Roblox Corporation

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 that time, press star 1 on your telephone keypad. If you would like to withdraw your question, press star 1. As a reminder, today's call is being recorded. I will now hand today's call over to Stephanie Notary. Stephanie, you may begin.

Good morning, everyone. Thank you for joining our Q&A session to discuss Roblox's first quarter 2024 results. With me today is Roblox co-founder and CEO, David Bazzucchi, 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 expectations of our business, future financial results, and strategy. Forward-looking statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those described in our forward-looking statements. A description of these are included 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 these statements, except as required by law. During this call, we will also discuss some certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics can be found in our press release and supplemental slides. With that, I'll turn the call over to Dave.

Hey, thank you. Hey, welcome all Roblox investors, new investors, and long-time investors. And we're pleased to be here with you to report on our Q1 2024 results. We continue on our mission to connect a billion people every day with optimism and civility around the world. And we'd like to report in on our progress. In Q1, our DAUs came in at over 77 million daily people on our platform with year-on-year growth of 17%. Our over 13 DAUs were particularly strong growth at 22% year on year. And we continue to highlight the growth of our platform around the world with Japan, which is a key gaming market growing at 50% year on year, and India, which is a huge market growing at 58% year on year. Our hours engaged were 16.7 billion in the quarter. That's 15% year-on-year growth. And once again, very strong growth, over 13, and very strong growth in countries around the world, including Japan and India. Revenue was 801 million, which is 22% year on year, and that was higher than our guidance range of 755 to 780 million. Our bookings were 923.8 million, which was in the middle of our guidance range of 910 to 940 million. But I do want to highlight we wanted that number and expected that number to be higher, and we're going to dive into that a bit in a year. That represents 19.4% year-on-year bookings growth. And one of the big focuses that we've had, which is on our operating efficiency, came to light with our cash and consolidated net loss. Our net loss of 272, based on GAAP accounting, was relatively flat with Q1 of last year. And our guidance was a net loss of 347 to 342. So this was remarkably less of a gap loss than that. We continue to operate extremely efficiently and to manage our CapEx, our cash flow, net cash flow from operations in Q1 was $238 million, which was up 37% year on year. And our free cash flow in Q1 was up 133% at $191 million. This is 50% more free cash than we generated in all of 2023. The past three quarters on infrastructure, trust, and safety, well, the platform performing better and better in all of these areas and the quality going up. Through the use of AI, internal efficiency, the way we've optimized our infra and our trust and safety, we've actually made huge efficiency gains there and we've reduced these costs. On the personnel side, we've been very thoughtful in how we're hiring and how we're growing our headcount. We've been relatively consistent over the last three quarters in the size of our headcount. Well, we continue to focus on growing our economy ads team, our safety team and our live operations events team. I just want to highlight what we the theme we started 3 quarters ago, which is getting bookings growing faster than other areas. We continue down that path. Once again, Q1 bookings, 19.4% trust and safety infrastructure. Well, increasing quality 4% less year on year. and personnel at 20% growth. So we'll continue this. But those of you watching us, you can see that our bookings in Q1 grew faster than DAU's and ours. I want to make a few comments on this. First, we continue to see the general number of people on our platform. being very strong. We don't report the number, but we did see less growth in Q1 that we expected, and we wanted to highlight where we believe this is coming from. First off, we shipped a bunch of new tech in the second half of last year. We rolled out dynamic heads, layered clothing, anti-cheat, expanded voice, And we believe, especially in low-end Android, even near the end of Q4, we were starting to see some drag with this. This started to show up in Q1, and we spent the last three months analyzing and really improving this up and down the stack, and we'll talk about this a bit more. The other thing is we believe, once again, in the midst of a great Q4, our velocity of new content and our velocity of highlighting just the amazing amount of new content bubbling up on our platform was not optimal. And once again, over the last three months, we've made a lot of expansions and enhancements in our search and discovery system that we'll talk about with you. We've also taken a lot of steps on live ops and content that we'll talk about. We've done a lot of stuff around our economy in the last three months. And I want to highlight over the last, really the last half of April and the first half of May, we've seen USA and Canada bookings, DAUs, and our growth come back to north of 20%. Now that's not showing in our full Q1 numbers. And for those of you that have read our letter, you will see that we are going to be more conservative on our guidance, primarily because we only have three weeks of data from these improvements. So we are going to be looking at lowering our guidance in 2024 a bit. Mike will highlight that. That said, we have a lot of operating efficiency going on. We're not going to be changing our implied guidance on free cash flow for the year. And we'll continue going forward with conservative hiring growth once again in economy and ads, AI safety and content and live apps, our live ops. And I also want to highlight internally our advertising plan which we'll talk about a bit more, is on track. So, hey, some more detail on discovery. We really have done a lot of work here over the last three months. And the highlight here is we're optimizing and want to be optimizing not just short-term improvements in bookings and DAUs, but long-term platform health as well. For those of you that are watching our homepage, you've seen over the last three months an addition of curation to the homepage, which we call top picks. You've also seen that we've moved sponsored, which is for those creators who want to purchase traffic on our platform, start to be a much bigger share