Roblox Corporation

Good morning. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Roblox first quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Stephanie Notani, you may now begin your conference.

Thank you, Brent. Good morning, everyone, and thank you for joining our Q&A session to discuss Roblox's Q1 2023 results. With me today is Roblox co-founder and CEO David Buzuki and CFO Michael Guthrie. As a reminder, our shareholder letter, press release, SEC filings, Supplemental slides and a replay of today's call can be found on our investor relations website at IR.WorldWalks.com. On this call, we will make some brief opening remarks and reserve the rest of the time for your questions. Our commentary today may include forward-looking statements, including but not limited to our expectations of our business, future financial results and business and financial strategy, Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements, and such risks are described in our risk factors included in our SEC filings, including our most recent reports on Form 10-K and 10-Q. You should not rely on our forward-looking statements as predictions of future events. We disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will also discuss certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our press release as well as in our supplemental slides. For our webcast participants, please note that question icon at the bottom of your screen where you can submit your questions. With that, I'll turn it over today.

Thank you. Hey, and good morning, everyone. start with the prelude and I want to talk a bit about Booking's acceleration and the generation of cash, which is really exciting for our business. We're going to talk about our future Booking's growth rate relative to cost of sales, infrastructure and compensation expense, which is also a wonderful story. And then finally, we'll touch base on innovation and what we've done in the fruit since the start of this year. Our revenue in Q1 grew 22% to $655 million. Our bookings grew 23% to $773 million. And I want to just highlight bookings is how we run the business. We run the business based on cash. Our bookings growth rate year on year over the last five quarters has gone from negative 3 to negative 4 to plus 10. to plus 17 to plus 23%. We believe this is being driven by eight quarters of innovation and awesome engineering that have expanded our platform. And our platform is growing in all directions, and we'll touch on that. Gap loss was $268 million. Well, cash from operations was positive $173 million. We generated over $100 million of free cash and operational cash in the quarter, and this just highlights the difference between cash and our gap loss, which is driven by deferred revenue and other factors. Finally, our cash has been steady relatively over the last six quarters, And we have approximately $3 billion of cash with no external financing. On the user side, our DAUs are up 22% with an all-time high of 66 million DAUs. Our hours are up 23% year-on-year. Once again, an all-time high of 14.5 billion hours of engagement in Q1. All regions are up. And I want to highlight that our 13 and up segment is growing 31% year on year, which bodes very well for our future growth as that's an amazingly large available market for us. On the developer community, money flowing to our developer community increased 24% year on year to a record 182 million in Q1. We have some exciting things happening in our business. Our bookings growth year on year is already exceeding our cost of sales growth year on year. And we believe in Q3 of this year, our year on year bookings growth will exceed our infrastructure year on year growth. This is a testament to the efficiency on our infrastructure spend and the way we have built out our redundant data center in ASH. I want to highlight that we spent almost $400 million of cash on infrastructure over the last year, and we're still showing positive cash flow in Q1. Finally, we believe in Q1 of 2024, our year-on-year bookings growth will pass our year-on-year compensation expense growth through just operational excellence. We are, we have not suffered layoffs. We continue to highlight, but we're being very thoughtful in hiring the best and growing our headcount efficiently. the cash side once again I highlighted we're in an awesome cash position and on the innovation side we continue to innovate our vision is to bring together a billion people every day with optimism and civility and we're very bullish about this vision we continue to feel very positively about this opportunity in the last Eight quarters, we've driven a lot of innovation. I want to highlight on the innovation we've really executed on since January 1st of this year. And that innovation falls in categories of cost control, revenue acceleration, AI generative creation, international aging up, and our vision of social communication. We've got a 15-year history of innovation. And we believe innovation is once again contributing to our bookings acceleration. On the cost efficiency, we've been using AI and machine learning for quite some time to drive the efficiency of our safety organization, which is really the primary focus of our business. And we've gotten to the point where we're highly automating reviews of 3D objects, audio, and images. On the revenue side, I want to highlight that our advertising system is now in test. We have over 200 developers that are participating. We are not going to share the number. We will make a small amount of advertising revenue in Q2 of this year. And I'll quote what the NFL shared with our advertising system. is that portals have helped the NFL reach and convert a high percentage of new users into their experience. We're really excited about this. It is a new ad format that complements image and video that is very immersive and native to Roblox. We've launched two AI generative accelerators to help our creators create better and create more quickly. First is a material generator. that allows developers to create any type of 3D material purely by using a few words. If a creator on Roblox says, I would like a brick wall that's a little bit covered with moss, that's enough to generate a 3D material. We're proud that we did this early this year. And we're also launching code generation. Roblox has an amazing repository of Lua code, and we're using this to train a code generator that won't just help people auto-complete, but really helps people create and script on Roblox. On the international side, we continue to drive the vision that Roblox is a platform that will work around the world and also drive the vision that anyone's creation can go live in many, many countries. I want to highlight Japan, which is now growing at over 100% year-on-year on daily actives. It's been driven by some advances we've made on semantic search and the quality of our translation. We continue behind the scenes to drive the quality, the performance and efficiency of our core 3D engine. And we've made enormous strides on our vision of social communication as well. Since the start of the year, Voice on Roblox is now being used by almost 10% of over 13 daily users in the USA, 9% to be exact. And we've rolled out lip sync as well on our journey to fully animating avatars on the platform, either using lip sync or ultimately camera. A fun other thing just to highlight, by day seven, based on all the work we've done on contacts and friend finding, People are finding 10% more real-life friends on the platform in the first seven days than they were a year ago. I just want to once again recap and then we'll start answering questions. Long-term mission is a billion users every day connected with optimism and civility. We're focusing on driving bookings growth with innovation. Behind that bookings growth, We have an enormous focus on operational excellence and efficiency. And once again, we believe by Q1 of next year, bookings on a year-on-year basis will be growing more quickly than cost of sales, infrastructure expense, or headcount compensation expense. And then finally, the cash that we spin off, as much as possible, we want to really share with the creator community to drive innovation. With that, we'll open up for questions. Thank you.