Opera(OPRA) - 2024 Q1 - Quarterly Report

Executive Summary & Highlights Q4 and Full Year 2023 Financial Highlights Opera exceeded revenue and adjusted EBITDA guidance with strong financial results for Q4 and full-year 2023 Key Financial Metrics | Metric | Q4 2022 (in thousands) | Q4 2023 (in thousands) | Q4 YoY Change | FY 2022 (in thousands) | FY 2023 (in thousands) | FY YoY Change | | :-------------------------- | :--------------------- | :--------------------- | :------------ | :--------------------- | :--------------------- | :------------ | | Revenue | $96,272 | $113,004 | 17% | $331,037 | $396,827 | 20% | | Net income | $20,922 | $123,558 | 491% | $15,035 | $169,408 | 1,027% | | Adjusted EBITDA | $22,784 | $27,764 | 22% | $68,084 | $93,719 | 38% | | Diluted earnings per ADS | $0.22 | $1.38 | 529% | $0.14 | $1.86 | 1,231% | | Free cash flow from operations | $20,282 | $22,499 | 11% | $42,849 | $72,451 | 69% | - Q4 2023 revenue of $113.0 million was at the top of the $110-113 million guidance range, representing 17% YoY growth[1] - Q4 2023 adjusted EBITDA reached $27.8 million, exceeding the $22-24 million guidance range, with a 25% margin[1] Management Commentary & Strategic Overview Management attributes 2023 overperformance to a strong product lineup and a successful high-ARPU user strategy - The company's 2023 growth strategy exceeded expectations with marketing spend below 2022 levels[4] - Opera's high-ARPU user growth remains strong, fueled by its unique browser offering and increased interest from monetization partners[5] - New engagement and monetization opportunities around browser AI are a key area of excitement for 2024[5] Key Business & Operational Highlights The company saw robust revenue growth, completed its share repurchase, and recorded a gain from its OPay investment - Advertising Revenue: Grew 20% YoY and 12% QoQ, constituting 60% of total revenue in Q4 2023[6] - Search Revenue: Increased 15% YoY and 10% QoQ, driven by a focus on high monetization potential users in Western markets[6] - Monthly Active Users (MAUs): 313 million in Q4 2023, a slight increase from 311 million in Q3, primarily from high-ARPU users[6] - Annualized ARPU: $1.44 in Q4 2023, a 22% increase YoY[7] - Opera GX Gaming Browser MAUs: 27.8 million across PC and mobile, up 7% from Q3[7] - Share Repurchase: Repurchased 1.15 million ADSs for $13.0 million in Q4, completing the $50 million buyback authorization[7] - AI Investment: Announced first dedicated AI cluster in Iceland with an associated capital expenditure of approximately $19 million[7] - OPay Investment: Updated fair value assessment of 9.44% stake to $269 million, resulting in a non-cash accounting gain of $106 million in Q4[7] - Cash Position: Increased by $10.3 million in Q4 to $93.9 million at year-end, supported by strong operating cash flow[7] - Dividends: Semi-annual dividend of $0.40 per ADS, totaling $35.0 million[7] Business Outlook & Guidance 2024 Full Year Guidance Opera projects continued revenue growth and a stable adjusted EBITDA margin for the full year 2024 2024 Full Year Guidance | Metric | 2024 Guidance (Midpoint) | YoY Growth (Midpoint) | | :---------------- | :----------------------- | :-------------------- | | Revenue | $457.5 million | 15% | | Adjusted EBITDA | $108 million | 24% margin | - Operating cash flow for 2023 was $82.8 million (88% of adjusted EBITDA), and free cash flow from operations was $72.5 million (77% of adjusted EBITDA)[9] - Total dividends for 2023 amounted to $1.20 per ADS, and buybacks totaled 2.77 million ADSs[9] Q1 2024 Guidance The company anticipates continued year-over-year revenue growth and a consistent adjusted EBITDA margin for Q1 2024 Q1 2024 Guidance | Metric | Q1 2024 Guidance (Midpoint) | YoY Growth (Midpoint) | | :---------------- | :------------------------ | :-------------------- | | Revenue | $100 million | 15% | | Adjusted EBITDA | $23.5 million | 24% margin | Fourth Quarter 2023 Financial Performance Revenue Breakdown Q4 2023 revenue grew 17% YoY, driven by strong performance in advertising and search Q4 2023 Revenue by Category | Revenue Category | Q4 2022 (in thousands) | Q4 2023 (in thousands) | YoY Change | | :----------------------- | :--------------------- | :--------------------- | :--------- | | Total Revenue | $96,272 | $113,004 | 17% | | Advertising revenue | $56,753 | $67,833 | 20% | | Search revenue | $39,034 | $44,704 | 15% | | Technology licensing and other revenue | $485 | $466 | -4% | Operating Expenses Analysis Operating expenses rose 10% YoY in Q4 2023, mainly due to higher platform fees and content costs Q4 2023 Operating Expenses | Expense Category | Q4 2022 (in thousands) | Q4 2023 (in thousands) | YoY Change | | :-------------------------------------- | :--------------------- | :--------------------- | :--------- | | Total Operating expenses | $84,577 | $93,154 | 10% | | Combined technology & platform fees, content cost, cost of inventory sold | $18,952 | $28,540 | 51% | | Personnel expenses (incl. share-based) | $21,095 | $20,617 | -2% | | Marketing and distribution expenses | $29,558 | $30,148 | 2% | | Depreciation and amortization | $3,490 | $3,225 | -8% | | All other operating expenses | $7,002 | $9,169 | 31% | - Personnel expenses, excluding share-based remuneration, decreased by 6% YoY to $16.1 million[16] - An increase in professional services fees contributed to the overall increase in 'All other operating expenses', related to strengthening internal controls[16] Profitability Metrics Profitability improved significantly in Q4 2023, boosted by a substantial fair value gain on the OPay investment Q4 2023 Profitability | Metric | Q4 2022 (in thousands) | Q4 2023 (in thousands) | YoY Change | | :----------------------- | :--------------------- | :--------------------- | :--------- | | Operating profit | $11,842 | $20,327 | 72% | | Operating margin | 12% | 18% | +6 ppts | | Net income | $20,922 | $123,558 | 491% | | Basic earnings per ADS | $0.22 | $1.41 | 541% | | Adjusted EBITDA | $22,784 | $27,764 | 22% | | Adjusted EBITDA margin | 23.7% | 24.6% | +0.9 ppts | - Net income of $123.6 million included a $105.9 million gain from the updated valuation of the OPay investment, with underlying profit at $17.6 million[14] - Basic earnings per ADS was $1.41, of which $1.21 related to OPay and $0.20 to underlying profit[14] Cash Flow Performance The company demonstrated strong cash generation in Q4 2023 with increased operating and free cash flow Q4 2023 Cash Flow | Metric | Q4 2022 (in thousands) | Q4 2023 (in thousands) | YoY Change | | :-------------------------- | :--------------------- | :--------------------- | :--------- | | Operating cash flow | $23,542 | $25,284 | 7% | | Operating cash flow as % of Adjusted EBITDA | 103% | 91% | -12 ppts | | Free cash flow from operations | $20,282 | $22,499 | 11% | | Free cash flow from operations as % of Adjusted EBITDA | 89% | 81% | -8 ppts | Consolidated Financial Statements Consolidated Statement of Operations The statement details revenue, expenses, and net income, showing significant net income growth for 2023 | (In thousands) | Q4 2022 | Q4 2023 | FY 2022 | FY 2023 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Revenue | $96,272 | $113,004 | $331,037 | $396,827 | | Total operating expenses | $(84,577) | $(93,154) | $(290,906) | $(334,603) | | Operating profit | $11,842 | $20,327 | $40,600 | $62,890 | | Fair value gain on investments | $1,500 | $105,945 | $1,500 | $105,945 | | Net finance income (expense) | $6,898 | $(653) | $(18,224) | $7,269 | | Income before income taxes | $20,241 | $125,620 | $23,870 | $176,105 | | Net income attributable to owners of the parent | $20,922 | $123,558 | $15,035 | $169,408 | | Diluted earnings per ADS | $0.22 | $1.38 | $0.14 | $1.86 | Consolidated Statement of Comprehensive Income This statement presents net income and other comprehensive income components for the reported periods | (In thousands) | Q4 2022 | Q4 2023 | FY 2022 | FY 2023 | | :---------------------------------------------------------------- | :------ | :------ | :------ | :------ | | Net income | $20,922 | $123,558 | $15,035 | $169,408 | | Exchange differences on translation of foreign operations | $1,775 | $1,387 | $(3,477) | $(742) | | Total