Q2 2024 Roblox Corp Earnings Call

Good morning. My name is Pam. Welcome everyone to Roblox's second quarter 2024 earnings conference call. All lines have been placed on mute. After the speaker's opening remarks, there will be a Q&A session.

Operator: 2020-24 earnings conference call, all lines have been placed on mute. After the speaker's opening remarks, there will be a Q&A session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone t-pad. If you would like to withdraw your question, press star one again. Thank you.

Operator: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I'd like to turn the conference call over to Ms. Stefanie Notaney, the head of financial communications. You may now begin your conference.

Speaker Change: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.

Stefanie Notaney: I'd like to turn the conference over to Ms. Stephanie Notaney, the head of financial communications. You may now begin your conference. Thank you. Good morning, everyone. Thank you for joining our Q&A session to discuss Roblox's Q2 2020-24 results. With me today is Roblox co-founder and CEO David Baszucki and our CFO, Mike Guthrie. Our shareholder letter, press release, SEC filings, supplemental slides, and a replay of today's call can be found on our Investor Relations website.

Speaker Change: If you would like to withdraw your question, press star 1 again. Thank you.

Stephanie Notaney: I'd like to turn the conference to Ms. Stefanie Notaney, the Head of Financial Communications. You may now begin your conference.

Stefanie Notaney: Thank you. Good morning, everyone.

Stephanie Notaney: Thank you. Good morning, everyone. Thank you for joining our Q&A session to discuss Roblox's Q2 2024 results.

Stefanie Notaney: Thank you for joining our Q&A session to discuss Roblox's Q2 2024 results. With me today is Roblox co-founder and CEO, David Baszucki, and our CFO, Mike Guthrie. Our shareholder letter, press release, SEC filings, supplemental slides, and a replay of today's call can be found on our Investor Relations website.

Stephanie Notaney: With me today is Roblox co-founder and CEO , David Baszucki, and our CFO , Mike Guthrie. Our shareholder letter, press release, SEC filings, supplemental slides, and a replay of today's call can be found on our Investor Relations website.

Stefanie Notaney: Our commentary today may include forward-looking statements, which are subject to risk, uncertainties, and assumptions that could cause actual results to differ materially from those described in our four-looking statements. A description of these risk uncertainties and assumptions 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 four-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 certain non-GAAP financial measures. Reconciliation between GAAP and non-GAAP metrics can be found in our press release and supplemental slides.

Speaker Change: Our commentary today may include forward-looking statements which are subject to risk, uncertainties, and assumptions that could cause actual results to differ materially from those described in our forward-looking statements.

Speaker Change: A description of these risks, uncertainties, and assumptions are included in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q .

Speaker Change: You should not rely on our forward-looking statements as predictions of future events.

Dave: We disclaim any obligation to update these 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 can be found in our press release and supplemental slides. With that, I'll turn the call over to Dave.

David Baszucki: With that, I'll turn the call over to Days. Hey, thank you.

David Baszucki: Hey, welcome everyone to our Roblox Q2 2020-24 earnings call. Overall, it was a solid quarter for Roblox. We'll validate this as we kick off with the numbers.

Dave: Hey, thank you. Hey, welcome everyone to our Roblox Q2 2024 earnings call.

Dave: Overall, it was a solid quarter for Roblox. We'll validate this as we kick off with the numbers. I'm going to touch base a bit on the dialogue we started with our earnings call three months ago, and then I'll give an update on why we're optimistic about our future growth prospects.

David Baszucki: I'm going to touch base a bit on the dialogue we started with our earnings call three months ago, and then I'll give an update on why we're optimistic about our future growth prospects. Starting with the numbers for the quarter, all metrics are back on north of 20% year-on-year growth rates and strong margin improvements. Our revenue in Q2 was 893.5 million. That's a 31% year-on-year gain. And that be our guidance, which was in the range of 855 to 880 million. Our bookings were 955 million. That's year-on-year 22%. That be our guidance range of 870 to 900 million.

Speaker Change: Starting with the numbers for the quarter, all metrics are back on north of 20% year-on-year growth rates and strong margin improvements.

Dave: Our revenue in Q2 was $893.5 million. That's a 31% year-on-year gain, and that beat our guidance, which was in the range of $855 to $880 million.

David Baszucki: Our bookings were $955 million, that's 22% year-on-year growth. That would be our guidance range of $870 to $900 million. We had a record number of DAUs at $79.5 million, that's 21% year-on-year growth. And our over 13 DAUs were particularly strong with 26% year-on-year growth. And our over 13s are now 58% of our total DAUs.

Dave: Our bookings were $955 million. That's year-on-year 22%. Our guidance range of $870 to $900 million. We had a record number of DAUs at $79.5 million. That's year-on-year 21%.

David Baszucki: We had a record number of DAUs at 79.5 million. That's year-on-year 21%. And our over 13 DAUs were particularly strong, with 26% year-on-year growth. And our over 13 are now 58% of our total DAUs. Strong and cross all regions, US and Canada saw their fastest growth since Q1 2021. Japan, one of the largest gaming markets in the world. We have our DAUs growing there at 56% year-on-year. And India, DAUs are growing at 57% year-on-year. That's an enormous potential market for us. Our ours engaged hit a record 17.4 billion year-on-year. That's 24%. Similar to DAUs, that was our strongest growth in over 13% with 30% year-on-year growth in ours.

Dave: And our over 13 DAUs were particularly strong with 26% year-on-year growth.

Dave: And our over 13 are now 58% of our total DAUs. Strong across all regions, U.S. and Canada saw their fastest growth since Q1 2021.

David Baszucki: And similar trends in the US, Japan and India, which Japan engagement hours growing 66% year-on-year and India growing 60%. Our consolidated net loss was 207 million, that compared to our guidance of 267 to 265. We were roughly 60 million better than what we guided to. And in addition to the strong top line, we continue to show a lot of fixed cost discipline. A couple highlights their net cash flow operations in Q2, 151 million, up 433% year-on-year. And our Q2 free cash flow was 112 million versus a year ago where it was negative 95.5 million. We're continuing to see benefits from all of our investments.

Dave: And in addition to the strong top line, we continue to show a lot of fixed-cost discipline. A couple highlights there, net cash flow operations in Q2, 151 million up 433% year-on-year.

David Baszucki: Strong across all regions, US and Canada saw their fastest growth since Q1 2021. We're continuing to see benefits from all of our investments. The quality of our platform continues to go up well at the same time. We're keeping costs under control. Importantly, our infra and trust and safety expenditures were 8% lower year on year.

David Baszucki: On the quality of our platform continues to go up well at the same time. We're keeping costs under control. Importantly, our Infra and Trust and Safety expenditures were 8% lower year-on-year. The efficiencies are coming to a lot of Infra, efficiency initiatives. We are continuing to add AI, efficiency to our Safety and Moderation platform. And we'll note on the personnel expenses that was flat year-on-year. But we would note that we've consolidated a number of employees to work in our office in San Mateo rather than remote. And unfortunately, not all of them were able to make the move that contributed to our flatness year-on-year.

David Baszucki: The efficiencies are coming to a lot of infra efficiency initiatives. We are continuing to add AI efficiency to our safety and moderation platform, and we'll note on the personnel expenses that were flat year on year. But we would note that we've consolidated a number of employees to work in our office in San Mateo rather than remotely. And unfortunately, not all of them were able to make the move that contributed to our flatness year on year.

Speaker Change: But we would note that we've consolidated a number of employees to work in our office in San Mateo rather than remote, and unfortunately not all of them were able to make the move. That contributed to our flatness year-on-year.

David Baszucki: We do continue to hire, especially in areas that are key growth areas for us, including our AI platform, our safety group, areas that are driving curfew and quality on the platform, and our economy and ads team.

David Baszucki: We do continue to hire, especially in the areas that are key growth areas for us, including our AI platform, our safety group areas that are driving performance and quality on the platform, and our economy and ads team. We talked a bit about ecosystem health. I'm going to talk about that and improvements in search and discovery. We talked about economic improvements, and we also talked about this raw performance and quality. We've really been executing on those four big initiatives, and that is in addition to everything else we do in the company.

David Baszucki: Okay, three months ago, we shared with you on the earnings call steps we were taking to offset unseasonable growth rates that we had seen in Q1, and we shared that we were seeing early signs of positive impacts that have continued, as we can see by the numbers into Q2. We highlighted a focus on four key areas. One was live ops, including bringing back platform-wide events in March, which kicked off with our hunt. Subsequent to that, we've done the classic and we're just going live now with our next event called the games. We talked a bit about ecosystem health. I'm going to talk about that and improvements in search and discovery.

Speaker Change: Okay, three months ago, we shared with you on the earnings call steps we were taking to offset unseasonable growth rates that we had seen in Q1.

Speaker Change: And we share that we are seeing early signs of positive impacts that have continued, as we can see by the numbers into Q2. We highlighted a focus on four key areas.

