Roblox Corporation

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Roblox second 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 during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star one. Thank you. Stephanie and Natalia, you may begin your conference.

Good morning, everyone, and thank you for joining our Q&A session to discuss Roblox's Q2 2023 results. With me today is Roblox co-founder and CEO David Buzuki and CFO Mike 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.roblox.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 business, future financial results, and business and financial strategy. Forward-looking statements are subject to risk 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 Excuse me, everyone. Risks are described in our risk factors, including in our SEC filings, including our most recent reports on Form 10-K and Form 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 our supplemental slides. For our webcast participants, please note the question icon at the bottom right of your screen where you can submit your questions. With that, I'll turn it over to Dave.

Thank you, and good morning, everyone. Q2 was another quarter of strong growth across all our key metrics, and we welcome you today. Bookings were 780 million, up 22% year on year. Our DAUs were 65.5 million, up 25% year over year. And our hours engaged in Q2 were 14 billion, up 24% year over year. We generated $28 million of operating cash. Our cash is now north of $3 billion at $3.25 billion. We showed a gap loss of $283 million and covenant-adjusted EBITDA at $37.9 million. These results powered by all of our investments in innovation and as we discussed last quarter, we continue to be on track with our bookings growth and our expense control to generate positive operating leverage. We highlighted in the first half of this year that our bookings are growing faster year on year than our cost of goods sold. We continue to expect in Q3 of this year that our bookings growth year on year will be faster than our infrastructure growth year on year. And we continue to expect in Q1 of 2024 that our bookings growth will be faster than our headcount expense. We expect to return to double digit covenant adjusted EBITDA margins in Q4 and 2024 as a whole. Let's dive into the business. We're driving continuously to our vision and mission of a billion daily active users. And it's part of our four-part growth strategy. I want to highlight some results in all areas, including international, all ages, really the utility of Roblox and driving towards a daily product for everyone and our economy and ecosystem. Let's start with international and I want to highlight that many of our huge international cohorts are really big and growing faster than our overall bookings and DAU rate. Let's start with some key geographies. Germany DAUs 25% year-on-year growth, Korea 34% year-on-year growth, Brazil 38% year-on-year growth, India DAUs 40% DAU growth year on year. And Japan, one of the largest consumer gaming market spaces, DAU growth of 107% year on year. A product highlight supporting this, we mentioned Semantic Search last quarter for Japan. We turned this on everywhere in Q2. This improves search for out of catalog searches and pop culture terms. And we've seen a significant increase in global click-through rate because of this north of 3%. We're no longer talking about aging up. We are a platform for all ages. Our 13 and over cohort is five times larger than our under 13 cohort. And our 13 and over cohort is growing at 33% year on year for DAUs. Our 17 through 24 cohort is growing at 36% year-on-year for both DAUs and ours. And I do want to highlight that we introduced experience guidelines this quarter. You can read about it in our blog. Around the world, 17 through 24 and our 25 and up cohorts consistently show higher bookings per hour than other age cohorts. Let's take a look at our dev ecosystem. We are on track for our developers to earn $800 million in 2023. Our DevEx payouts in Q2 were $165 million, up 16% year-on-year. And I want to highlight the growing variety of content on our platform. In the last 12 months trailing, the 10 highest earning creators earned an average of $27 million each. These are growing and larger significant businesses. But at the longer tail, developer number 1,000 is now growing two times faster over the last three years and is making $64,000 a year. That's thousands and thousands of people making a living on Roblox. And as far as content variety, versus a year ago, within the top 150 experiences, we're seeing 9% more variety of new experiences created in the last 90 days this year. A cool feature that we introduced for all devs is product analytics. It's ways for developers to monitor user acquisition, performance, benchmarks. And I want to highlight in the last six months, use of analytics by the top 10K devs has gone from 22% to 40%. We think this is a good signal. This is 10,000 developers with 40% of them paying deep attention to analytics to help, we believe, improve the quality of their experiences. For those that are deep into our ecosystem, want to highlight that the anti-cheat technology we acquired from Bifron is live now. It's made a significant impact in the quality of experiences on our Windows platform. where a lot of our more serious gamers are playing and really significantly reduced exploits and bot activity. As we're moving towards our vision and mission of connecting a billion people daily, We're making significant advancements in our product to make Roblox a daily utility. And I want to highlight we believe we have significant headroom even in our core market where we got our start, which is USA 9 through 12. A highlight, we introduced MetaQuest on beta. We saw a million downloads in the first five days on that platform. And it highlights our vision of Roblox being available everywhere. And it highlights the vision that when a creator makes an experience on Roblox, It immediately runs on all platforms and is immediately dynamically translated into all languages. We believe that's part of the DAU growth we've seen around the world. Getting into utility high-frequency communication on our platform, in the USA, we now have 12% of our 13 and up daily actives using voice. And 2 million voice DAUs worldwide as of the end of Q2. This is a 30% growth over the last six months. And we have strong evidence that as people become more immersed with voice, it has uplift in key metrics, both on hours spent and on Robux. Facial animation we just turned on for 100% of voice users. I want to highlight this coupled with voice we believe makes Roblox communication much more connected and realistic. And we also turned on animated heads for everyone using voice. We have some great stuff coming on animation as well. On the social side, I want to highlight we've been hard at work improving the way people connect and the way real-life friends connect. And we've seen a 9% year-on-year growth in real-life friending in the first week, which we feel is significant. And once again, strong directional evidence that this benefits retention.