comprehensive income attributable to owners of the parent | $22,601 | $124,945 | $12,170 | $168,666 | Consolidated Statement of Financial Position The balance sheet reflects increased total assets, driven by the OPay investment revaluation, and a strong equity position | (In thousands) | As of Dec 31, 2022 | As of Dec 31, 2023 | | :------------------------------------ | :----------------- | :----------------- | | Total non-current assets | $624,473 | $818,589 | | Investment in OPay | $- | $269,407 | | Total current assets | $340,213 | $208,461 | | Cash and cash equivalents | $52,414 | $93,863 | | Total assets | $964,686 | $1,027,050 | | Total equity attributable to owners of the parent | $888,213 | $935,957 | | Total liabilities | $76,472 | $91,093 | | Total equity and liabilities | $964,686 | $1,027,050 | Consolidated Statement of Changes in Equity This statement shows movements in equity from net income, dividends, and share repurchases for 2023 | (In thousands) | As of Jan 1, 2022 | Net Income (FY22) | Acquisition of treasury shares (FY22) | As of Dec 31, 2022 | Net Income (FY23) | Dividends (FY23) | Acquisition of treasury shares (FY23) | As of Dec 31, 2023 | | :------------------------------------ | :---------------- | :---------------- | :------------------------------------ | :----------------- | :---------------- | :--------------- | :------------------------------------ | :----------------- | | Total equity attributable to owners of the parent | $1,013,039 | $15,035 | $(146,068) | $888,213 | $169,408 | $(107,222) | $(32,695) | $935,957 | | Retained earnings | $249,155 | $15,035 | $- | $273,262 | $169,408 | $- | $- | $461,271 | | Treasury shares | $(60,453) | $- | $(146,063) | $(206,514) | $- | $- | $(32,695) | $(238,815) | Consolidated Statement of Cash Flows The statement highlights cash from operations and usage in financing, resulting in a net cash increase for the year | (In thousands) | Q4 2022 | Q4 2023 | FY 2022 | FY 2023 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Net cash flow from operating activities | $23,542 | $25,284 | $56,662 | $82,761 | | Net cash flow from (used in) investing activities | $(4,795) | $(1,105) | $44,450 | $19,999 | | Net cash flow used in financing activities | $(132,993) | $(14,048) | $(150,578) | $(59,843) | | Net change in cash and cash equivalents | $(114,245) | $10,131 | $(49,465) | $42,918 | | Cash and cash equivalents at end of period | $52,414 | $93,863 | $52,414 | $93,863 | Supplemental Financial Information Revenue Details This section provides a detailed breakdown of revenue, with advertising and search as the primary drivers | Revenue Category | Q4 2022 (in thousands) | Q4 2023 (in thousands) | FY 2022 (in thousands) | FY 2023 (in thousands) | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Advertising | $56,753 | $67,833 | $187,434 | $230,980 | | Search | $39,034 | $44,704 | $140,162 | $162,168 | | Technology licensing and other revenue | $485 | $466 | $3,441 | $3,679 | | Total revenue | $96,272 | $113,004 | $331,037 | $396,827 | Personnel Expenses Details This section details personnel expenses, separating cash-based compensation from share-based remuneration | Expense Category | Q4 2022 (in thousands) | Q4 2023 (in thousands) | FY 2022 (in thousands) | FY 2023 (in thousands) | | :---------------------------------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Personnel expenses, excluding share-based remuneration | $16,999 | $16,053 | $65,284 | $65,801 | | Share-based remuneration, including related social security costs | $4,096 | $4,564 | $9,304 | $16,950 | | Total personnel expenses including share-based remuneration | $21,095 | $20,617 | $74,588 | $82,750 | - Share-based remuneration includes grants by Kunlun (Opera's ultimate parent) to Opera employees, which are expensed but do not dilute Opera's shareholders[39] Other Operating Expenses Details This section breaks down other operating expenses, showing increases in hosting and professional services fees | Expense Category | Q4 2022 (in thousands) | Q4 2023 (in thousands) | FY 2022 (in thousands) | FY 2023 (in