is the focus for now. They prefer to hold themselves to announce their excellent results themselves instead of us talking too much about it in our own remarks. I think that's actually the reason, but they are doing very well in Q1.

Thank you for clarifying that; I appreciate it.

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 where you've been making investments and seeing uptake in monetization?

Yes, so Okay. So this is Song Lin. I’ll try to give the first part, and he can then provide further numbers. At a high level, I guess the comment is just that we have been very successful in Africa. As noted in the quarterly release, for this year, especially Q1, we have been focusing on expanding into Western markets, which has been performing well. We've been growing nicely regarding users, and we are happy to see that we can provide solid monetization based on our accumulated know-how. We have localized the market effectively because each market is very different, like Germany is very different than the U.S. But we're able to actually localize it and provide very solid conversion and retention rates. The performance metrics are generally positive, but perhaps worth mentioning is that we are also excited about monetization. Typically, we see a drag between new users and monetization, but thanks to our past experience, we have been able to grow users in line with monetization, which I think is a positive point that supports why we're doing well and could potentially lead us to raise guidance.

Great. The key precursor to revenue is it? Is it downloads of the app? Or what, you know, how do you guys actually stimulate uptake? Are you spending money to drive people to download the app in various regions? What are you doing specifically to grow the business from a user perspective?

Yes, I think it is aggressive performance marketing, but the key is that, based on the know-how we have accumulated in the past year, we can conduct performance marketing roles in a very efficient way. That's number one. Number two is that retention is really good because if you have poor retention, it will hinder your growth, irrespective of how much money you spend. So, I would say it's a combination of effective performance marketing alongside a high user retention rate.

I can supplement that. Of course, a product launching in a new geography goes through several stages. We are now in the initial phases of our launch where we leverage marketing, performance marketing, as Song Lin described, to build a presence. Over time, as we've seen with other initiatives and products, the organic segment will play a bigger role. We assess investments very carefully on a daily basis, monitoring the impacts and returns on those investments.

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

High-level on our advertising drivers, we see a couple of things. We benefit from more user growth on products, but it is the per user monetization that is driving revenue growth the most. Within that, we are experiencing strong demand for our inventory and the traffic we can drive. Certain partners are scaling faster, typically online-related businesses. We are also seeing the impact of geographic mix changes as Europe is growing very well, which drives the average monetization per user.

Your next question comes from the line of 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 ad revenues were growing very well, but on a sequential basis, can you give us some color in terms of whether advertising was better sequentially versus app, and then understand, you mentioned your full-year guidance, despite raising it to the new range, but you also mentioned very little revenue that informed the new initiative. If we were to assume between gaming and European fintech, will gaming revenue come more near-term and fintech be a bit longer term? Any color you can provide on the timing of revenue that may come in?

Thanks, Alicia. So first, talking about the second-quarter guidance. The starting point in the Q1 revenue achieved in both search and advertising, we are pleased with both from 36% to 40% year-over-year growth, resulting in robust performance in the quarter. When we look at the next quarter, I definitely see advertising being the biggest driver of the expected increase from Q1 to Q2 this year. In terms of the full year and new initiatives, we've taken a conservative approach when setting guidance, but to answer your question on what will impact our results first, I would point to the advertising revenue effect in particular from scaling Opera News in Western markets. This is likely the first area to materially benefit our financial statements, something we should see in 2021.

And any follow-up in terms of gaming versus fintech, which one will come more near-term, and then which will contribute a bigger proportion long-term?

We have been cautious in setting guidance this year. The gaming revenues, of course, have already started reflecting in our financials from the success of the Opera GX browser, which continues to scale well, and we are broadening that with our ecosystem and game studio. On the fintech side, we have been facilitating a large number of transactions for our user base. We are focused on building out the service and preparing it for scale, rather than concentrating on immediate revenue contribution or near-term margins.

Alicia, this is Derrick. If you consider gaming to include the GX browser, that's driving a lot of value for us today. I think we said last quarter that every million MAUs is worth about $2.7 million. You can observe our trajectory of adding a million-plus MAUs a quarter and see that contribution. On the fintech front, our goal is to launch our smart shopping product that we hope to introduce in a few more markets over the year, and depending on when those launch and how quickly we scale, will dictate what contribution we see this year.

