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Executives

Lars Boilesen - CEO

Erik Harrell - CFO and CSO

Analyst

Martin Stenshall - Danske Bank

Opera Software Asa (OTC:OPESF) Q2 2014 Earnings Conference Call August 21, 2014 2:00 AM ET

Lars Boilesen

Good morning, welcome to Opera Software's second quarter 2014 presentation.

Revenue came in at $100.6 million, up 38% from $73.1 million in the same quarter last year. Adjusted EBITDA of $27 million, up 25% from $21.7 million last year. Record quarter, record quarter in terms of revenue, record quarter in terms of profitability. We also are meeting our guidance for Q2 both on revenue and profitability and we are very pleased to reach an important milestone in the further development of our software and we are reaching $100 million in one quarter.

We saw basically our business come in as expected but on Opera Mediaworks, it came in due to very strong revenue above expectations. Now, Erik will go a bit more into the numbers.

Erik Harrell

Before I begin, before I go through the financial results, I just want to point you to the forward-looking statements, the legal statement from our lawyers.

So as Lars said, record results, for the quarter, and on the revenue and adjusted EBITDA side, revenue growth of 38%, adjusted EBITDA growth of 24% and operating cash flow came in at $4.7 million, just as an FYI on the operating cash flow side, we had some basically -- working capital that moved into Q2 from Q1. If you look at the first half of 2014, versus the first half of 2013, we had $20.1 million of operating cash flow in the first half this year versus $14.5 million of operating cash flow last year and we think that Q3 will be a very solid quarter from an operating cash flow standpoint. So I just wanted to make a comment on the cash flow side.

In terms of how things came in versus our expectations, as Lars said, both on revenue, adjusted EBITDA came in above our midpoint guidance. We had a range of $95.5 million to $98.5 million on revenue, we came in above the high end of the range on the adjusted EBITDA side. We had a range of $24.5 million to $26.5 million and we came in above the high end of the range at $27 million.

So obviously, pleased with the results for the quarter and I will go into more of the details , for why we exceeded our own expectations of the quarter. I will go into details, of course on revenue, and more details on revenue and profit and we also, show kind of the trends here and we are clearly very pleased with the revenue trends that we see here in the Opera business.

So now, let us spend some time on the revenue side of the equation. Before doing that, I think -- I always think it's valuable to kind of step back a little bit, one can kind of get very focused on kind of the quarterly results and not necessarily step back and look at the big picture.

And the big picture is that the markets that Opera is in are huge and are really fast growing. So if you look at mobile advertising, for example, this is a market that will do -- according to estimates, around $18 billion of revenue globally, and it is expected to go to $95 billion, you are talking about a huge market -- $95 billion by 2018. So you are talking about massive growth rates, massive on size and it is really just this movement on - of people to smartphones, there is more time spent now on phones than on desktop and so there is just a move to phones and that is driving advertising revenue, I mean advertisers want to follow eyeballs and eyeballs are moving to mobile, the money is flowing.

But what you have is you have this big gap where 20% of the time spent is on mobile devices but there's only 4% of ad spend, and that is the dynamic that we're working in, and it's an exciting market to be a part of.

And in fact, even in the advertising business, there are a lot of brands that aren't advertising or not scaled at all in mobile advertising. And so it's just an exciting place to be. And you will think that mobile, too, if you think about devices you have, you share a TV and you will share a desktop usually but you won't share a mobile device.

The mobile device is a very personal device and what do marketers want? Marketers want to target you as a user and that is what's so powerful about mobile is that it is your own personal device. The other thing, of course which is happening to smartphones, you have massive smartphone growth and people spend more time on smartphones and advertisers want to target the smartphone users because there is more revenue there and it is also driving data. As people move to smartphones and they are spending more time, they are driving more data traffic for the operators, operators are looking for solutions to help them deal with this deluge of data and Opera has solutions for that.

We have Rocker Optimizer, for example, to help them deal with this massive deluge of traffic from people watching videos and running apps and that sort of thing.