thousands) | | :------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Hosting | $2,398 | $2,549 | $9,267 | $10,161 | | Audit, legal and other advisory services | $1,468 | $2,858 | $6,857 | $7,975 | | Software license fees | $608 | $928 | $2,149 | $3,357 | | Rent and other office expenses | $1,078 | $664 | $3,743 | $2,700 | | Travel | $446 | $524 | $1,496 | $1,848 | | Other | $1,004 | $1,646 | $3,193 | $4,101 | | Total other operating expenses | $7,002 | $9,169 | $26,705 | $30,143 | Non-IFRS Financial Measures & Reconciliations Definitions of Non-IFRS Measures This section defines Adjusted EBITDA and Free Cash Flow from Operations as supplemental performance measures - Adjusted EBITDA is defined as net income excluding items like income tax, net finance expense, fair value gains, depreciation, and share-based remuneration[21] - Free cash flow from operations is defined as net cash from operating activities less capital expenditures and lease liability payments[22] - These non-IFRS measures provide greater transparency for decision-making but should be reviewed in conjunction with IFRS financial information[20] Reconciliation of Net Income to Adjusted EBITDA This table reconciles net income to the non-IFRS metric Adjusted EBITDA for quarterly and annual periods | (In thousands) | Q4 2022 | Q4 2023 | FY 2022 | FY 2023 | | :---------------------------------------------------- | :------ | :------ | :------ | :------ | | Net income | $20,922 | $123,558 | $15,035 | $169,408 | | Income tax expense (benefit) | $(681) | $2,062 | $8,835 | $6,697 | | Net finance expense (income) | $(6,898) | $653 | $18,224 | $(7,269) | | Fair value loss (gain) on investments | $(1,500) | $(105,945) | $(1,500) | $(105,945) | | Depreciation and amortization | $3,490 | $3,225 | $13,939 | $13,165 | | Impairment of non-financial assets | $3,194 | $116 | $3,194 | $681 | | Share-based remuneration, including related social security costs | $4,096 | $4,564 | $9,304 | $16,950 | | Non-recurring expenses | $310 | $9 | $1,517 | $698 | | Other operating income | $(148) | $(478) | $(469) | $(666) | | Adjusted EBITDA | $22,784 | $27,764 | $68,084 | $93,719 | Reconciliation of Operating Cash Flow to Free Cash Flow This table reconciles operating cash flow to free cash flow, detailing capital and lease payment deductions | (In thousands) | Q4 2022 | Q4 2023 | FY 2022 | FY 2023 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Net cash flow from operating activities | $23,542 | $25,284 | $56,662 | $82,761 | | Deduct: | | | | | | Purchase of equipment | $(429) | $(594) | $(3,187) | $(1,873) | | Purchase of intangible assets | $- | $(250) | $- | $(250) | | Development expenditure | $(1,878) | $(977) | $(6,789) | $(4,281) | | Payment of lease liabilities | $(953) | $(964) | $(3,837) | $(3,907) | | Free cash flow from operations | $20,282 | $22,499 | $42,849 | $72,451 | Additional Information Conference Call Details This section provides access details for the Q4 2023 financial results conference call and webcast - Date & Time: Thursday, February 29th at 8:00 am Eastern Time (EDT)[18] - Confirmation Code: OPRAQ423[18] - Webcast: A live webcast will be available at https://investor.opera.com[18](index=18&type=chunk) Safe Harbor Statement This statement clarifies that forward-looking statements are subject to risks and actual results may differ - Forward-looking statements are made under the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995[23] - Potential risks include international conflicts, regulatory processes, market acceptance, changes in consumer behavior, and global macroeconomic conditions[23] About Opera Opera is a global software company known for its secure and innovative web browsers - Opera is a major browser developer and leading internet consumer brand focused on providing the best browsing experience[24] - Hundreds of millions use Opera web browsers for their unique and secure features on mobile phones and desktop computers[24] Contacts This section lists contact information for investor relations and media inquiries - Investor relations: Matthew Wolfson, investor-relations@opera.com[25] - Media: press-team@opera.com[25]