Q2 2022 Roblox Corp Earnings Call

At this time I would like to welcome everyone to the roadblocks in second quarter 2022 earnings Conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

He would like to ask a question during that time simply press Star then the number one ardmore telephone keypad to withdraw your question Press Star one again.

I would now like to turn the conference over to Stephanie No Tony Director of Financial Communications. Please go ahead.

Good morning, everyone and thank you for joining our Q&A session to discuss more blocks of Q2 2022 results with me today is boardwalk CEO , David <unk> and CFO , Mike Guthrie before we start I want to remind everyone that yesterday after market close we published a shareholder letter and earnings.

All of our Investor Relations website at IR Dot boardwalks Dot com on this call we will make some brief opening remarks and reserve the rest of the time for your questions for our webcast participants. Please note. The question icon at the bottom of your screen, where you can type in your question, we will do our best to take as many questions as possible in the time, we have a lot.

It today on today's call, we may be making 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.

<unk> and such risks are described in our risk factors included in our SEC filings, including our Form 10-K filed for our first quarter ended March 31, 2022, 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.

Feared by law. During this call. We will also discuss certain non-GAAP financial measures reconciliations between GAAP yesterday as well as in our supplemental slides copies of which can be found on our investor Relations website.

This call is being webcast and will be archived on our website. Shortly afterwards with that I'll turn it over to you.

We will take questions.

And we follow this up with July .

<unk>, which was absolutely.

In robotics history, including.

So peak Covid times and the month of July .

And the cross.

Demographics I want to share a few highlights in July or do you use.

We're 58 5 million about 26% year on year and our hours of engagement were $4 7 billion hours across the whole platform up 25% year.

Included in our core U S.

Canada market with da use up 15% year on year.

And the hours up 23% and bookings up 14% year on year in July .

We continue to see accelerating growth year on year globally.

And as a group.

Greater than 13 users on the platform become more prevalent this is a harbinger of the.

Potential size of this market and why we continue to do so finally, we exited June .

On your end July bookings.

This is powered by amazing content and our amazing team entity and continued innovation on the technology side on the content side, we are approaching 50% of our top.

More over 13.

With our developers produced.

Hours per month is up.

32% year on year.

We can see we continue to see great brand experiences side by side the amazing robustness.

And more and more of these are self serve I'll highlight some of the brands.

We shared with this last quarter, including Gucci town, which had over 30 million visits since March we saw over 7 million visits since June .

Wimbledon release window World and Spotify Island.

Was released which is a persistent space with artist.

<unk>.

I want to highlight that we are getting to the point, where our 17 through 24 cohort is going to pass our nine through 12 cohort size now the 70 <unk> through 'twenty four cohort is larger.

But once again this is a great signal of the potential size of our market across all ages.

This growth in addition to being powered by our amazing content developers and our amazing viral to unity is supported by our innovative <unk> some of which is intuitive and measurable including improvements to our roadblocks translation system, including the quality of it.

Personalization of our search and discovery system, and even including things that might not be ratably noticeable such as the speed that our mobile app and game joins occurrences raw performance on the vision side are layered clothing system is just phase one.

Step two very highly personalized avatars across the platform. Our voice system is rolling out and is a great sign of really the future of how people will communicate on platforms like roadblocks and are physically based materials system has been widely.

<unk> claimed by our developers as the next step in taking roadblocks to a more realistic looking feel finally I want to highlight that we continue to work on innovative immersive native monetization systems, and we do expect to be rolling out a test of our immersive advertising.

System sometime later this year.

Yield and reliability leading.

And your infrastructure.

Including active active.

Performance around the world and I want to highlight that infrastructure performance contributes to our growth with an example of the recent data center.

<unk> deployed in India.

Finally, we continue to hire at the same rate we did an H one and are optimistic about continuing to bring great talent into the company with that we will move onto your questions. Thank you.

Thank you and as a reminder, in order to ask a question simply press Star then the number one on your telephone keypad.

And we will first go to drew Crum from Stifel. Please go ahead.

Okay. Thanks, Hey, guys. Good morning so.

So Dave in your shareholder letter in your preamble you noted your fastest growth demographic in the U S and Canada was that 17 to 24 year old segment can you remind us how this cohort monetize as well.