And so we are just in some really exciting fast-growing, very sized markets -- data market is a $200 billion market for example, very sized market, expected to double over the next couple of years. So very exciting opportunities for us as a company and as a business but what we are really trying to do is connect on helping consumers reach 350 million, it's a big number, 350 million users on a monthly basis. We are helping them connect and reach the services which matter most to them.

We are helping operators with providing a better internet experience to the users and so they use more data, make -- so the operators can make more money. We are helping publishers make -- monetize the content and services that they provide through advertising, so the publisher side of the business. And then of course, we are helping advertisers reach the audience that they are trying to reach and so they can build value for their own businesses, and build shareholder value for their own businesses.

So when you look at Opera, we -- and you look at the whole mobile ecosystem, we are targeting the four key players in this mobile ecosystem. We are targeting the consumers, we are targeting the consumers, we are targeting the operators, we are targeting the publishers and we are targeting the advertisers, and we are really well-positioned in all those four target segments.

And I think another thing to really emphasize about Opera is this 1 billion number and we have updated it to reflect including the audience that we have from AdColony but this is a major milestone for the Company that we have an audience of 1 billion consumers and you think about how many people are actually using internet on a daily basis, this is just a massive number and a real strategic asset because when you have an audience, you are going to drive money and money follows eyeballs. This is a really powerful milestone for the Company.

270 million of those users are coming from our own users, our own user base. We're getting them engaged with our services and like Smart Page, Discover Page, Speed Dial, our Store. That's our own user base. And then you have the 800 million, and the 800m is coming from this very fast-growing network of publishers that we have, Sky, Pandora Media, CBS, Univision, and then when you add the AdColony publisher base, where you are talking about we're in some branded apps like Fox, for example, Dailymotion.

And then you look at the position they have in gaming apps where people are spending a lot of time, more than a third of the time spend actually in app is in gaming. So we got, apps from DeNA and GREE, EA, the big kind of gaming companies, so this is a really sized audience.

And what is really driving our revenues forward is really advertising. That is what's pretty clear, I think, to all of us, that advertising is really the key driver, and what do advertisers want? They want to reach an audience. So when you can go to an advertiser and you got 1 billion audience that is very powerful because advertisers want to get scale. Like if you are a big global brand and you want to reach people around the world, we can offer geographic scale. You also have advertisers who might be wanting to target a very specific group, right? It might be gender, it might be age, it might be location, and then that is something we can do as well because we have such a scale of audience on a global basis.

I think the other thing, which is really part of the Opera ecosystem is these media optimization capabilities, this Rocket Optimizer technology that we have, that we're driving this compression technology, which is really core the Mini compression, but also this Rocket Optimizer technology is where we're providing a better experience for consumers, which means they're spending more time consuming content. We are helping -- we are providing solutions to operators which makes for a better user experience for their subscribers.

And so generally speaking, there is more time spent on -- there is more content consumed, the more ads that are consumes and that just lifts monetization for us and for everyone else in the ecosystem, and in addition, it plays into this much -- even bigger focus on video, and is that then advertisers with this optimization technology we can provide, can deliver richer ad units to consumers and get significantly higher pricing. I mean the difference between the pricing of a video ad versus a banner ad is significant.

And with this optimization technology from an ecosystem standpoint, we can drive greater CPMs. So that is just kind of the big picture on Opera, now getting in to the details, everything really came in -- we are above expectations, of course, but every -- all of our customer types came in line except for the mobile publisher and advertiser business which came above expectations and I will go into some details there.

When it comes to the operator business, to start off there, the key drivers for the quarter were , co-brand, continued, growth from the co-brand side. Co-brand revenues, but also we had Rocket Optimizer revenue there, of course, and we also had revenue from Opera Max. And the operator user growth continues to go up, driven by these large operators in markets, Southeast Asia and Africa in particular, where important factors in terms of the user growth.

In terms of mobile consumers, this is our owned and operated traffic. This is the Opera as a publisher. We had a decline of 21% in revenue here. The primary reason for that was just license revenues. So we had growth in advertising, but there was a decline in license revenue when you compare it to last year.