Speaker Change: One was LiveOps, including bringing back platform-wide events in March, which kicked off with our Hunt. Subsequent to that, we've done the Classic, and we're just going live now with our next event called The Games.

Speaker Change: We talked a bit about ecosystem health. I'm going to talk about that and improvements in search and discovery. We talked about economy improvements and we also talked about this raw perf and quality.

David Baszucki: We talked about economy improvements, and we also talked about this raw perf and quality. We've really been executing on those four big initiatives in addition to everything else we do in the company. On the search and discovery side, we've taken a lot of steps to drive the diversity and help our users discover awesome new content. And in addition to our AI-driven algorithm, we have brought forward really intelligent curation of up-and-coming content and content with new releases that we call Today's Picks. We have also increased the ability for our creators to launch and boost their properties with the ability to buy sponsored tiles on our homepage.

David Baszucki: On the search and discovery side, we've taken a lot of steps to drive diversity and help our users discover awesome new content. In addition to our AI-driven algorithm, we have brought forward really intelligent curation of up-and-coming content and content with new releases that we call Today's Pick. We are continuing to optimize and refine our economy. One of the initiatives we shared with you was improving the pricing dynamics of our avatar accessory marketplace. That has really paid great dividends.

Speaker Change: In addition to our AI-driven algorithm, we have brought forward really intelligent curation of up-and-coming content and content with new releases that we call Today's Picks.

Speaker Change: We have also increased the ability for our creators to launch and boost their properties with the ability to buy sponsored tiles on our homepage.

David Baszucki: And we've seen an increase in variety of content bubbling to the top of our marketplace. We are continuing to optimize and refine our economy. One of the initiatives we shared with you was improving the pricing dynamics of our avatar accessory marketplace. That's really paid great dividends. Our developer community is also working with the launch of price optimization, which will help developers around the world. And on the perf and quality up and down our stack in a bunch of metrics that affect everything from very low end to Android devices throughout devices on our platform. We've continued to make improvements in raw performance stability, quality, joint times, frame rates, all things that contribute to our growth rate.

Speaker Change: That's really paid great dividends. Our developer community is also working with the launch of price optimization, which will help developers around the world.

Speaker Change: Join times, frame rates, all things that contribute to our growth rate.

David Baszucki: Hey, looking ahead, when we went public, we shared four growth vectors that we believe will take us ultimately to a billion daily active users, including growing around the world, growing amongst users of all ages, expanding the use case of roadblocks to include gaming, social communication, shopping, entertainment, and learning. And expanding the diversity and power of our economy, those are all continuing to show growth, and I want to just take a quick look just within the gaming segment right now. We have a very, very small portion of that, and we have enormous headroom in that one segment. Our UGC approach brings with it an extremely long tail of content.

David Baszucki: Our developer community is also working on the launch of price optimization, which will help developers around the world. Hey, looking ahead, when we went public, we shared four growth vectors that we believe will take us ultimately to a billion daily active users, including growth around the world, growth amongst users of all ages, expanding the use case of Roblox to include gaming, social communication, shopping, entertainment, and learning, and expanding the diversity and power of our economy.

Speaker Change: Hey, looking ahead, when we went public, we shared...

Speaker Change: for growth vectors that we believe will take us ultimately to a billion daily active users, including.

Speaker Change: growing around the world, growing amongst users of all ages.

David Baszucki: Those are all continuing to show growth, and I want to just take a quick look just within the gaming segment right now. We have a very, very small portion of that, and we have enormous headroom in that one segment. A couple highlights just in the gaming segment. Dress to Impress has come out of nowhere.

Speaker Change: and expanding the diversity and power of our economy.

Speaker Change: Those are all those are all continuing to show growth and and I want to just take a quick look

Speaker Change: Just within the gaming segment right now,

David Baszucki: We have well over 20 experiences now on the platform with north of 20, sorry north of 1 million DA. Use our creators are pushing to any device in any language. We have our users bringing their expressive and personalized avatars from experience to experience with a vibrant social graph and immersive 3D communication built in. And we're putting all of this on top of an extremely high performance and increasingly efficient in for a platform that in addition to supporting 3D simulation is and well more and more support AI inference as well. A couple highlights just in the gaming segment, Dress to Impress has come out of nowhere.

Speaker Change: with a vibrant social graph and immersive 3D communication built in.

Speaker Change: And we're putting all of this on top of an extremely high performance and increasingly efficient infra platform that in addition to supporting 3D simulation is, and will more and more support AI inference as well.

David Baszucki: It's an exciting property on the platform. It doubled its DAUs from Q1 to Q2 of this year. It's a social sensation on TikTok, and it's really loved by users of all ages on our platform. Dusty Trip, a new release just released in March, is solidly among the millions of daily active users. And FIFA, on June 1st, FIFA launched a major update to FIFA World, including a new tycoon-style game. And since the update, they've brought their total visit count to over 22 million, and the 18 and up users have increased by 20% in the last 90 days.

David Baszucki: It's an exciting property on the platform. It is doubled in DA use from Q1 to Q2 of this year. It's a social sensation on TikTok and it's really loved by users of all ages on our platform. Dusty Trip, a new release just released in March, is solidly into the millions of daily active users, and FIFA, on June 1st, launched a major update to FIFA World, including a new tycoon style game. And since the update they've seen bringing their total they brought their total visit count over 22 million and the 18 and up users have increased 20% in the last 90 days.

Speaker Change: Dressed to Impress has come out of nowhere. It's an exciting property on the platform.

Speaker Change: It has doubled in DAUs from Q1 to Q2 of this year.

Speaker Change: It's a social sensation on TikTok, and it's really loved by...

Speaker Change: users of all ages on our platform.

Speaker Change: Dusty Tripp, a new release just released in March is solidly into the millions of daily active users.

Speaker Change: And since the update, they've brought their total visit count to over 22 million, and the 18 and up users have increased 20% in the last 90 days.

David Baszucki: In the advertising and shopping domain, I just want to highlight the continued growth and progress we've seen there. We've watched our video ads product. We've enhanced our self-serve ad manager. We've introduced third-party integrations with IAS and PubMatic. We are now testing real world shopping in Roblox with partners at Walmart and Elf Beauty. And in Q2, the total brand activations today went north of 400, which is almost double the cumulative from a year ago. Couple really fun new brand partners. You might have read about Ikea's coworker, a virtual Ikea store, where they hired real life employees to work in the virtual Ikea store.

Speaker Change: In the advertising and shopping domain, I just want to highlight the continued growth and progress we've seen there.

David Baszucki: Netflix launched their persistent IP hub Next World. And we've seen also activations from Shrek to Spickable Me and even Six Flags. New artists on the platform, Rolling Stones, Ice Spice, and we had a concert from Post Malone from the Louvre as part of the Olympics with our partner, Visa.

Speaker Change: Netflix launched their persistent IP hub, Next World, and we've seen also activations from Shrek, Despicable Me, and even Six Flags.

David Baszucki: New artists on the platform, Rolling Stones, Ice Spice, and we had a concert by Post Malone at the Louvre as part of the Olympics with our partner Visa. We'll share a lot more of these updates in September at our Developer Conference. Just want to highlight Mike joined the company in 2018, and over the past six years, with Mike's leadership and contribution, we've had quite an impact throughout the company. Mike has been a real part of our journey helped us go public, helped the investors, employees, and board members understand how the business works, and helped us explain really how we run our business based on cash and bookings.

Speaker Change: New artists on the platform, Rolling Stones, Ice Spice, and we had a concert from Post Malone from the Louvre as part of the Olympics with our partner Visa. We'll share a lot more of these updates.

David Baszucki: I will share a lot more of these updates in September at our developer conference.

David Baszucki: One other note: I'm in the room with Mike Guthrie, and we're smiling at each other. I wanted to share that Mike, our Chief Financial Officer, has decided to move on from Roblox to pursue his personal interest and focus on his next chapter. And together, Mike and I are going to begin the session process. Mike's going to stay on as our CFO through the search for a new leader and transition period, which we do anticipate will take some time. I just want to highlight Mike joined the company in 2018, and over the past six years with Mike's leadership and contribution.

Speaker Change: One other note, I'm in the room with Mike Guthrie, and we're smiling at each other. I wanted to share that Mike, our Chief Financial Officer,

Speaker Change: has decided to move on from Roblox to pursue his personal interests and focus on his next chapter.

Speaker Change: I just want to highlight Mike joined the company in 2018 and over the past six years with Mike's leadership and contribution we've had

Michael Guthrie: We've had quite an impact throughout the company. The real part of our journey, help us go public, help the investors, employees, and board members understand how the business works, help us explain really how we run our business based on cash and bookings, and that's really contributed to driving our growth. And the team that Mike has built is absolutely amazing and contributes a lot to our growth. So hey Mike, before I handed it over to you, just want to say on a personal note, you know, it's going to be fun to still keep working together as we do this, this search, and we're also thankful for you and glad that we have a little more time to work together.