Relative to others on the roadblocks platform and then I have a follow up.

Hey, John It's Mike just getting into the numbers in the last in the month of July that 17 to 24 year old cohort in the U S and we measure this on a bookings per hour basis was actually just slightly ahead of our core nine Charles demographic, which historically has been our peak monetizing <unk> done that now.

We expected that over time, we always said that the older users you have more direct control over their strong.

One more comment on the market they would monetize better and we certainly saw that in July .

Got it thanks, Mike and then Dave maybe.

More of a broad question.

During this current earnings cycle several video game publishers have sighted weaker trends across mobile gaming.

With roblox being a free to play model what are your thoughts on how the business should perform during a period of economic weakness.

Yes, I want to highlight one of the wonderful things about roadblocks as we're not a game and we're not really even a game platform, where our future human experience platform and a lot of what people do are roadblocks.

As they come together to be together to connect to socialize, we're starting to see people supporting educational experiences. We have traditionally been neutral I E are immune to these types of the economic cycle, we have a robust economy.

We've been through these cycles before and we've been relatively immune to them.

We'll move next to David Karnofsky at Jpmorgan. Please go ahead.

Hi, Thanks for the question I'm wondering if you could just.

<unk> discussed the ongoing rollout of voice chat, how developers and players are responding to it how that might be impacting frequency for some of the older cohorts.

And then just as a follow up you mentioned a test of a merchant advertising.

Later this year just wondering if you could expand on the scope of that.

What that potentially implies for rollout or when you might be able to update investors on kind of a longer opportunity there.

I want to highlight consistent with our values and the way we run the roadblock since the early days.

Sapiens utilities high priority here, we are rolling voice out it is partially rolled out now with older players with validated IV is in weeks.

We're opening that aperture, we can measure increased engagement from the people are using voice and so we're very optimistic about what's happening there.

The vision of immersive advertising has been around for a long time and this is both performance.

Performance as well as brand advertising, we are going to be rolling out test.

Ultimately along both of these lines and it's the notion that in an immersive three D space.

A lot less there is a lot less friction when we see.

Appropriate advertising just like we would in the real World Billboard AD for example, which we can scale across all of the experiences on roadblocks, but we're also optimistic now that we've seen many brands are establishing a presence in roadblocks.

Some of these brands will also want performance marketing, which is a way for.

In the appropriate case for people to be able to go into one of our brand partners directly from someone else's <unk> experience. So we're really optimistic about this and we love the idea.

In a gentle way complementing our already very healthy economy with an additional potential revenue source.

Thank you.

We'll move next to Clark <unk> with BTG. Please go ahead.

Thanks, a lot good morning, I wanted to come back to the fact that you're seeing with 17 plus users.

Because we are seeing a lot of signs of success with aging out both in terms of aggregate VA use and engagement could you give us more of a sense for how those users R&D differently per se. It's younger ones are they spending time in different experiences.

Or are they monetizing more passively or using different hardware any color you can provide would be appreciated and then Mike.

Given you guys made some comments around sort of capex trends over the balance of the year could you give us a sense for infrastructure investment projects and it's really a 'twenty two endeavor or is it something that we can see sort of stretching into 'twenty three and beyond anything we've paid out cash flow and capex would be appreciated. Thanks.

Yeah, I'll start off on the experiences I noted that of the top 1000 experiences on our platform 481 now have more than 13 enough players been under 13 players our developer community is amazingly responses the quality of the content that they are.

Creating is getting better and better both based on their sophistication the size of their teams as well as our tools and.

And our infrastructure and we can see more and more experiences in those top <unk>.

That are very heavily targeted two older players so like any healthy market given the size of our developer economy. We are seeing developers respond with those experiences and in addition, we have a pipeline.

Experiences that are in that are very aligned with the types of things older players might want to do coming through our game fund I wanted to highlight that across our platform vision for a platform like this goes way beyond client gains. We know right. Now for example in the midst of Covid people use robots is it.

Communication tool to be together when they can't be together physically we can see.

<unk> like first robotics, now getting ready to launch educational experiences for people, who can't those roadblocks with the physical kids and we ultimately all of our brand partners, including our music partners are using robots as a way for people to.