And just to make a few comments about the owned and operated side, the real driver of this business going forward is mobile advertising. That is the key driver. And in the quarter, the biggest advertisers we had were online classified companies, e-commerce companies, and gaming companies.

And to grow our advertising revenue which is really the big opportunity for us in terms of our own traffic, we have kind of four major initiatives. The first one is to grow our smartphone users. That's critical, because we know we get -- the advertisers want to target smartphone users. Two, increase engagement with our properties, Speed Dial, Smart Page.

And three, and increase the number of users of our services. Grow the number of advertisers, we have greater competition for traffic, and drive higher pricing, and pricing is a function of the number of smartphone users, the competition for that traffic and the type of ad units. So just to give you the results, Android user growth was up 74% and so we have 104 million Android users.

So great growth there. On the Smart Page and Discover page, we had 65 million users at the end of the quarter, that is up 64% compared to last year and so we are growing the number of users who are engaging in our services and the number of app download is 137 million in the quarter, up 16% and the number of app downloads on Android which is really critical to us is driving our app downloads in Android, that was up 115%.

So 52% of the downloads came on Android.

The third thing is the number of advertisers, that was up meaningfully compared to 12 months ago and so we are getting more competition for the traffic. And finally, we have seen really good development in pricing as well. As a function of - it's more smartphone users, a function of more competition and also, we have been introducing some richer ad units which are also having an impact on on pricing. So that is just a kind of a summary of mobile -- the ONO side of the business.

Now let us move to the mobile publishers and advertisers, this is partner -- a publisher partner members and where the advertising revenue flows to our partners, our publisher partners, and the key drivers here are brand and performance business. Around 60% of the revenue in the quarter came from companies that are domiciled in the US and about 30% came from Europe and the rest came from other markets, most of the European traffic came from the UK.

That is in terms of domiciled.

In terms of sourced, more of the revenue came from the US because we do deals -- in some cases, we do deals directly with a European company out of the US. We had very strong growth in the US and our UK brand business, and for example, in the US, our brand advertising revenues grew more than 85% in Q2 versus Q2 last year and so we really doing well in the US. We are doing really well in the UK as well.

But just to give you some information on our US brand business, and our -- we had very strong growth in our App install business as well. And so the -- so the key focus area is to grow the brand business globally, grow our performance and App install business, grow internationally, and when you look at the brand business, the key verticals in the quarter, and technology, retail, financial, auto, we ran campaigns for Google, for Samsung, for Home Depot, and for Wal-Mart, and Toyota, Wells Fargo, and so just -- , Samsung, a broad array of leading brands in a range of verticals and very good pricing

Trends. CPMs are up.

It's a function of richer media, higher -- , more engaging ad units like video, rich media and video as well. But it is also a function of also -- doing a really good -- also seeing growth in CPMs in the banner side as well.

We also saw a very good growth in video, video growth which is something that we are very focused on, obviously with AdColony, we will see even greater growth in the video side. So we have a very strong, we have a very strong strategic position in the brand these days and , getting a bigger part of the budget and growing market share so exciting times.

On the performance side, very big ramp compared to Q2 last year, it was a very small business 12 months ago, and it really demonstrates the opportunity that we have in the App install segment, there is a lot of money flowing there, and we had -- we did -- gaming obviously is critical in the app install side, and for example, King was a customer in the quarter but also music streaming like Spotify was a customer that we drove downloads for as well.

I think just to summarize, I mean, this is clearly a business which has grown very well and it is really about getting great results. We get great results from our customers and it is a combination of the ad tech that we have and it is the service that we provide, it is making sure the right ad gets to the right person at the right time. It is about doing a really good job of not -- of selling the traffic we have so we could match between the ads we bring in and the users -- the audience are looking for and the audience we have. It is also about having really tight relationships with the publishers and they give us better access to traffic which means the ads we deliver perform better which means we get repeat business from our customers.