Speaker Change: Quite an impact throughout the company.

Speaker Change: helped us explain really...

David Baszucki: And that's really contributed to driving our growth, and the team that Mike has built is absolutely amazing and contributes a lot to our growth. So, hey, Mike, before I hand it over to you, just want to say on a personal note, you know, it's going to be fun to keep working together as we do this search. And we're also thankful for you and glad that we have a little more time to work together. So, thanks, Mike. And I'm going to hand it over to you. OK?

Speaker Change: how we run our business based on cash and bookings and that's really contributed to driving our growth.

Speaker Change: And the team that Mike has built is absolutely amazing and contributes a lot to our growth.

Speaker Change: So, hey, Mike, before I hand it over to you, I just want to say on a personal note, you know, it's going to be fun to still keep working together as we do this search, and we're also thankful for you and glad that we have a little more time to work together. So, thanks, Mike, and I'm going to hand it over to you.

Michael Guthrie: So thanks, Mike, and I'm going to hand it over to you. Thanks Dave, appreciate it. I want to just reiterate, I've also really enjoyed the last six and a half years. I look forward to finding a great financial leader for the company and helping that person transition, and I feel as the head of finance. I like the financial position that the company is in. I feel good about where we are in terms of growth, and return to cash flow margins are expanding, and the balance sheets are in just pristine condition. So it's been an amazing period of time and really good fortune to have been at the company during so much growth.

Mike Guthrie: Okay, thanks Dave, I appreciate it.

Mike Guthrie: I like the financial position that the company is in. I feel good about where we are in terms of growth.

Mike Guthrie: return to cash flow, margins are expanding, and the balance sheet's in just pristine condition.

Michael Guthrie: I do want to reiterate a lot of comments that Dave made regarding the quarter and the condition of the business and where we're going to be able to take it. And as that relates to our guidance in the four-year bookings. As he mentioned, grew at 22%. We know that it our industry day last November we talked about maintaining 20% plus growth. We were a little bit below that number in the first quarter, and even with a little bit of a challenging April, we produce 22% growth for the quarter. So the exit rates were very healthy and have been as we transition into Q3. Operating leverage is really kind of the highlight.

Michael Guthrie: The condition of the business and where we're going to be able to take it as it relates to our guidance for the full year. As he mentioned, it grew at 22%. We know that at our Investor Day last November, we talked about maintaining 20% plus growth. We were a little bit below that number in the first quarter.

Speaker Change: The condition of the business and where we're going to be able to take it as it relates to our guidance in the full year of bookings.

Michael Guthrie: And even with a little bit of a challenging April, we produced 22% growth for the quarter. So the exit rates were very healthy and have been as we transition into Q3. Operating leverage is really kind of the highlight, I think, for this quarter, and after you look at the top line, it's really about leverage. We've talked about getting our fixed costs down and getting leverage on our fixed costs that really fall into two buckets, infrastructure trust and safety. The metric that we look at, and you can calculate by looking at our supplemental materials, which are now on the IR website, is cost to serve per thousand hours. That's our key performance indicator.

Speaker Change: As he mentioned, grew at 22%.

Michael Guthrie: I think for this quarter, and if you look at the top line, it's really about the leverage. We talked about getting our fixed cost down and getting leverage on our fixed cost that really falls into two buckets: infrastructure, trust, and safety. The metric that we looked at and you can calculate looking at our supplemental materials, which are now on the IR website, is cost to serve for 1000 hours. That's our KPI; that's what the team is focusing on, and that is really. We've been able to get that number down pretty dramatically over the last year.

Speaker Change: down and getting leverage on our fixed costs. That really falls into two buckets.

Michael Guthrie: That's what the team is focusing on, and that is really what we've been able to get that number down pretty dramatically over the last year. And in Q2 of last year, our cost to serve for 1,000 hours was about $12.75. This quarter, it was $9.61, which is a 25% reduction. And if you look at infrastructure trust and safety as a percentage of bookings, that number's moved from 17% down to 13%. So that's a significant part of operating leverage. There's a lot of technology behind that.

Michael Guthrie: And Q2, of last year, our cost of serve for a thousand hours is about $12.75. This quarter, $9.61, which is a 25% reduction. And if you look at infrastructure trust and safety as a percentage of bookings, that number's move from 17% down to 13%. So that's a significant part of operating leverage. There's a lot of technology behind that. There's a lot of getting our infrastructure to a more efficient place, and we have plans to continue to drive efficiency in that area. And the other one has been headcount. Dave mentioned some of the return to office.

Speaker Change: This quarter, $9.61, which is a 25% reduction, and if you look at infrastructure trust and safety as a percentage of bookings, that number's moved from 17% down to 13%, so that's a significant part of operating leverage. There's a lot of technology behind that. There's a lot of...

Michael Guthrie: There's a lot of getting our infrastructure to a more efficient place, and we have plans to continue to drive efficiency in that area. And the other one has been headcount. Dave mentioned some of the return to office.

Speaker Change: getting our infrastructure to a more efficient place and we have plans to continue to drive efficiency in that area.

Michael Guthrie: And right now, if you look at, again, these are numbers you can look at from our supplemental materials, the latest 12-month bookings per person is a metric that we look at. That was about 1.3 million this time last year, and 1.6 million this year. So that's an increase of about 20%. And at the same time, our cost per person is well under control. And so, as a result of getting fixed cost leverage on headcount, personnel costs as a percentage of bookings went from 26% this time last year to 21% this quarter.

Michael Guthrie: And right now, if you look at, again, these are numbers you can look at from our supplemental materials. The latest 12 months' bookings per person is a metric that we look at. That was about 1.3 million this time last year, 1.6 million this year. So that's an increase of about 20%. And at the same time, our cost of person is well under control. And so, as a result of getting fixed cost leverage on headcount, personal cost as a percentage of bookings went from 26% this time last year to 21% in this quarter. So very, very strong improvement overall and operating margins, and well above the 100 to 300 basis points that we talked about at investor day and sets us up well.

Speaker Change: Some of the return to office and right now if you look at again, these are numbers you can look at from our

Speaker Change: And at the same time, our cost per person is well under control. And so as a result of getting fixed cost leverage.

Michael Guthrie: So, very, very strong improvement overall in operating margins and well above the 100 to 300 basis points that we talked about at Investor Day and sets us up well. Capital expenditures were about $334 million last year. This year, they'll be about $180 million.

Speaker Change: 26%.

Speaker Change: Very, very strong improvement overall in operating margins and well above the 100 to 300 basis points that we talked about at Investor Day and sets us up well.

Michael Guthrie: Capital expenditures; they were about 334 million last year. This should be about 180 million. And another one of the things we talked about at Investor Day is the free cash flow efficiency, turning operating cash flow into free cash flow, and free cash flow of 112 million, as Dave mentioned, versus negative 95 last year is a really big turnaround. And for the full year, I'll talk about guidance here in a minute. We are guiding to over a half a billion dollars of free cash flow this year. So that's a great improvement. And we're really excited about that.

Michael Guthrie: And another one of the things we talked about at Investor Day was free cash flow efficiency, turning operating cash flow into free cash flow. And free cash flow of $112 million, as Dave mentioned, versus negative $95 million last year is a really big turnaround. And for the full year, I'll talk about guidance here in a minute. We are guiding to over a half a billion dollars of free cash flow this year. So that's a great improvement, and we're really excited about that. So speaking of guidance, I'm going to run it through very quickly. It's in the letter. It's on our website right now.

Speaker Change: They were about $334 million last year. This year, they'll be about $180 million. And another one of the things we talked about at Investor Day is the free cash flow efficiency, turning operating cash flow into free cash flow, and free cash flow of $112 million, as Dave mentioned, versus negative $95 million last year.

Dave: is a really big turnaround. And for the full year, I'll talk about guidance here in a minute. We are guiding to over a half a billion dollars of free cashflow this year. So that's a great improvement and we're really excited about that. So speaking of guidance, I'm gonna run through very quickly.

Michael Guthrie: So speaking of guidance, I'm going to run through very quickly. It's in the letter. It's in our on our website right now, but I'm going to go through the Q3 guidance and full year guidance. And then we'll open it up for questions. So for the third quarter of 2024. We are guiding revenue between 860 and 885 million dollars. That's the year we are growth rate of 21 to 24% bookings. We are guiding for the third quarter between a billion and 1.025 billion or year over your growth rate of 19 to 22%. Our consolidated net loss or guidance is between negative 275 to negative 255.

Michael Guthrie: But I'm going to go through the Q3 guidance and full year guidance, and then we'll open it up for questions. So for the third quarter of 2024, we are guiding revenue between $860 and $885 million. That's a year-over-year growth rate of 21 to 24%. Bookings, we are guiding for the third quarter between a billion and $1.025 billion, or a year-over-year growth rate of 19 to 22%. Our Consolidated Net Loss or guidance of... negative 275 to negative 255. This is a significant improvement over where we were last year.