Go to concerts together so the vision of this category is bigger than play and as you correctly note. There's a lot of the upgrades we use patterns that we see across the platform.

And Clark <unk>.

Capex will be spread across the balance of this year and next year. It will certainly be investing in infrastructure across both periods timing of spend.

You have a rough estimate of what it looked like for the back half of the year, but we'll definitely have incremental spend in 2023.

We view it as incredibly productive and partially driven by just the <unk>.

Substantial growth in our user base and the desire to get some more even more economical infrastructure, so more performance more reliable and more efficient for us.

Thank you.

We'll move next to Matthew cost at Morgan Stanley . Please go ahead.

Great. Thanks for taking the question so one for Dave one for Mike Dave just.

The language in the letter about.

Key investments and product initiatives that drove a positive impact for July you touched on in the prepared remarks I Wonder if you could just give any more detail about what is it.

Product you think were the most impactful for July and then for Mike just wondering how should we think about the pathway for margins from here as you continue to invest in new hires and infrastructure. Thank you.

Okay.

Our growth is powered by the content created by our community by the core virality of our product, which is great content, coupled with a viral loop and then with innovative technology all of the things I measured our early signals are layered clothing system.

Is an early signal towards hyper personalized avatars that more and more might look like you might be of various styles that are supported by our creator community. So this is a first step and envoys once again would highlight long term, we see more and more skus.

Potentially using voice.

We rolled this out.

<unk>.

There are also under the covers coupled with the visionary type we're working on constant iterative improvements on raw performance. How quickly can you join a roadblock experience.

So we can see our translate system, we can see search and discovery, we can see raw mobile App performance, we can see our game engine performance all contributing to growth as we go forward and up and down our product stack. There continues to be big things. We're working on will share some of these at Investor day.

But we have a lot of other visionary things in the pipeline, we said publicly.

This doesn't really stop until we're supporting a 50000 person concert that photo realism in real time with simulated audio and video. So there is a huge runaway for technical innovation in this space.

And then Matthew you're asking a question about margins. So let me address that and then I want to make another comment here.

During the peak periods total looked at our prior debt.

The scaling up beside during COVID-19 the business tended to run in EBITDA margins in the mid teens pretty consistently in.

As we scaled up during during Covid is margins basically doubled when we found ourselves in.

30% range.

And we were really clear at the time, we thought was not steady state margins for us and we thought an enormous amount of opportunity to invest at the top line is growing so quickly.

It's very difficult to bring the margins down where we've chosen to invest in other things that ETE incredibly high ROI hiring great people pushing more of the economics for our developer community, which is clearly bearing fruit today and we'll continue to do some investing in infrastructure today.

Today is incredibly.

Incredibly consistent and our investments.

And the top line.

<unk> has.

Flattened as we were.

We're coming out of Covid and now has started to pick up again, obviously margins are going to move around what's consistent is that we're investing for the long run and that we have a unique and omics and liquidity to continue to Ddos I suspect.

Hi.

When we get into 2023, and we're no longer.

Dealing hopefully no longer dealing with Hogan comparisons are nonrecurring comparison, we will start to see the top line growth at a rate that will allow us to produce really healthy EBITDA margin.

However continue to invest.

Infrastructure next year, so free cash flow margins will be.

Down, but overall operating margins I think will go back up and we'll be in a healthy place, but we'll continue to invest for the future.

I just want to make one quick comment.

Yeah.

Note. This morning, you said that you expect elevated SBC will continue to drive scrutiny on the risk of dilution from new higher retention and stock grants I just maybe we'll just removing scrutiny. We've been really clear we were in the letter.

Yeah.

<unk>. This is a management team as an element of operating executives and we saw an enormous amount of time structuring our compensation plans and our recruiting plan we've worked with our board.

Now that's coming.

And we've been really clear that we would keep.

Share dilution under 5%.

The good news here is you've got shareholders on the southern table and so we are a deletion sensitive as any shareholder who is out there on the call. So we're going to continue to recruit great talent, we're going to continue to compensate our people and we're also going to watch our dilution and keep it under 5% and hopefully.