We have a very good trust relationship with our publishers and we have more than a 90% retention rate from our advertisers. It really demonstrates the fact that we are delivering great results for them on a quarter to quarter basis. And we have been able to grow revenue in this business and expand margin at the same time which is, we are very proud of that.

And so just moving on now from the publisher business to desktop. We -- revenues were up, the primary reason for that is licensing revenue in the quarter, and so 23% revenue growth, and if we look at devices, devices revenue was up compared to 12 months ago with connected TVs being the key driver.

So that is really revenue for the quarter and let us move on and talk about expenses.

So payroll cost is up 30%, really just a function of hiring, cost of goods sold, 71%, it's the publisher payouts related to the revenue associated with the mobile publisher and advertiser business. Other OpEx is up 38% mostly marketing, travel expenses, depreciation really tied to our investments in Opera Mini server infrastructure but also tied to the acquisitions we made, we had to depreciate , part of the acquisition cost.

And the assets we write up, for example, intellectual property, customer relationships, things like that. And stock based compensation was up. This reflects about a month of -- four weeks of the RSU program and that is the reason why there is a jump.

And then extraordinary cost, the big driver there was really legal costs associated with the AdColony acquisition. And in terms of cash flow, strong profitability in the quarter, you can see on , that first red bar is working capital, and this is -- , some working capital investments in the quarter payments actually, the other thing to note, of course dividends, we pay dividends of $5 million in the quarter, and then we had some earn-out payments of around $16 million as well related to 2013 performance.

That is Q2 and let us move on to Q3.

So we are -- , giving guidance obviously on millions of US dollars based on those exchange rates and we are looking at revenues of -- our guidance is $135 million to $142 million in revenue and adjusted EBITDA of $31 million to $34 million. So that is our guidance for Q3.

And in terms of some additional information on Q3 versus Q2, this is comparing versus Q2 this year, with on the operator side, solid -- expect to be down but still , solid cloud based license data revenue. We expect revenues to go back up in Q4, just so .

Mobile consumer is up and they are driven by the smartphone growth and advertising, advertising is a key driver. Mobile publisher and advertisers, strong growth, obviously we are adding Ad Colony for, nearly 75% of the quarters and that obviously makes for a -- that adds to the increase that we would have expected anyway.

And I will have some more comments on AdColony shortly as it relates to the financials. The desktop, stable user growth, user trend and ARPU but it will be down because of license revenue will be down. And typically, Q3 is a seasonally weaker quarter and then device OEM is up, really it is driven by connected TVs, and on the payroll side, obviously we are adding AdColony so you will have an increase in payroll costs, costs of goods sold, the same thing, really driven by the revenue growth in the mobile publishing and advertiser business, and stock based compensation will be up, will have a full quarter. And so a full quarter of the RSU program is around $4 million a quarter and just so you have the numbers.

Depreciation -- continued investments in our server infrastructure and acquisition related depreciation and when it comes to AdColony, we -- for a full quarter, we expect around $4 million of incremental depreciation cost per quarter related to the depreciation of the write up in IT and customer relationships.

So just so you have those numbers in other OpEx will be up because of obviously the addition of AdColony.

Let us move towards 2015 guidance -- 2014 guidance, we are increasing a range for 2014 from $435 million to $460 million up to $480 million to $500 million of revenue and adjusting the -- adjusted EBITDA from the range of $110 million to $120 million up to $117 million to $124 million. And the lift is due to several factors. Obviously, the AdColony deal closed a few weeks sooner than we assumed. That obviously has a benefit -- has an impact.

The second thing is that -- we are seeing even better performance from AdColony than we had expected when we were sitting there in the end of June, and third, of course growth in our core business. So let me just make a few additional comments about AdColony whose mission is to deliver, TV advertising experience in the palm of your hand.

So just some specific comments about the financials and the guidance. So really, the real driver here is really that on -- things are looking good, I mean if you look at July, July was above our expectations and when we look at -- this is talking about AdColony of course, and when you look at August, we are seeing a really good revenue trend in August and we have good visibility going into September.