Speaker Change: It's in the letter, it's on our website right now, but I'm going to go through the Q3 guidance.

Speaker Change: and full year guidance and then we'll open it up for questions. So for the third quarter of 2024 we are guiding revenue between 860 and 885 million dollars, that's year-over-year growth rate of 21 to 24 percent.

Speaker Change: Our consolidated net loss, our guidance is between negative 275 to negative 255.

Michael Guthrie: A significant improvement over where we were last year, adjusted EBITDA between 22 million and 42 million, an increase compared to negative 26.4 million last year. That number excludes adjustments for deferred revenue and deferred cost of revenue. The total of those two deferrals is $113 million. So when you're building your models for the analysts out there, you have to consider those two line items: operating cash flow, net cash, and cash equivalent provided by operating activities for the third quarter. Our guidance. 147 million to 162 million, which is a year-over-year increase of 37% at the midpoint. You can see operating leverage continuing into the third quarter back half of this year.

Michael Guthrie: Adjusted EBITDA was between $22 million and $42 million, an increase compared to negative $26.4 million last year. That number excludes adjustments for deferred revenue and deferred cost of revenue. The total of those two deferrals is $113 million.

Speaker Change: A significant improvement over where we were last year. Adjusted EBITDA between $22,000,000 and $42,000,000, an increase compared to negative $26.4 million last year.

Speaker Change: That number excludes adjustments for deferred revenue and deferred cost of revenue. The total of those two deferrals is 113 million dollars, so when you're building your models, for the analysts out there, you have to consider those those two line items.

Michael Guthrie: So when you're building your models, for the analysts out there, you have to consider those two line items. Operating cash flow, net cash, and cash equivalents provided by operating activities for the third quarter, our guidance, $147 million to $162 million, which is a year-over-year increase of 37%. At the midpoints, you can see operating leverage continuing into the third quarter and back half of this year. We expect CapEx around $42 million for the quarter, which means that our guidance will be between $105 million and $120 million, and that's a year-over-year increase of 89% at the midpoint of our guidance.

Speaker Change: Operating cash flow, net cash and cash equivalents provided by operating activities for the third quarter are guidance $147 million to $162 million.

Speaker Change: which is a year-over-year increase of 37% at the midpoints. You can see operating leverage.

Michael Guthrie: We expect capex around 42 million for the quarter, which means that free cash flow will be between our guidance is will be between 105 to 120 million. And that's a year over your increase of 89% at the midpoint of our guidance. So operating leverage continues, fixed cost leverage continues, free cash flow continues to grow well in excess of what we're guiding on top line booking. Williams Growth.

Speaker Change: We expect CapEx around $42 million for the quarter, which means that free cash flow will be between, our guidance is, will be between $105

Speaker Change: to 120 million. And that's a year over year increase of 89% at the midpoint of our guidance. So operating leverage continues, fixed cost leverage continues, free cash flow continues to grow well in excess of what we're guiding on top line bookings growth.

Michael Guthrie: For the full year of fiscal 2024, we're raising pretty much all of our metrics. Revenue, we now expect to come in between $3.49 and $3.54 billion, year of year increase of 25 to 26%. Bookings, we expect to come in between $4.18 billion and $4.23 billion, or year-over-year growth of 19 to 20%. Our consolidated net loss for the year between $1.089 billion and $1.049 billion, adjusted EBITDA, the range is 92 million to $132 million, with $548 million of deferred, $711 increase in deferred revenue, and a decrease of $163 million for the deferred cost of revenue. So the net is $548 million; if you use both the adjusted EBITDA and that number in your models.

Michael Guthrie: So operating leverage continues, fixed cost leverage continues, and free cash flow continues to grow well in excess of what we're guiding on top-line bookkeeping. For the full year of fiscal 2024, we're raising pretty much all of our metrics. Revenue, we now expect to come in between $3.49 and $3.54 billion, a year-over-year increase of 25 to 26 percent. Bookings.

Speaker Change: For the full year of fiscal 2024, we're raising pretty much all of our metrics. Revenue, we now expect to come in between $3.49 and $3.54 billion, year-over-year increase of 25 to 26 percent. Bookings,

Michael Guthrie: We expect to come in between $4.18 billion and $4.23 billion for year-over-year growth of 19% to 20%, and our consolidated net loss for the year will be between $1.089 billion and $1.049 billion. Adjusted EBITDA, the range is $92 million to $132 million with $548 million of deferred revenue and a $711 increase in deferred revenue, and a decrease of $163 million for the deferred cost of revenue. So the net is $548 million. You have to use both the adjusted EBITDA and that number in your models.

Speaker Change: We expect to come in between $4.18 billion and $4.23 billion, or year-over-year growth of 19 to 20 percent.

Speaker Change: Our consolidated net loss for the year between $1.089 billion and $1.049 billion.

Speaker Change: Adjusted EBITDA, the range is $92 million to $132 million with $548 million of deferred $711 increase in deferred revenue and a decrease of $163 million for the deferred cost of revenue so the net is $548 million.

Michael Guthrie: Net cash and cash equivalents, or operating cash flow, our new guidance is $685 million to $715 million, or year-over-year growth of 53% at the midpoint. And again, that continues to show very strong operating leverage. CAPEX will stay in the range that we talked about at $180 million, and that means that our free cash flow guidance for the full year now moves to $505 million to $535 million. That's a year-over-year increase of 319% and an increase of about 35% above the guidance that we gave last quarter.

Michael Guthrie: Net cash and cash equivalent, or operating cash flow, our new guidance is $685 million to $715 million, or year-over-year growth is 53% at the midpoint, and again, that continues to show very strong operating leverage. CapEx will stay in the range that we talked about at $180 million, and that means that our free cash flow guidance for the full year now moves to $505 million to $535 million. That's a year-over-year increase of 319% and an increase of about 35% above the guidance that we gave last quarter. So we feel really good about the financial condition, the balance sheet's in great shape, top line growth has continued, and we continue to believe we'll show operating leverage and free cash flow leverage in Q3, and that's what's also reflected in our full year guidance.

Speaker Change: You have to use both the adjusted EBITDA and that number in your models.

Speaker Change: Net cash and cash equivalents, or operating cash flow, our new guidance is $685 million to $715 million, or year-over-year growth of 53% at the midpoint, and again, that continues to show very strong operating leverage.

Michael Guthrie: So we feel really good about the financial condition. The balance sheet's in great shape. Top-line growth has continued, and we continue to believe we'll show operating leverage and free cash flow leverage in Q3, and that's what's also reflected in our full-year guidance.

Speaker Change: and an increase of about 35% above the guidance that we gave last quarter. So, we feel really good about the financial condition, the balance sheet's in great shape, top line growth has continued, and we continue to believe we'll show operating leverage and free cash flow leverage.

Operator: So, with that, thanks very much to everybody, and we're going to open it up for questions.

Speaker Change: in Q3, and that's what's also reflected in our full year guidance. So with that, thanks very much to everybody, and we're going to open it up for questions.

Operator: Thank you. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We'll go first to Andrew Crum at STIFO. Please go ahead.

Operator: Thank you. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again.

Speaker Change: Thank you. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We'll go first to...

Bernard McTernan: We'll go first to do Chrome at Steve. Please go ahead. Okay, thanks. Hey guys, good morning, and Mike, best of luck to you. It was a pleasure working with you through the years. You touched on this in the shareholder letter and kind of touched on it in your prepared marks, but this one to see if you can expound on the point. If our math is correct, using the midpoint of the range, it looks like you've taken up bookings guidance for the second half by 85 million. Can you address the source or sources of the upgrade and just the confidence you have in achieving the updated range?

Andrew Crum: Okay, thanks. Hey guys, good morning, and Mike, best of luck to you. It was a pleasure working with you through the years. You touched on this in the shareholder letter and kind of touched on it in your prepared remarks, but I just wanted to see if you could expound on the point. If our math is correct, using the midpoint of the ranges, it looks like you've taken up bookings guidance for the second half by $85 million. Can you address the source or sources of the upgrade and just the confidence you have in achieving the updated range?

Speaker Change: Andrew Crum at STIFO. Please go ahead.

Andrew Crum: Okay, thanks. Hey guys, good morning and Mike, best of luck to you. It was a pleasure working with you through the years.

Andrew Crum: You touched on this in the shareholder letter and kind of touched on it in your prepared remarks, but just wanted to see if you can expound on the point. If our math is correct, using the midpoint of the ranges, it looks like you've taken up Booking's guidance for the second half by 85 million.

Speaker Change: Can you address the source or sources of the upgrade and just the confidence you have in achieving the updated range?