Or even a little bit better than that.

I think there should be any undue speculation or concerned about.

Yes.

We'll move next to Omar <unk> with Bank of America. Please go ahead.

Hi, guys.

Okay. So can you. Please give me an update on the level of adoption of.

A layer clothing.

Among your players number one.

And number two back in March shortly after its launch you had showed that the purchases of layer clothing items did not cannibalize purchases of existing <unk> clothing items and that was that the GBC.

I wanted to ask you whether that is still the case.

And number three do you have a sense yet for when three de layer clothing.

Freaky layered clothing will be coming to the community at large and I have a follow up question after that.

The other highlight rule and then I'll see if Mike has it has the numbers floating around on that.

Taking a step back in <unk>.

Peaking at the vision of where this is going.

Is ultimately every avatar every has every piece of clothing on our platform is created by the community historically almost all of this was created by roadblocks.

We're just about through that transition where everything is made by the community. The final one that youre going to see rolling out is avatars themselves being created by our community as well and that'll brands full circle and Youll see.

And amazingly new look so.

We are very optimistic that this is not viewed as a.

Necessary, a cannibalization situation as much as where is the future here in the future as everyone has a hyper realistic avatar it looks just like them.

Can imagine all the ways that we might build an avatar, including using a camera on a device using ml using developers themselves. There's a lot of interesting and exciting ways in the future, we'll build advertise coupled with a lot of clothing that is more and more created by our community. So.

This is the right direction. It is the big vision ultimately all of the clothing on our platform will be <unk> clothing, and there will still be an opportunity for users to create clothing, but it'll be painting on three D clothing, rather than long term using our traditional Judy clothing.

I don't know Mike if we are sharing any numbers on the adoption, but ultimately we expect 100% of users to be using layers of clothing.

Ill give you a couple of quick numbers and just some trends I think thats. The most important thing, but it's a good question. So.

As of June 30, we had over 100 million users that had actually acquired a layered clothing item and we've been doing test to look at the economic output of those users and how they behave and we've clearly seen it being accretive to bookings and Roebuck spent so we will give more data as that becomes a bigger and bigger part of the business, but so far.

The early indications are high levels of adoption and.

High performance within the user base, but it does require the items.

Okay. Thank you and then along the same kind of topic.

You released dynamic heads towards the end of June .

And I was wondering and you also said I believe in the release that.

Dynamic ads would be available in the avatar store at some point in the fourth quarter.

Which is new information.

Could you just give us a little bit.

An idea of what the plan for monetization of dynamic heads is like.

<unk> has developed by a curated community of creators.

It sort of be on sale there.

A subset of emotions that our animated on their faces.

Exactly what exactly will will the buyers on roadblocks B Brian .

Yes.

Let's take a big visionary step here.

We acquired a company called the room Lumi.

A year ago, and you can you can check out the types of demos and the technology they create.

But it ultimately drives towards this vision that for those users who sewed shoes on our platform. In addition to having their avatars be more personalized and more animated light hesitant phases of those avatars animate and safety with.

Honestly the use of the camera on your device or lip syncing, we shared demos of this meeting this way, it's absolutely immersive and engaging in the future where this is occurring in various steps.

And as to developer tooling. The next step is a very simple things like emojis.

Okay.

Im really erodes actually have the ability to have a pre canned animation on your head and will ultimately flow tracking of that.

We always think long term first and foremost about engagement retention.

And really frequency and making our experiences better.

Because our bookings tend to scale with bookings per hour, we expect the more engagement we get the better. This is we're not as much.

There is huge opportunity for dynamic in our primarily thinking about this long term is increasing engagement.

But it's going to be overall positive in those dimensions, and then I don't know Mike.

Thank you if you want to share anything on top of that.

I think we are.

We'll report more as we have more data in may.

Maybe maybe touch on this.

Mr Day next month.

Got it thanks very much next to Bernie Mcternan.

At Needham <unk> Company. Please go ahead.

Questions, maybe just to start if you could talk.

Search and discovery spoke about on the last call and I think it helped to come in the Hs content this quarter. So.

Can you just detail when it when the improvements happened during the quarter and if there is still.

Yeah.