of impressions. And we've also continued to make adjustments to our core ML algorithm as well. We believe over the last three months, this is increasing the discovery and velocity of new and upcoming content. And the mix of new creations on our platform is in a much stronger position than it was three months ago. And more to come there. The other thing you've probably seen over the last three months is the first introduction of a more aggressive live ops philosophy. We ran the hunt, our first live ops event of 2024 over the few weeks before and during Easter, and we saw an incredible engagement, a lot of reactivation there, and we're going to continue this. The community loves the notion of bringing together all of the diverse content into a rolled up event. For those of you interested in seeing the interest, if you look at my Twitter feed, I think I would say I hinted at our next event, and this is probably by 2 to 3x my most engaged tweet I've ever done. On our virtual economy, I want to highlight that as we've gone to a UGC economy, our economy team has been hard at work working through how to optimize both utility from our users as well as utility from our creators and utility from our platform. And in February, we launched dynamic price floors in our marketplace, which has really driven a much healthier economy as far as the pricing of those items. And this is starting to contribute once again to that 20% last three weeks, USA and Canada bookings growth that we've seen. We've also launched on the tooling side, adjustments to our economy. We really want as many people creating as possible. And so in our Creator Store, we've just decided for all of the people building tools, plugins, meshes, images, fonts, 100% net proceeds to them because there's really no need for us to try to make a profit there. Finally, The long-term vision of everything in our marketplace being UGC, we've called that UGC for All. Over the last few weeks, we have launched that. We've opened our market to more creators. It's a big step forward for brands to create avatars, clothing, and accessories, as well as the rest of our creator community. Highlighting on Some of the work we've done around performance and quality, a lot of which showed up, especially in low-end Android devices, and we've been diving in on. There's been a huge focus on analyzing metrics and perf in a much more granular set of cohorts around the perf of our platform. We've made significant frame rate improvements. We've made significant stability improvements, especially in our most difficult devices. Once again, that's low-end Android. Also on Windows as well, these results, some are directly measurable in DAUs and spend, and we've also enhanced the quality of graphics on higher-end devices. So we believe Also, this effort, which we've really been heads down on, has contributed to that last three weeks, U.S.-Canada back to north of 20%. On the advertising, which will not be material this year, and that's why we haven't shared the forecast, we are on track with our forecast. And we have done a few things that have been exciting in April. We announced our partnership with Pubmatic in April. We did our first real-world shopping test with Walmart on April 29th. We have a lot more of these tests rolling out. And finally, on May 1st, we announced that video ads would be available to all of our advertisers through self-serve on our ads manager. And we're really excited about the opportunity of video on Roblox, in addition to our portal and site visit type units, just because there's so much supply there. On the measurement side, we've started independent measurement, which is critical to our advertisers. We've had some really lovely results on that. We've brought in a brand lift solution with Cantor, and our direct sales team has been attending events like Playfronts and Newfronts. We have had, by the end of this quarter, over 370 cumulative brand activations. And also just want to welcome more talent to our ad team on the engineering product, on the live ops side. Could welcome David from Google, David Vespe, who built a lot of engineering ad tech at YouTube. On the creation side, for those of you that are tracking AI, more and more we're seeing that data for training is critical. There's some companies out there that have certain types of data that allows them to train, optimize, distill, and build their own AI solutions that really leverage our data. We have an enormous amount of data at Roblox. We have a lot of trust and safety data. We have a lot of people writing code and building 3D objects and creation data. And we're more and more starting to lean into really building our own AI platform. built on this proprietary data in concert with all of our users. I want to just highlight a few of those things. You know, we continue to roll out generative AI assistant tools on AI stacks that we built earlier this year. We launched our texture generator, which is an AI tool. to help creators efficiently text your objects. It's absolutely amazing. We rolled out in Q1 a tool we call Avatar Auto Setup, which we were in Open Alpha. I believe we went live yesterday or a day ago, which allows standard industry avatar models, which are not necessarily ready for 3D simulation or facial animation, to be automatically rigged and turned into full 3D interactive Roblox avatars. And finally, Code Assist is our own in-house code optimization and code generation tool. This continues to get better and better as well. And we have quotes from devs who are mentioning a 5% increase in efficiency. And this is still very early. Our safety platform, which has been the foundation of really everything we've done since we got started, continues to get better and better. We're using AI up and down the stack. As we mentioned, we built and run on our own infrastructure, increasingly high performance voice models that are helping us really keep all the voice on our platform safe, as well as using AI to help in the moderation of every asset type on the platform. So synopsis, Q1, we saw less growth than we expected. That said, we exceeded our margins on cash flow targets. The last three weeks in U.S. and Canada, with all the work we've done in Q1, which is in response to this, we are back to north of 20% growth on bookings, hours, and DAUs. But we want to be very transparent, conservative, and responsible. And that is why we made the very difficult internal decision to adjust our bookings guidance. And we believe we'll continue to deliver the same operating free cash flow that we implied in our guidance last quarter. While making judicious hiring in our economy AI content live ops and safety groups, With that, I'm going to turn it over to Mike, and then we will have Q&A.