Michael Guthrie: Yeah, the major changes that we had started to implement this time, three months ago, and we did the call, we had started to see the level of improvement happening in the back half of April in the beginning of March, and we were cautiously optimistic and reflected in our guidance, lower guidance at the time that we didn't have enough data to project that forward. What we have seen since that call has been actually an acceleration of those trends, very powerful improvements in user growth and especially in engagement, and then subsequently in our bookings growth as well.

Speaker Change: [inaudible]

Speaker Change: The major changes that we had started to implement this time

Speaker Change: Yeah, three months ago, when we did the call, we had started to see the level of improvement happening.

Speaker Change: Very powerful improvements in user growth and in especially in engagement.

Michael Guthrie: Given the, again, the sort of the exit rate of growth of bookings in the second quarter and what we've seen at the beginning of the third quarter, we felt comfortable bringing the full year guidance back up. And on top of that, continue to see the kind of operating leverage that we expected to see, which reflects why we've increased basically all the below-the-line metrics all the way down to free cash flow. So that's a simple answer: is that what we saw working up three months ago is continuing to work very, very well and actually has accelerated in terms of its impact, and we feel like the health of the platform has really just never been better.

Speaker Change: and then subsequently in our bookings growth as well. So given the, again, the sort of the exit rate of growth of bookings in the second quarter and what we've seen at the beginning of the third quarter.

Speaker Change: We felt comfortable bringing the full year guidance back up.

David Baszucki: Okay, thanks Mike. And then separately, on the regulatory front, the US Senate passed two bills yesterday, aimed at protecting children online. Just curious your thoughts on how this in any way impacts the Roblox platform. Would it require any step up an investment? Does it change your plans and strategy around advertising? Thanks. Yeah, great question. I'll start with a metaphor, which was a while back. Roblox came forward as the first sponsor of the California Age Appropriate Design Code. We're always behind legislation that helps support the privacy and safety of people around the world. In the case of the California Age Appropriate Design Code, we happened to be already implementing much of what was in that code and supported it.

Michael Guthrie: Okay, thanks, Mike. And then, you know, separately on the regulatory front, the US Senate passed two bills yesterday aimed at protecting children online. Just curious your thoughts on how this in any way impacts the Roblox platform? Would it require any step up in investment? Does it change your plans and strategy around advertising? Yeah, great question. I'll start with a metaphor.

Speaker Change: Got it. Okay, thanks, Mike. And then, you know, separately on the regulatory front, you know, the U.S. Senate passed two bills yesterday.

Speaker Change: aimed at protecting children online. Just curious your thoughts on how this in any way impacts the Roblox platform. Would it require any step up in investment? Does it change your plans and strategy around advertising? Thanks.

David Baszucki: Yeah, great question. I'll start with a metaphor. A while back, Roblox came forward as the first sponsor of the California Age Appropriate Design Code. We're always behind legislation that helps support the privacy and safety of people around the world. In the case of the California Age Appropriate Design Code, we happen to be already implementing much of what was in that code and supporting it. So we continue to monitor legislation. We're very supportive of legislation that helps ensure safety and privacy. It's been the foundation of our company ever since we started. Thanks. Good question.

Speaker Change: Yeah, great question. I'll start with a metaphor, which was a while back, Roblox came forward as the first sponsor of the California Age Appropriate Design Code.

Speaker Change: support, privacy, and safety of people around the world. In the case of the California Age Appropriate Design Code,

Speaker Change: We happen to be already implementing much of what was in that code and supported it.

David Baszucki: So we continue to monitor legislation. We're very supportive of legislation that helps ensure safety and privacy. It's been the foundation of our company ever since we started. Thanks. Good question.

Speaker Change: So, we continue to monitor legislation. We're very supportive of legislation that helps ensure safety and privacy. It's been the foundation of our company ever since we started.

Bernard McTernan: We'll move next to Bernie McTurner of Needham. Please go ahead. Great. Thanks for taking the question. Maybe to stick on the point of guidance, Mike, just given the commentary of the strong exit rate of 2Q and strong start to 3Q. Just surprising that the DSL maybe that's being guided to 3Q and 4Q, so just not sure if you're going to go into more detail there.

Operator: We'll move next to Bernie McTernan.

Speaker Change: We'll move next to Bernie McTernan.

Bernie Mcternan: Please go ahead.

Bernie Mcternan: Great. Thanks for taking the question. Maybe to stick on the point of guidance, Mike, just given the commentary of the strong exit rate of 2Q and...

Bernie Mcternan: And a strong start to 3Q. Just surprising the decel maybe that's being guided to for 3Q and 4Q. So just not sure if you're going to go into more detail there. I know there's.

Michael Guthrie: I know there's the shareholder letter called Conservatism. And then maybe for Dave, just talking about new genres in the shareholder letter, like action, sports, racing. What does it take to stand up a new category like this and how the process works to communicate to developers and additional tools that you need to provide? Bernie, I don't think there's any significant deceleration. All of the guidance, to be perfectly candid with you. Yes, the growth exit rate is strong, and we've seen that we're going to continue to be careful and conservative with our guidance. We want to leave ourselves room.

Speaker Change: You know, the shareholder letter called out conservatism.

Speaker Change: And then maybe for Dave, just talking about new genres in the shareholder letter, like action, sports, racing, what does it take to stand up a new category like this and how does the process work to communicate to developers and additional tools that you need to provide them?

Bernard McTernan: Hey, Bernie. Hey, on the gaming front.

Dave: I don't think there's any significant deceleration model that doesn't guidance to be perfectly...

Speaker Change: We're going to continue to be careful and conservative with our guidance. We want to leave ourselves room and I think that's really

David Baszucki: And I think that's really the best thing to say at this point.

David Baszucki: Well, 90 days from now, we'll be back here. We'll talk about our results and whether or not we did better than these numbers, but we feel great about the business and want to make sure that we continue to exceed what we talked about at Investor Day last November. And that's really what's baked into this.

Speaker Change: I don't know whether or not we did better than these numbers, but we feel great about the business and want to make sure that we continue to exceed what we talked about at Investor Day last November , and that's really what's baked into this.

David Baszucki: Hey, on the gaming front, and we touched on it, but we'll go into just a little more. Arguably, wherever you get your data, the gaming space is a, you know, north of $160 billion market. And so when we look at our bookings guidance for the year of maybe 4.2, we're right now at just 2.5% of that.

David Baszucki: Hey, on the gaming front, and we touched on it, but we're going to live just a little more. You know, arguably, wherever you get your data, the gaming space is a, you know, north of 160 billion dollar market. And so when we look at our bookings guidance for the year of maybe 4.2. We're right now just 2.5% of that what we talked about regarding genres. There are some, you know, there's many genres where our creator community is super strong with properties and the ones in five and north of 10 million daily active users. And that includes role played battle, platformers for experiences. What was shared with the creator is the platform we have and the infra the game engine, the tooling. We believe to support a wide range of genres and gaming.

Speaker Change: Hey, on the gaming front, and we touched on it, but we'll go into it just a little more. You know, arguably, wherever you get your data, the gaming space is, you know, north of $160 billion market. And so when we look at our bookings guidance for the year of maybe 4.2,

David Baszucki: What we talked about regarding genres is there are some genres, you know; there are many genres where our creator community is super strong with properties and the ones and fives and north of 10 million daily active users. And that includes roleplay, battle, platformers, and horror experiences. What we shared with the creator is the platform we have, and the infrastructure, the game engine, and the tooling, which we believe can support a wide range of genres in gaming.

Speaker Change: What we shared with the creator is the platform we have and the infra, the game engine, the tooling.

David Baszucki: We did a research study to highlight genres that we just thought were under utilized right now. This is less about our tooling and more just making our creator community aware. And we're seeing really good early signal in open world action sports racing social cooperation type platforms. We just think there's headroom there in some genres that our creators are now starting to take advantage.

David Baszucki: We did a research study to highlight genres that we just thought were underutilized right now. This is less about our tooling and more about making our creator community aware. And we're seeing really good early signals in open world action, sports, racing, and social cooperation type platforms. We just think there's headroom there in some genres that our creators are now starting to take advantage of. Great, thank you both. We'll go next to Cory Carpenter.

Speaker Change: We believe to support a wide range of genres in gaming. We did a research study to highlight genres that we just thought were underutilized right now. This is less about our tooling and more just making our creator community aware. And we're seeing really good early signal in open world action, sports, racing, social cooperation type platforms. We just think there's headroom there in some genres that our creators are now starting to take advantage of.

Operator: Thank you both.

Cory Carpenter: We'll go next to Cory Carpenter at J.P. Morgan. Please go ahead. Great. Thanks for the question.

Speaker Change: Great, thank you both.

David Baszucki: You touched on your commerce and add in the states briefly in your prepared remarks, but hoping you could expand on the progress we done both this quarter and have that shapeshift thinking around the longer term opportunities. Thank you. Yeah, I'll share a couple really additional pieces of color. There are three main areas we have been working on and implementing. The first is very simple: traffic type add units on our own platform. You can see those on our home page right now. They say sponsored. We've increased that we've seen an uptick of our own creator community, and when I mentioned FIFA, for example, they actually took advantage of that to help launch and boost their property.