And then we think we will -- we feel good about Q4 for AdColony based on what we have seen in July and what we have seen in August and what we see in September. So we reflected that in our guidance.

Now when it comes to implications on the purchase price, the 2014 earn-out payments to AdColony just so, relates solely to Q4 revenue and adjusted EBITDA. So the high end of our adjusted EBITDA guidance assumes that they actually reached the cap and so we are basically saying is that the incremental purchase price could be an additional $25 million for the -- based on 2014 and one thing I want to emphasize here is that the -- from the original guidance we gave to this, it is 100% tied to adjusted EBITDA.

And so this is the way we structured the deal and we are very focused on driving profit and so it's 100% profit driven and so we are obviously pleased about that. Now as it relates to next year, and we are clearly pleased about how things are developing and the plan for us is to look into see how things obviously continue into this year and look into it early next year and we will come back on-- , early next year in February and give an update on how we see things for 2015 as it relates to AdColony.

But we feel good about the fact that we are -- off to a good start, with AdColony and with that, I would like to hand things off to Lars, our CEO.

Lars Boilesen

Thanks, Erik.

So operational update. Like Erik explained, we now are reaching out to 1 billion mobile user per month and this business is really about scale and strong performance in operations, in development, and in sales. And we have this at Opera.

So this is the reason for why we are beating our guidance, this is the reason for why we are lifting our forecast. We have managed to create a business with scale and extremely strong performance in the Company.

Looking at the quarter, we have our three business units, consumer products. We soon talk about the very, very strategic deal with Microsoft. We launched Opera iOS, Opera Mini for iOS. On the operator part, we extended our partnership with Telenor and expanded it. And we also see continued strong growth, our number of users with operators, Mediaworks. We acquired AdColony, and we had a very strong revenue quarter.

So let us start with consumer products.

We -- today, we are announcing a very strategic licensing deal with Microsoft. We are basically taking over the browser development department in Nokia. This means that Opera Mini becomes the default browser for Microsoft's feature product lines, feature phones product lines and the Asha phones' product portfolio.

So all the current Xpress Browser user-base will be encouraged to upgrade to Opera Mini in different ways. And all the new phones will come with Opera Mini preinstalled as the default browser.

This is a great agreement. This is something the ones who has worked at Opera many years, like myself, we have dreamed about many years; more than 10 years. And now it's finally happened.

I think also it shows that we -- as a browser company we are leading -- we are the leading independent mobile-browser company out there.

Last two years we signed Yandex when they started making the browser. We signed a browser-development partnership agreement with Yandex, last year with Samsung and now with Microsoft.

So it shows that we've never been as relevant as we are now as an independent mobile-browser company.

And this is very related to the fact that we now have our browser running on Webkit. And we did this very successful technology switch from Presto to web feeds, so really excited about this agreement.

And this agreement is, of course, a very profitable, strong agreement for Opera. It's profitable from day one.

We have just reached 100 million Android users. This is a huge number. There's very, very few Internet companies who has 100 million users on Android; very few.

Opera is one of them. And this gives enormous opportunities when it comes to further growth and also monetization of this user base.

We have way above 100 million users when it comes to smartphone users in general. We continue to have extremely high activity level in our development department.

And in this quarter we launched the new iOS browser, which is a [indiscernible] browser. And we have seen good growth. This year it's been 30% growth. So we're clearly growing faster than the market. I believe 11% is the iOS growth this year.

We continue to sign OEM agreements. This is really important. Nothing is more efficient than being preinstalled on the phones. And we have a lot of OEM agreements, particularly in markets where Opera is the leading Internet brand.

So we just extended with, for example, Micromax in India. This is one of the biggest -- in fact it is the biggest manufacturer in India. And it's one that's in the top 10 of the largest manufacturers in the world.

They have already preinstalled Opera on 50 devices so far. And we will be installed now on a large number of devices, going forward, in the coming years.

And Micromax have already generated 10 million of users for Opera in the past, so we're excited about this. And it's another great win for our dedicated OEM team, who is day and night working to get more deals like this.