Full quarter benefit in the third.

Quarter.

I want to highlight that one of them.

Fair value that is take the long view, but one of our values.

Value to get stuff done these improvements are happening every day.

Theyre not forklift drops there a constant weekly improvement in the way, we do search and discovery there is as people come to our platform.

For ages.

Different interests, there is an amazing opportunity to personalize the types of experiences they see when they both first since joining our platform as well as well.

When they become mature users.

And we have a lot of signals that you might not find on a traditional platform, including what.

Are your friends doing what the people like you do what have you done in the past, though this is constantly improving we are more and more getting personalized we are ultimately.

Long term enterprise value and this is occurring both in cold start as well as awards.

Platform.

This does to go full circle on your answer every day.

I will add that one of the things we have done in the last quarter, we shared.

More and more move to the efficient frontier.

<unk>.

Does that engagement based on RF.

We believe there is.

The efficient frontier, where engagement is balanced with the monetization of that.

Sure.

Drives the overall health of our platform.

Yes.

Really when we have two experiences that are both retaining well that are both.

Predictive of the same playtime.

<unk>, which is what the efficient frontier.

Understood. Thank you.

And then just as a follow up.

In the past you've spoken about the weekend versus weekday.

So it's and that gave you confidence to be able to grow following the tough COVID-19 comps.

Can you just talk about what youre seeing for weekday versus weekend usage now that now that youre at peak engagement again.

I wanted to just highlight that are predicated on weekdays or weekends, even in our most.

Healthy long term cohorts, which would be U S. Canada 90, 212, there is a lot of headroom there given that.

A lot of room on frequency within our traditional audience.

As you can see the growth rates.

Cohort of 17.

Is much larger.

That is a cohort of nine through 12, and so there is also amazing headroom.

Platform to complement the headroom we have in our traditionally.

Strong cohorts based on frequency.

Does that ended up.

And Covid started our core age demos spikes up.

Very quickly and especially.

In terms of engagement and then as we started to lap and reopen obviously, especially in the U S that nine to 12 company nationally.

Hallmark tripling our bookings growth.

Numbers down, but we're making up for it in other places.

<unk>.

We've now gotten to the point, where we are.

And back to you then.

Point, where on an absolute level.

Cohorts are now growing around the world.

Importantly, in the U S and Canada, because thats, where.

There is a more significant amount of Av.

And our bookings in the.

In the U S.

And benefiting from growth in 2017 to 20.

413 to 16 and all the older user basis. So we're in a great because you.

You know where all of that growth that we saw.

But if I'm going to cover with absorption.

And the vast majority of it and we're now growing on top of that really across all age demographics.

Okay, Wednesdays and Fridays and Saturdays as well so.

Yes, I think we're hopefully.

Ian.

So.

I'm living our lives will be more or less done with kind of the comparisons here pretty soon.

Great. Thank you both.

Thanks.

Okay.

We'll move next to Eric Sheridan at.

On the advertising side as another means of monetization and how should we be thinking about a mixture of both the investments on the advertising side building buildings.

<unk> chips with advertisers and what you see as some of the revenue output of data as we look out over the next couple of years. Thanks, So much.

I want to highlight the opportunity on our platform both for traditional experienced developers, who are new developers, creating new games and experiences on our platform to establish a presence for people to interact with clothing people to interact.

Accurate music people to interact with beauty people to interact with a wide range of things.

But potentially even monetize within those experiences.

So traditionally.

A lot of these experienced developers and brands they've been saying, how do I boost more how do I get more traffic through my experience, how do I do a test how do I reliably bring 1 billion users of the data into this experience and this is.

It's a wonderful opportunity for native immersive non intrusive advertising in our platform imagine we are at one of our most popular roadblocks experiences imagine a AAA partner has a small pop up out of the town square.

<unk> and players will be able to choose whether to stop by use that pop up.

Portal or door year is has experienced something a new pick up some pre emergent and then back pop back to the experience. They are playing so this is a visit the various scale.

And advertising.

Given that we did $4 7 billion hours of engagement.

The gentle waves of initially.

Trying this with top notch brands.

You can see the potential there.

Type of advertising.

Yes in the way of the user or add friction like some other types of advertising and.