Speaker Change: Yeah, I'll share a couple really additional pieces of color. There are, there's three main areas we have been working on and implementing. The first is… Transcripts provided by Transcription Outsourcing, LLC. © Transcription Outsourcing, LLC.

Michael Guthrie: So there's a large opportunity for even the creators on our platform. We we launched video now for brand and we're seeing subsequent quarter-on-quarter growth of that unit as well. And finally, long term, we are also supporting portals that bring traffic to experiences, and more and more with the stuff we've implemented, like IAS integration and real world shopping, we're going to more and more give our brands the ability to close the loop on that and really measure more and more accurately the benefit of those units. So continue to make great progress.

Michael Guthrie: I think Mike wants to add a little inquiry. I just want to make a comment about the growth rate of the business and the forecasting of the business. One thing that we think is really crystal clear that's come out of the last few months is that we have the ability to build a great business with brands and ads and shopping, and we have a great core business that we have built over the years and is growing very rapidly. It's really clear to us that we can continue to grow the core business while investing in the new business, and that will be incremental to our growth.

Michael Guthrie: make a comment about the growth rate of the business and the forecast for the business. One of the things that we think is really crystal clear that's come out of the last few months is that we have the ability to build a great business with brands, ads, and shopping. And we have a great core business that we have built over the years and is growing very rapidly. It's really clear to us that we can continue to grow the core business while investing in the new business, and that will be incremental to our growth.

Michael Guthrie: But we're quite comfortable that we can continue to achieve our top line growth goals in our core business. As Dave mentioned, we have a very small percentage of the market. We've seen a fantastic reaction to product changes that we've made improvements accelerated through last quarter and into this quarter. And so it's really an end for us. It's the core business and the new business that we're building. And ultimately we see that brand business as an accelerant to the growth rates that we provided in our plus 20% business on our core business.

Michael Guthrie: But we're quite comfortable that we can continue to achieve our top line growth goals in our core business. As Dave mentioned, we have a very small percentage of the market. We've seen a fantastic reaction to the product changes that we've made, and improvements accelerated through last quarter and into this quarter. And so it's really an and for us. It's the core business and the new business that we're building. And ultimately, we see that brand business as an accelerant to the growth rates that we've provided in our plus 20% business on our core business. Thank you.

Operator: Thank you both.

Unknown Attendee: We'll move next to Aaron Lee at McClary. Please go ahead. My question. So I wanted to touch on the LiveOps events as you run more of these types of events. Have there been any takeaways or learning that you can apply to the pipeline of events you have planned? And is there anything you can share about what you saw during the latest event, just in terms of engagement? I think that would be helpful. Thanks.

Operator: We'll move next to Aaron Lee at McCleary. Please go ahead.

Speaker Change: Brian of events, you had planned and is there anything you can share about what you saw during the latest event just in terms of engagement.

Speaker Change: That'd be helpful. Thanks.

David Baszucki: I want to highlight a unique real opportunity on Roblox, and part of the engine of these live-ops event is that we're a UGC platform, and some of our events are including 50 or more experiences, all of whom are participating in the event, adding event features, whether it was the hunt, the classic or now the games, which is more focused on the sporting genre and the competition genre. So here's what we see from those events. They do drive DAU; they do drive reclamation. The classic, for example, brought a lot of the Roblox community that is played on Roblox throughout the years back to the platform, just with some of the classic memes on that thing.

Speaker Change: I wanted to highlight our unique.

Speaker Change: Real opportunity on roadblocks.

Speaker Change: Are the engine of these live ops events.

Speaker Change: Is that where UGC platform and some of our events are including 50 or more experiences all of whom are participating in the event.

Speaker Change: Adding event features whether it was the Hunter classic where now the games, which is more focused on the sporting genre in the competition genre. So here's here's what we see from those events they do.

Speaker Change: Drive da use.

David Baszucki: They also have some other benefits as well, in addition to what I've shared with our AI-driven discovery algorithms and duration and sponsored. They do increase visibility on a wide range of properties on the platform as well, driving content discovery and diversity. So it's a net plus plus. We're in a unique position to support these types of events with incredible diversity. Once again, the games was, is a great example of that. There's over 20 experiences that are all sports-based experiences that support kind of, you know, we're in a sports two weeks period here, and the games is kind of reflecting that with properties on the platform.

Unknown Attendee: That's great. Thanks for the color.

David Baszucki: And then turning to this CSO succession. First, Mike, amazing job over the last six years. You know, best of luck in looking forward to seeing what you do next. Dave, as you start the succession process, are you looking internally or externally, and can you talk about what you're looking for in the candidate, just given how much the company has grown over the years? We're just looking for another amazing CSO. Mike's been amazing, and we're going to together find another amazing one.

Aaron Lee: Dave, as you start the succession process, are you looking internally or externally? And can you talk about what you're looking for in a candidate, given how much the company has grown over the years?

David Baszucki: We're just looking for another amazing CFO. Mike's been amazing, and we're going to together find another amazing one.

Unknown Attendee: Understood.

Aaron Lee: I understood and it was well said. Congratulations on the quarter.

Operator: We'll send two graphs on the corner. Thank you.

Matthew Cost: We'll move next to Matthew Cost at Morgan Stanley. Please go ahead. Great. Hi, guys. Thanks for taking the questions. So there's some commentary, I think, in the shareholder letter about, you know, the North America user growth, which, as you pointed out, is the strongest during COVID. So I guess, you know, really strong showing there. Is there anything you'd call out as a driver of that growth in North America? And where do you feel you are on the penetration curve of the potential user base, you know, in the US and Canada? And then on the margin, I think that the full-year guidance now implies over 300 basis points of margin expansion this year.

Michael Guthrie: So a little bit ahead now of even that 100, 300 basis point guide you talked about at the investor day.

Michael Guthrie: I guess what is going better now than maybe you had initially expected, and the change here, your longer term view at all on the margin potential for business. Thank you. Yeah, I think the, you know, highlighting North America growth, both DAUs, ours, and bookings, we believe is a validation of what we said three months ago in that with heavy focus on performance quality, heavy focus on optimizing the health of our ecosystem with search and discovery, bringing live ops forward, tuning our economy. There's amazing headroom in really three ways. One is as Roblox disease more and more spontaneously, there's headroom for Roblox more and more to become an everyday product, as Roblox gets more performance and support the broader range of content we're seeing, even north of 25 year old, that user segment grow very, very rapidly.

Speaker Change: Inc.

Speaker Change: Highlighting North America growth the da use ours and bookings.

Speaker Change: We believe as a as a validation of what we said three months ago and that with heavy focus on performance quality heavy focus on <unk>.

Speaker Change: Optimizing the health of our ecosystem with search and discovery, bringing live ops forward tuning our economy. There is amazing headroom in really three ways. One is as roadblocks disease more and more spontaneously there's headroom for roadblocks more and more to become an everyday.

Speaker Change: <unk> product.

Speaker Change: As roblox gets more performance and support the broader range of content we're seeing.

Speaker Change: Even north of 25 year old that user segment grow very very rapidly and then also as we continue to add.

David Baszucki: And then also, as we continue to add wonderful kind of tune-ups and improvements to our economy, while continuing to be freemium and having the majority of our people on our platform use Roblox for free, we're continuing to see benefits on that side. So there's a lot of headroom in North America, as I said. The gaming market is just one lens onto that, where we arguably, you know, have 2.5% of the bookings of that. In addition, in the future to get to a billion daily active, there's a lot of headroom and shopping in entertainment, in education, and in social communication.

Michael Guthrie: And Matt, on your question about margins, your math is correct. It's really a combination of two things, which is, sorry, three things, very much in line with what we said last November. I do feel like we were pretty accurate in describing what we expected to happen.

Michael Guthrie: And Matt, on your question on margins, your map is correct. It's really a combination of two things, which is, I'm sorry, three things. Very much in line with what we said last November, I do feel like we were, we're pretty accurate in describing what we expected to have happened. And the first is the top line growth, which obviously helps us absorb fixed costs, and you know there's nothing like top line growth to help your margins along. The second one is back to those fixed costs, as we talked about on the call and highlighted in the letter. We've seen significant leverage in those areas.

Michael Guthrie: The first is top-line growth, which obviously helps us absorb fixed costs, and there's nothing like top-line growth to help your margins along. The second one is back to those fixed costs. As we talked about on the call and highlighted in the letter, we've seen significant leverage in those areas. And over the last year, that number's moved back up to 1.6 million, and that's another 20% improvement over where it was a year ago.