And another deal is that we are now default on Huawei smartphones and tablets in Russia, our very important home market. So another great win.

When it comes to desktop it's now a year ago since we moved from Presto to Blink. So that transition is definitely completed.

We see really good growth on Opera 15 Plus, let's say the new products, based on Blink. And unfortunately we see we are losing users on the old Presto products.

So we see growth on the new products but, in total, the growth is flat. So we hope that will turn into growth in the coming quarters.

Retention rate is the main reason for why we see growth on improving the retention rate. And we also see that our monetization team on desktop is doing a good job. We had a very strong revenue quarter in terms of monetization in the quarter.

TV and devices; we see good growth in TV and devices. And we also see a strong pipeline for next year. So that's very positive.

I think the TV team's efforts are really turning off when it comes to development and commercialization of our product line.

Very strong interest around our app store. Very strong interest around our content, tools like Opera Snap.

In the quarter we signed Swisscom. And we also have signed another major content provider like The Washington Post who is using Opera Post to launch TV channels through our partner network.

So it's going well.

If we move to operators, we extended and expect -- expanded our partnership with Telenor, which is a very important, strategic customer for us. And Telenor will now license the entire product portfolio we have in the operator market.

And our portfolio has really increased since we acquired Skyfire. One year ago we only had the co-branded version of Opera Mini. Now we have Opera Web Pass, Opera Max, Opera Horizon and also [indiscernible] optimize the products.

So this expansion of this product portfolio has really helped us to extend and expand our partnership with Tier-1 operators.

We're really, really pleased that we have expanded and extended these contracts with MTN, MTS, Vodafone and VimpelCom. We've managed to stay relevant by introducing new products, thanks to the execution of Skyfire.

When it comes to the -- okay. Sorry. Let me just mention a few deals we signed in the quarter. We signed an app-store deal with MTS, which is going really well. Good performance.

We signed a news portal with Vinaphone in Vietnam. And we also signed up Banglalink, which is the second-biggest operator in Bangladesh, one of our biggest markets.

We see good momentum for the Rocket Optimizer platform. It's -- we are now live with our tier-1 operator in North America. And we're live with Telenor in Asia.

It makes a really big difference for us in our development work with other Tier-1 operators that we have live production now.

We can actually take these customers, potential customers, and show them that we're live. And the technology, this disruptive technology, actually works. So this is increasing the interest for the technology.

We have learned in the last year that the sales cycle is fairly long in this business. And we also learnt that our approach to address Tier-1 operators one by one is not the most efficient way.

Also when we go into live trials that's a lot of dependencies in the network on other components.

So we are -- in the last three, four months, we have worked really hard on reaching out to the biggest OEM infrastructure-equipment suppliers in the industry. And we've made really good progress.

So we hope to have some specific results on partnerships with leading infrastructure OEMs in the coming months. It's going well.

But we have three very important live trials, which has been going on for some time. And we hope that these will lead into contracts in the future. In general we are really pleased with the pipeline.

Also, as , we have a joint venture in China which is basically giving us two-digit number mobile users, browser users, in China. So we went from not having a play in China to have a play.

nHorizon will now also front Skyfire, Rocket Optimizer technology, in China. So we have expectation that this can create results as well. And these efforts will start already in Q3. So they have started.

Let's go to Opera Mediaworks. We continued to build momentum on our complete, end-to-end offering we have here.

We have now 17,000 sites application who has integrated our SDK. We have 800 million users now we are reaching out to.

And this; there's no double counting from AdColony. And we have 64 billion monthly ad impressions per month. So the whole platform just keep getting more and more momentum.

You can also see that Android is our biggest platform now. This also indicate that we are expanding outside North America. And we are expanding our ONO operations, meaning the Opera consumer browser products.

When it comes to agencies and advertisers we continue to have great momentum with premium advertisers, premium brands. We now have 25 out of the 25 top advertisers in North America.

We have 24 out of the 25 global advertisers around the -- in the world.