Of fun and positive way.

The end of that was your question.

And are we scaling up a team in China.

Q.

Covering the brands is that we've got the last part of your question.

Two things and then Mike may be finished.

We are building traditionally what has powered roadblock is the notion that at its foundation that we built.

So difficult to build.

Then just spoke things are roadblocks a success.

Because we are a self service platform for experience creators the product direction for this advertising system will also be self service.

It will it will be complemented by our amazing brands that we have we have a great team is scaling.

We have amazing people, who are working with the <unk>.

We expect to continue building this amazing brand team it will not be a sales team that will be it.

Consultative team to help people, who are doing self service and exploring our platform.

Yes.

I'll just add.

He has been in place for a while these discussions with brands had been going on for quite a while.

We really DCF above and beyond <unk> and <unk>.

Sales organization is very strategic.

And we've been talking to the brands about overall benefit.

Okay.

Aversive engagement.

On our platform in multiple ways and you've heard us talk about this before.

We've had incredibly high quality.

And the quality of the brands that we've been working.

Plus.

We'll move.

Next to Matthew Thornton with Truest Securities. Please go ahead.

Hey, good morning, David and Mike.

The parkway on for Matt.

Two questions. If I could can you talk about how we should think about the incremental monetization efforts Langer and impacting second half of 2022.

Examples being sponsored search and rest of that.

E Commerce.

Also how should we think about what normal seasonality is for August and September .

Growth compare issues vehicle up second half performance.

Thank you.

Hey, Steve Let me, let me take the last questions and work in reverse so.

We noted in the letter that there was <unk> happened in Q4 of last year. So we're just making sure that everybody is aware and doing their own homework.

July we expect that to continue the normal shape of the curve.

In terms of the third quarter.

As like you saw last year, which is that from July to August .

Typically August is flat to slightly down.

2%, let's say offering in July that sort of the normal seasonality and that's really because of course people start to go back to school and so later as the month goes on you start to see the absolutely.

We will go down it just means the absolute numbers will go down.

And so it ends up being.

Okay somewhere around 1% to 2% September and has full blown back to school and on a sequential basis typically in last year. As an example, we were down 15% September .

From from August .

Totally normal normal seasonality completely expected. So you can I think the shape of the curve. This year will be very very similar.

Q4 of last year, we had a we had an unusual October so just wondering if everyone goes back in and does their homework behind outage. So you kind of look at the numbers you reported a lot of information on October last year.

November things start to pick back up around Thanksgiving and then December is obviously.

A huge month with the holidays and I suspect that we're going to see the exact same transition because generally those have been the seasonal trend that we've seen over the years.

Yes, I guess, what I want to highlight.

We will be testing, our immersive advertising system sometime this year, we believe right now we don't expect that to contribute to our bookings we do I do want to highlight.

Things I Havent mentioned that are iterative improvements that we're constantly making including translate quality search and discovery quality efficient frontier. Those types of thing we may have small incremental improvements, but thats something that were doing all the time.

Yeah.

We'll move next to Brandon Rose with that might shed partners. Please go ahead.

Thanks, Brandon Ross.

Just looking at your Capex fee.

This is the first quarter that they actually went down.

<unk> of book.

As far back as we have a window into it.

Okay.

Literally years, we wanted to share more and more of the economics of the developer. So I'm looking at the supplemental materials that we posted on our site and if you look at that over the last.

Three years as a percentage of bookings those numbers have gone from about 15%.

23% in Q1, and 22% last quarter.

I wouldn't read too much into 100 basis point and we've been in a 90 day period.

Mostly that acts as a variable cost.

Okay.

Booking growth.

On an absolute dollar basis, it could come down a little bit as bookings comes down, but generally we've leaned in pretty heavily.

Yeah.

This year growth in our developer community.

The sheer amount of creativity and new content is absolutely phenomenal.

The economics for our developers.

Clearly getting better and better when you look at the.

The amount of.

Currency earned by the 1000 developer on our platform those numbers are growing.

And incredibly robustly.

Robustly and so we just see a bigger and bigger community, making a full time living on a robust platform and we're incredibly excited about that we have a unique.

Yes.