Michael Guthrie: Because it's been just an incredible job on our infra and safety teams of focusing on a KPI of cost to serve for a thousand hours and constantly looking for ways to improve that while increasing the quality and safety and civility of everything on our platform. I think the teams just done an amazing job. This is probably one of the best examples of using artificial intelligence and all of the compute and logic power behind that to make something in our cost structure better and more efficient and safer, but also driving the cost down, and so that cost to serve number, which is down about 25% year over year, is really one of the big drivers. That's about 400 basis points of margin improvement right there.

Speaker Change: And the quality and safety and stability of everything on our platform and I think the team's just done an amazing job.

Speaker Change: This is probably one of the best examples of using artificial intelligence and all of the compute and logic power behind that to make something in our cost structure.

Speaker Change: Better and more efficient and safer, but also driving the cost down and so that cost to serve number which is down about 25% year over year.

Speaker Change: <unk> is really one of the big drivers Thats about 400 basis points of margin improvement.

Michael Guthrie: The second one is on people and a really good metric to always look at for us is revenue per person and for any company. We've generally had very high revenue per person at Roblox, and over the last year that number's moved back up to 1.6 million. That's another 20% improvement over where it was a year ago. And as a result, that drove about 500 basis points of margin improvement year over year. What's nice about that is, you know, I see these trends continuing, but also as we get through the year and you're coming about the full year is accurate. Matter with the guidance implies is over the 300 basis points at the top.

Speaker Change: Right there the second one is on people and.

Speaker Change: A really good metric to always look at for Us is.

Speaker Change: As revenue per person and for any company. We've generally had very high revenue per person at roadblocks.

Speaker Change: And over the last year that number has moved back up to $1 6 million.

Speaker Change: And that's another 20% improvement over where it was a year ago.

Speaker Change: As a result that drove about 500 basis points of margin improvement year over year.

Michael Guthrie: And as a result, that drove about 500 basis points of margin improvement year over year. What's nice about that is, you know, I see these trends continuing, but also as we get through the year, and your comment about the full year is accurate, Matt. What the guidance implies is over the 300 basis points at the top.

Speaker Change: What's nice about that is.

Michael Guthrie: But what's nice about that is we've stepped back into a place where I think we're proving something I always talk about, which is the unity economics of this business are very favorable. And now that we have these fixed costs have come back down. In the future, one good way to manage those is to, you know, to look at your top line growth and basically continue to invest in the things that make you great and allow to innovate the business, but just investments is slightly below the top line growth rate. That will give incremental margin improvement in the future.

Michael Guthrie: But what's nice about that is we've stepped back into a place where I think we're proving something I always talk about, which is that the unit economics of this business are very favorable, and now that we have these fixed costs, they have come back down. In the future, one good way to manage these risks is to look at your top-line growth and basically continue to invest in the things that make you great and allow you to innovate the business.

Michael Guthrie: But just investments that are slightly below the top-line growth rate will give incremental margin improvement in the future. So we've done a lot of heavy lifting in 2024. And from 2025 on, I think it gets easier in some ways because we can both continue to invest in innovation, which is what makes this company great and sustainable, and also deliver some incremental margin along the way, both operating margin and free cash.

Michael Guthrie: So we've done a lot of heavy lifting in 2024, and from 25 on, I think it gets, in some ways, easier because we can both continue to invest in innovation, which is what makes this company great and sustainable, and also deliver some incremental margin along the way, both operating margin and free cash. So it's a really good; if you look at where we were this time last year and the improvements in the margins, it's a really good case study in what I think are the true unity economics of the business. And so, yeah, that's what's reflected in the guidance, as you pointed out intelligently.

Michael Guthrie: So it's a really good, if you look at where we were this time last year and the improvements in the margins, it's a really good case study in what I think are the true unit economics of the business. And so, yeah, that's what's reflected in the guidance as you pointed out intelligently. I just want to close, bring a bunch of things that Mike said.

David Baszucki: I just want to close bring a bunch of things that, like said, in one focused example, and that is, as we've rolled out voice on our platform consistent with our foundation of safety and civility, we had to engineer a way to review and moderate all of that voice or safety our voice safety team. Build an AI model and a voice classifier that we are now able to run on our own infrastructure extremely efficiently, and the quality and performance of this model is such that we open sourced a version of it to our community. It's not one of the most widely used, I think, trending audio models available on the open source community.

David Baszucki: I just want to bring a bunch of things that Mike said in one focused example, and that is, as we've rolled out voice on our platform, consistent with our foundation of safety and civility, we had to engineer a way to review and moderate all of that voice for safety. Our voice safety team built an AI model and a voice classifier that we are now able to run on our own infrastructure extremely efficiently.

Speaker Change: And our voice classifier that we're now able to run on our on our own infrastructure extremely efficiently and the quality and performance of this model is such that we open sourced version of it to our community. It is not one of the most widely used I think trending at.

David Baszucki: And the quality and performance of this model is such that we open sourced a version of it to our community. It's now one of the most widely used, I think, trending audio models available in the open source community. So, it's an example of full circle efficiency running on our own infrastructure, supporting improvements in the way our platform works.

Speaker Change: <unk> models available on the open source community. So it's an example of full circle efficiency running on our own and for supporting improvements in the way our platform works.

David Baszucki: So it's an example of full circle efficiency running on our own and for supporting improvements in the Where platform works.

Omar Dessouky: Next would be Omar de Suki at Bank of America; please go ahead.

O'Meara Suki: Next would be o'meara Suki at Bank of America. Please go ahead.

David Baszucki: Hey, good morning guys, it's Arthur on Omar. Thanks for taking a question. I guess on certain discovery, I think last quarter, you guys mentioned that you saw some content stay on this, particularly among the top experiences. And I know you guys have been making improvements on the discovery algorithm to help drive content crashes. I'm just curious, like how these top experiences have responded to these, you know, algorithm changes. Have you seen them, the sort of like publishing more frequent updates, or was it just like the longer, longer tail content that's getting surface more and they have a quick fall out of the guide us advocates.

Arthur O'Meara: Hey, Good morning, guys is Arthur off Omar Thanks for taking my question.

Speaker Change: I guess on certain discovery I think last quarter you.

Speaker Change: <unk> mentioned that you saw from content stay honest, particularly among a cooktop experiences and I know you guys have been making great progress on the discovery algorithm.

Speaker Change: Drive content crashes.

Speaker Change: Just curious like how these hot experiences have responded to be used.

David Baszucki: Yeah, I would use the maybe so the word content stay on this. I would use the term non-optimal ecosystem health based on how we surface content, and I highlighted. I'll touch a base on the algorithm, but also highlighted that we've include increased the diversity of the content that's bubbling up with our today's picks, which is really intelligent curation. That's expanding into several cohorts as well. We've seen creators take advantage of a sponsored tiles on the core algorithm. We're getting more and more transparent with that algorithm. We're starting to share more with the community how we kind of rate and support various terms. We have seen as a result of all of this, as I mentioned, more properties in the last three months bubble up quickly.

David Baszucki: I mentioned dress to impress, for example, which is doubled in the last quarter, and internally we do measure diversity of content. We measure the spread of that, and we have some internal indices that we've seen improve over the last three months.

Michael Guthrie: Anderson, that's super helpful. And then just quickly on the guidance that I just look at the midpoint of the guidance. It looks like Q4. It would look like there's a four point implied decal, the secretory versus what the Q3 booking guidance is. Is that pure? You just driven by lasting a place they can cause from last year or is there, you know, some sort of organic decal to be assuming they're just trying to understand the push and take for the before. Thank you.

Michael Guthrie: That's super helpful. And then just quickly on the guidance, if I just look at the midpoint of the guidance, it looks like Q4, there would look like there's a four-point implied detail in the sequence versus what the Q3 booking guidance is. Is that purely just driven by last year's PlayStation cons from last year, or is there, you know, some sort of organic detail that we can assume in there?

Michael Guthrie: Just trying to understand the put and take a little bit more. Thank you.

Michael Guthrie: Hi Arthur. It was A, the highest growth quarter of the year last year, so you're, you know, we're just comparing against the highest growth of 2023, and B, as you rightly point out, it was when PlayStation launched, and so that was a good healthy bump to growth last year, and so we'll have to, we'll have to lap that in Q1, sorry, in Q4.

Michael Guthrie: Hi, Arthur, it's a with the highest growth quarter of the year last year. So your work is comparing against the highest growth of 2023 and B, as you rightly point out, it was when PlayStation launched. And so that was a good, healthy bump to growth last year. And so we'll have to have to lap that in Q1, sorry, in Q4.

Operator: Thank you.

Clark Lampen: Next question comes from Clark Lampen at BTIG. Please go ahead. Good morning. Thanks for the question. I wanted to come back to some of the commentary around AI-driven moderation initiative. I'm curious, I guess, independent of that.

Operator: The next question comes from Clark Lampin at BTI. Please go ahead.

Clark Lampin: Good morning. Thanks for the question.