I see. Okay, that's helpful. One last quick follow-up. You mentioned your sales and marketing spend, with some being deferred, could you share what the reasons were for that?

Yes, the term 'slipped' is not entirely accurate. It’s more a question of looking at the year as a whole and assessing the investments needed to achieve our scaling goals. At any time, we give guidance based on our best expectations for what will happen over the upcoming three-month period and the year as a whole. We ended up spending slightly less on marketing and distribution in Q1 than we had originally anticipated.

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 of what the delta is in terms of monetization of a user in Europe versus Asia, or India or Africa, for example? I'm guessing that's quite significant. 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 MAUs. So that was the first question. Second one, can you just remind us how do you sell your advertising? Is this done programmatically or direct? That was the second. And the third was, 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 will answer the last part. Your comments on monetization are important. Between a user in Africa and a user in the U.S., I would say there’s roughly a 10x difference. The European user is slightly less than the U.S. dollar, depending on the specific country. The monetization delta is evident and crucial. When it comes to ad sales, we use different methods. Typically, in countries like Africa, we'll rely more on a direct sales team. Meanwhile, in the U.S. and Europe, we employ more programmatic sales, which is growing fast. Additionally, we utilize addressable ads via partners.

Yes, in Q1 2019, we had $38 million in revenue. In Q1 2020, we had $40.2 million in revenue, which was about 6% growth and would have been a couple of percent more, if COVID hadn't influenced the end of the quarter. Q2 2020, however, saw a year-over-year decline at 74%, driven by COVID impact during that quarter.

Your next question comes from the line of Leonard 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? The new initiatives, I assume, 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 various questions in understanding that. Can you help us quantify the drag from the new initiatives on earnings this year versus next?

Yes, hi, Frode here. Starting with the cash on our balance sheet, we are not planning to use it for dividends, as stated in the past. We keep it to maximize strategic flexibility, both for operational opportunities and continue generating cash even with heavy investments in 2021. We have previously also launched share buyback programs when we believed it was in the best interests of our shareholders and always consider M&A opportunities. In terms of the drag on profitability in the year from the new initiatives, we started the year saying we would take additional profits from scaling our business to reinvest in measuring growth initiatives. While our EBITDA margins have historically been around 28%—indicating the baseline picture of the business—it’s early for me to comment specifically about the margin picture at the end of the year, but we see this as opportunities to establish these businesses.

Just one follow-up. As an investor, I'm curious how a 40% growth company can trade at three to four times forward sales, while many companies growing less than that are trading at twice that valuation. From management’s perspective, how do you see the company value being unlocked? Is it the new initiatives when you can finally gain leverage, or is it something else that you think will be the driver?

We are focused on driving the business as best as we can while being clear about our strategy and moves towards this scale. We also try to provide relevant information about the investments we hold, as we believe they represent significant value upside for our shareholders. Documenting that value over time can be very helpful as well.

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

Hi, guys. Thanks for letting me squeeze in again. I wanted to follow up on Starmaker. The 3.5x growth you mentioned is impressive. Can you elaborate on what's driving that growth? Are you entering new markets or is there a big new marketing campaign, or other factors fueling such growth?

Yes, sorry you missed that earlier. Its growth remains tremendous year-over-year and nearly 50% sequential growth from the fourth quarter. It is a profitable company, with its success stemming from operational growth across the board. Still, I need to be careful in providing specifics since it's independently communicating its own results. However, Song, is there any additional color you think we could share on Starmaker?

Yes, I would just add that Starmaker's significant growth reflects the accumulation of last year’s growth. In comparing Q1 last year to this year, you naturally see huge returns since it continued that trend through all quarters of 2020. It mirrors how we’ve seen growth in Opera News, which showed a 260% year-over-year increase, and hope to see even further in Q2.

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 remarks.

Okay, I think we have had great discussions today. Our core business is doing well, and our new initiatives are scaling. This allows us to predict a bullish future. I want to express my gratitude to our shareholders for their trust and support. We will do our best and continue executing well. Hopefully, we can achieve great results together. Thank you for attending, and have a nice day.

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