The same thing on publisher; very good traction with the top publisher. We have 18 of the top 25 publisher in the world using our platform. And we've also got some really interesting publisher through the AdColony acquisitions.

Q2 ad requests; if you look at this slide you will see that we actually have expanded our ad request from North America to the entire world. And so now only 50% of our ad request is in North America. The rest is outside North America.

This shows that we are making progress with monetizing our consumer browser users, our own Opera browser users.

This is -- this basically reflects that on the ad [indiscernible] platform Opera is one of the biggest publisher. It's probably in two, three; top two or top three right now.

As Erik mentioned that video is definitely the fast-growing media segment in mobile advertising these days. And it was also where we saw in our brand business we had the highest growth in the quarter.

And when it comes to ad effectiveness it's probably 10, 15 times more effective than static ads banner.

And that's why that we, for quite some time, have been looking at expanding our Company into video advertising. And we -- via the completion of AdColony we now have -- we're now a leading player in this space.

AdColony; just a few quite facts about AdColony. It's clearly a leader in the video space. It has an audience of 340 million users per month that they reach out to.

There's some overlap with our Opera Mediaworks business. So let's say they bring another 200 million users to our business.

They have very strong technology. They have particularly a product called Instant-Play HD video ads.

And it has some very interesting preloading technologies which basically make secure that when they run and an, a video ad, it never buffers. So, very strong technology.

They also have succeeded, and it's something well known among the customers, that they have really good end cards that drives very high interaction with the end users.

So if we look a little bit on the strategic fit with Opera, it definitely brings Opera to become overnight a leading -- a leader in the mobile video advertising.

It basically completes that we now have all the elements. We are leading in all the elements of the business. So we have a complete, end-to-end advertising platform now at Opera.

They bring interesting publisher to our platform. And they also have actually a lot of business outside North America. 50% of their business is outside North America, actually the same as Opera.

And we have very ambitious ambitions to grow our business regionally outside the US. So AdColony is a great fit for that.

So we're really pleased about that. And, like Erik said, we had a -- we're off to a good start, as well, in terms of performance and revenue.

So just let me just finish with a small video we -- an initiative we launched this week.

Mobile advertising is all about scale. It's all about having a strong ad-tech platform. And it's all about having extremely strong performance in whatever you do.

Basically if you have that then you perform better than the market. We do get help from a very fast-growing market here. But we -- every day we care about winning market share; growing faster than the market.

And the only way to do that is to continue to develop the platform and continue to have better performance than the competitors.

And we have created that culture in Opera Mediaworks. And I just want to show you the last initiative from the team on how we take innovation, how we take our platform to the next level.

This initiative we call Opera Mediaworks Innovation Lab. And I'm really proud of what the guys have done, so I want to show you this video before we go to the Q&A sessions.

[Audio Video Presentation]

Question-and-Answer Session

Okay, I think we can take some questions.

Martin Stenshall - Danske Bank

First, a question relating to Opera Mediaworks. You mentioned naturally that scale and performance is very important. Could you please talk about your long-term ambitions in terms of market share? And also in terms of regional [indiscernible] how you're expanding more globally.

Lars Boilesen

Well, on a very high level, I mean we see ourself as the most dedicated mobile advertising company in the world, right?

And right now we're very close to become, with our current run rate, to be the biggest, independent mobile advertising company in the world. And you will only find Google and Facebook is bigger than us.

So we just want to continue to grow faster than the market. And continue to take our performance and our development of our [indiscernible] platform to the next level.

And that's why I showed this video; to see how the culture in the company is pushing that forward.

I don't know, Erik, if you want to mention figures, etc.? It's on a high level that's what we -- that's what would drive us every day.

Erik Harrell

And I think, just to add to it, I think this relates to the AdColony acquisition. And I think what really excited us about AdColony is it's really part of this global expansion, global play.

This big plan we have to grow market share is -- what AdColony brings is incredible scale around mobile video-advertising inventory. It is really scarce.