David Baszucki: I wanted to come back to some of the commentary around AI-driven moderation initiatives. I'm curious, I guess, independent of that, what sort of runway for either growth or optimization maybe exists in other areas across the platform, whether that's OPEX-based or perhaps, I guess, separately with content creation. On that latter point, have you guys seen the sort of desired effects and impacts on platform growth and developer onboarding that you wanted with the introduction of some of that stuff within Luau? Thank you.

David Baszucki: What sort of runway for either growth or optimization may exist in other areas across the platform, whether that's op-x base or perhaps, I guess, separately with content creation, have on that ladder point, have you guys seen the sort of desired effects and impacts on platform growth and developer onboarding that you wanted with the introduction of some of that stuff within Lu out tools. Thank you. Hey, great question. You know, we're running over 150 ML and AI pipelines within the company's training, tuning, building our own models. Voices is a big one. We have a lot of AI running up and down the safety staff on content moderation, communication, safety. We have shared that we are building a foundational 3D model, and we recently, with our community, adjusted our terms of service so that our community could participate in a PII and safety compliant way.

David Baszucki: Hey, great question. You know, we're running over 150 ML and AI pipelines within the company for training, tuning, and building our own models. Voices is a big one. We have a lot of AI running up and down the safety stack for content moderation, communication, and safety. We have shared that we are building a foundational 3D model, and we recently, with our community, adjusted our terms of service so that our community could participate in a PII and safety-compliant way in using all of that 3D data to build a 3D generative model.

David Baszucki: In using all of that 3D data to build a 3D generative model, we've seen really good early results with a lot of our tooling on texture generation, on coding assistance. But we do believe there's an enormous opportunity to build arguably one of the world's best 3D foundational creation models that will allow our creators to create by prompt.

David Baszucki: We've seen really good early results with a lot of our tooling on texture generation, and coding assistance, but we do believe there's an enormous opportunity to build arguably one of the world's best 3D foundational creation models that will allow our creators to create by prompt, with other types of hints. So stay tuned on that.

David Baszucki: By other types of hints, so stay tuned on that. It's a big area of research, and we're just getting started there. Safety is where we have most of our AI running now, and we are continuing to grow on top of that.

David Baszucki: It's a big area of research, and we're just getting started there. Safety is where we have most of our AI running now, and we are continuing to grow on top of that. And Finally, I just want to say one other comment. Safety is an example of running massive amounts of inference on our own hardware to keep costs very low. And one of the benefits of having built our own infrastructure with many edge data centers and lots of bandwidth around the world is the ability to run this quantity of inference at low cost.

Speaker Change: Research and we're just getting started there.

Speaker Change: Safety is where we have most of our AI running now and we are continuing to grow on top of that.

David Baszucki: And finally, I just want to go one other comment. Safety is an example of running massive amounts of inference on our own hardware to keep costs very low, and it's one of the benefits of having built our own intro with many edge data centers, lots of bandwidth around the world, is the ability to run this quantity of inference at low cost. That's helpful.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Finally, I just wanted to add one other comment safety as an example are running massive amounts of influence on our own hardware to keep costs at very low and.

Speaker Change: It's one of the benefits of having built our own intro with many edge data centers lots of bandwidth around the world is the ability to run this quantity of inference at low cost.

David Baszucki: That's helpful. Dave, if I could, I guess just if we look at guidance, I sort of have a bigger picture question around sort of the implications of this. If we were to take maybe a step back and look at just sort of objectively your guidance, where it was six months ago, even some of the Investor Day targets, I think it's sort of hard to argue that some of the changes that you've introduced more recently haven't put the platform seemingly on a stronger footing than it was six or nine months ago.

David Baszucki: Dave, if I could, I guess just if we look at guidance, I sort of have a bigger picture question around sort of the implications of this. If we were to take maybe a step back and look at just sort of objectively your guidance, where it was six months ago, even some of the investor day targets. I think it's sort of hard to argue that some of the changes that you've introduced more recently haven't put the platform seemingly on stronger footing than it was six or nine months ago. I'm curious if I guess it that's the right way of looking at it.

Speaker Change: That's helpful. Dave If I could I guess, just if we if we look at guidance I sort of have a bigger picture question around sort of the implications of this if we were to take a step back and look at just sort of objectively.

Speaker Change: Your guidance, where it was six months ago, even some of the Investor day targets I think it's it's sort of hard to argue that some of the changes that you've introduced more recently haven't put the platforms seemingly on stronger footing than it was six or nine months ago I'm curious if I can.

David Baszucki: I'm curious if, I guess, if that's the right way of looking at it, how has this experience, I guess, over the last couple of months, maybe influenced your views or perhaps risk appetite with regard to pushing through similar platform improvements in context of potential disruption? Yeah, I would say

David Baszucki: How has this experience, I guess, over the last couple of months, maybe influenced your views or perhaps risk appetite with regard to pushing through similar platform improvements, I guess, in context of potential disruptions. Yeah, I would say we have a fairly thoughtful balance approach to risk. What you saw in the last in the second half of last year was pushing a lot of long range technology on our platform forward: facial animation, voice, more interactivity on our avatar. What we shared three months ago is a concern that may have introduced some drag on the platform. We also talked about content discovery, tuning our economy.

David Baszucki: Yeah, I would say we have a fairly thoughtful, balanced approach to risk. What you saw in the second half of last year was pushing a lot of long-range technology on our platform forward, facial animation, voice, more interactivity on our avatar. What we shared three months ago is concern that this may have introduced some drag on the platform. We also talked about content discovery, and tuning our economy. I think it's validated that raw performance, raw quality, raw performance of our economy, raw performance of discovery, just making those better and better on their own are huge growth drivers. We'll continue to focus on them in addition to all the visionary stuff we're building.

David Baszucki: I think it's validated that raw perf, raw quality, raw performance of our economy, raw performance of discovery does just making those better and better in their own are huge growth drivers and will continue to focus on them in addition to all the visionary stuff we're building.

Operator: Thank you.

Shweta Khajuria: We have time for one more question from Shwata Kajuria at Wall Research. Please go ahead. Thank you for taking my question. I have a very high level advertising potential question for you as you think about where you are today and your large opportunity in growing your ad revenue base.

Speaker Change: Your AD revenue base, how what do you think is the low hanging fruit right now as we think about the next one to three years and that you can capitalize on and then how do you think about three to five years that you think you'd benefit from a in terms of your revenue potential. Thanks a lot.

David Baszucki: What do you think is the low hanging fruit right now if we think about the next one to three years and that you can capitalize on, and then how do you think about three to five years that you think you'd benefit from in terms of your revenue potential. Thanks a lot. My comment would be in the window of one to three years. I'm not so sure we need to go after low hanging fruit as opposed to big strategic opportunities, and you know the way we run product at Roblox is we go after systems; we go after large opportunities.

David Baszucki: My comment would be in the window of one to three years. I'm not so sure we need to go after low-hanging fruit as opposed to big strategic opportunities. And the way we run product at Roblox is we go after systems; we go after large opportunities. What we will increasingly move towards and validate with all of the brands on our platform is closed-loop repetitive systems where, whether it's for driving brand awareness, whether it's for driving digital shopping, whether it's for driving physical shopping, we move more and more to, in addition to all the incredible brand engagements, a larger volume of just competitive, you know And the stuff we're working on is strategic, and, you know, we don't have to do low-hanging fruit. We have the opportunity to do the right big-picture stuff.

Speaker Change: But my comment would be.

Speaker Change: In the window of one to three years.

Operator: Okay, thank you.

Speaker Change: I'm not so sure we need to go after low hanging fruit as opposed to big strategic opportunities and.

Speaker Change: The way, we run product at roadblocks as we go after systems, we go after large opportunities.

David Baszucki: What we more and more with all of the brands on our platform will continue to move towards and validating is closed loop repetitive systems where whether it's for driving brand awareness, whether it's for driving digital shopping, whether it's for driving physical shopping. We move more and more to, in addition to all the incredible brand engagements, a larger volume of just competitive, you know, repeat day on day advertising on top of the platform. And the stuff we're working on is strategic, and you know, we don't have to do low hanging fruit. We have the opportunity to do the right big picture stuff.

Speaker Change: More and more with all of the brands on our platform will continue to move towards and validating.

Speaker Change: Is closed loop repetitive systems, where whether it's for driving brand awareness, whether its for driving digital shopping whether it's for driving physical shopping we move more and more to in addition to all the incredible brand engagements.

Speaker Change: Larger volume of just competitive repeat day on day advertising on top of the platform and the stuff. We're working on is strategic and.

Speaker Change: We don't have to do low hanging fruit, we have the opportunity to do the right Big picture stuff.

Operator: Okay. Thank you.

Speaker Change: Okay. Thank you.

Operator: Well, thank you for joining us today, everyone. That's a wrap for us. Thank you, and that does conclude today's conference call. Thank you for your participation. You may now.