So when we were -- before we did the acquisition we had this incredible demand from our brand advertisers saying to us -- we want more mobile video advertising inventory, because video is the ultimate way to get a message across to a consumer in a targeted way.

And that's really what motivated us. So we have -- I mean, just to give you a sense of scale, AdColony is closing in on 1 billion mobile video advertising views a month. That is incredible scale.

And what excites us is the fact that we can then combine this incredible, incredible, scarce, differentiated inventory with a scale brand-advertising platform that we have.

Because we have a very scaled brand team in the US, a brand team in the UK. We're scaling around the world and it's a really good match.

And the other thing we're doing is we're taking that technology, differentiated technology, and we're taking it to our publishers; our own publishers.

So all of a sudden we have not only their inventory, we can help build even more inventory from our own publishers.

And what also is really special about this platform is we also have a -- platform ambitions. It's not just about bringing in ads and delivering ads.

It's also about creating a platform and building -- continuing to build that strategic relationship with the publisher.

So we can enable the publishers that we have and more publishers, going forward, to have their sales team sell that adventory, which creates even greater stickiness with the publishers.

But the strategic importance of the publishers is really -- it's just very, very high. And that's why, as Lars was saying, in terms of ad tech, that ad tech is so important because of the publisher relationships.

Lars Boilesen

And just to give a little bit specific number, I think this year we will probably enable $1 billion of revenue going through our platform for mobile publisher.

So it's all about scale. It's all about the things Erik mentioned. And you -- if you have scale you just need to go for it. It's all -- the winner takes it all.

Martin Stenshall - Danske Bank

I think I got your point.

Lars Boilesen

[indiscernible]

Martin Stenshall - Danske Bank

And maybe following a bit up on this big notion of scale, at the Capital Markets Day earlier this year you alluded to some EBIT margins in the Mediaworks division.

To what extent has this changed with the AdColony acquisition?

Erik Harrell

What I can say on margins is we said last year at the Capital Markets Day was that our goal for 2015 was to have high teens. And I can tell you we're well on track to meet that goal.

We're really pleased with the margins that our base business is delivering. We're very pleased with the margins that AdColony is delivering. So we really feel we're on track for next year.

Martin Stenshall - Danske Bank

Okay, thanks. And onto mobile consumers; could you please put some color around the traction with the new products like Opera Max and Opera Coast, especially in North American region?

Lars Boilesen

It's -- if we start with Opera Coast, it's been a great success. It was next-generation browser. We assigned a team to basically try to come up with something very disruptive.

They removed all the buttons in the traditional browser and they came up with the Coast. And we just launched this on iOS so far.

And we have millions of downloads. We have good retention rate. And we will over the coming years build a really big user base around Coast.

Martin Stenshall - Danske Bank

Do you have any numbers on it? I mean what kind of user base?

Lars Boilesen

We are not giving out numbers. But I think we have -- I remember the download number. I think it's quite above 3 million downloads. So it's a huge number.

Martin Stenshall - Danske Bank

Thanks. And then a question on operators, regarding the Rocket Optimizer. It's good to see that you've still got also three live trials.

But we haven't seen any additional, let's say, new live trials in a while. And I suppose that you're still working with a lot of your other operators as well.

And, as you said, the sales cycle is long. But could you talk a bit more about why we are not seeing more live trials starting?

Lars Boilesen

I think it's a little bit on how we define trials. We have much more than three trials.

So giving a little bit what we learned that the sales cycle is long, this is a B2B business. We are putting our technology into a very complex network.

We have to support everything from 2G to 4G. So the way we define live trials is actually when we have been trialing for quite some time. And we've been fixing bugs in some of the live trials. So this is -- live trials have been going on for quite some time.

We have much more than three trials. We have -- so we can maybe come back to how we define trials. But when it comes to trials where customers are really investing into making this work in the network, then I would say we have three live trials.

No more questions? Thank you very much.

Erik Harrell

Thank you very much.

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Source: Opera Software's (OPESF) CEO Lars Boilesen on Q2 2014 Results - Earnings Call Transcript
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