Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Roblox Fourth Quarter and Full Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the conference over to Stefanie Notaney, Senior Director, Financial Communications. You may now begin your conference.

Thank you, Dennis. Good morning, everyone. Thank you for joining our Q&A session to discuss Roblox's fourth quarter and full year 2023 results. With me today is Roblox Co-Founder and CEO, David Baszucki, and CFO, Mike Guthrie. As a reminder, our shareholder letter, press release, SEC filings, supplemental slides and a replay of today's call can be found on our Investor Relations website at ir.roblox.com. On this call, we will make some brief opening remarks and reserve the rest of the time for your questions. Our commentary today may include forward-looking statements, including, but not limited to, expectations of our business, future financial results and strategy. Forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those described in our forward-looking statements. A description of these risks, uncertainties and assumptions are included in our SEC filings, including our most recent reports on Form 10-K and 10-Q. You should not rely on our forward-looking statements as predictions of future events. We disclaim any obligation to update 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.

Thank you. Hey, welcome everyone to our Q4 and full year 2023 earnings call. It's great to see or hear from all of you, and it was great seeing you all at Investor Day. We had a strong fourth quarter and a strong full year 2023, consistent with the outlook we made at Investor Day. Some highlights in Q4 are: DAUs 71.5 million, up 22%; hours engaged 15.5 billion, up 21% year-on-year; revenue $749 million, up 30% year-on-year; and bookings $1.1 billion, up 25% year-on-year. It was our first quarter over $1 billion in bookings and also our highest quarterly growth rate in two years. For the full year and fiscal year 2023, DAUs are up 22%, hours up 22%, revenue up 26%, and bookings of $3.5 billion, up 23% year-on-year. We continue to invest in innovation and simultaneously invest very thoughtfully in the growth rate of those investments. And at our Investor Day, we discussed carefully balancing the growth rate with our investments in cost of revenue, infrastructure expenses, personnel, and capital expenses. We're pleased to share that in Q4, we delivered net cash flow from operations of $143 million, up 20% year-on-year, strong net liquidity of $2.2 billion, and our covenant adjusted EBITDA was $259 million. Mike will talk more about the balance of our investments and the management of our margin targets. I want to highlight our four-dimensional growth strategy, including all ages, international, Roblox everywhere, and a vibrant economy. In all four of these dimensions, we made great progress. On all ages, our 13-and-over DAUs grew 28% in the last quarter, and over 58% of our DAUs are now aged 13 and up. These older DAUs are interesting and exciting for the advertising business that we're building. Our growth continues to be the result of innovation and investment in the platform as well as our amazing creator community. On the international side, DAUs in the US and Canada grew 17%. DAUs outside of the US and Canada grew 23%. A couple of highlights in Q4: Japan DAUs increased 45%, and India Q4 DAUs are up 59% year-on-year. We believe this growth is supported by our international expansion strategy, including a foundation of safety and civility, and automatic AI-powered language translation allowing our creators' content to run universally. Our infrastructure, including edge data centers worldwide, ensures performance and reliability, and we see great content developers emerging globally, along with continuous innovation. On Monday, we announced that our AI model is powering real-time AI chat translation, allowing people worldwide to communicate seamlessly in different languages. In Q4, we released Roblox on PlayStation and on Meta Quest; both attracted new users and continued our vision of having Roblox everywhere. In our vibrant economy expansion, we rolled out developer subscriptions in Q4. We're moving in accordance with our vision that everything is creator-driven, establishing our avatar platform to full user-generated content (UGC). A quick update on our advertising initiative: we had the most brand engagements ever in Q4, with 69 brands working with the platform, and are scaling this up over 2024. A couple more highlights on innovation: on our social side, we're connecting more friends. We released real names for players aged 17 and up and image capture features. We noted impressive growth in our voice DAUs, which are up 161% year-over-year, showcasing our vision of Roblox connecting and serving as a communication platform. On the avatar front, we're making strides in immersive connective avatars and layered clothing released this year, plus increasing penetration of facial animation and voice chat. As a hint of things to come, we've hinted at using our AI to generatively create avatars at our Roblox Developer Conference. The opportunity with AI at Roblox is significant, and we've been investing in this area for many years. We have also announced Roblox Assistant, now in beta, where creators can use natural language prompts for new idea generation and coding assistance. Behind the scenes, we're continuously rolling out AI for real-time image, voice, and chat moderation, enhancing our safety platform's efficiency. Looking ahead, we will continue our path of innovation and execution. In 2024, we aim to drive growth and engagement in DAUs while intensely focusing on efficiency and quality. We're committed to accelerating monetization through advertising and our virtual economy. We're using AI for both user-facing generative efforts and behind-the-scenes for cost and quality improvements, with a steadfast focus on safety and civility. We remain optimistic about our mission to connect 1 billion people daily with optimism and civility—not just in gaming, but in entertainment, shopping, social communication, and education, where we're making considerable progress. With that, I'll pass it over to Mike Guthrie, our CFO.

Thanks, Dave, and good morning, everyone. Just a few quick comments before we open it up to your questions. Obviously, we're pleased with the '23 results. I'm going to reference our supplemental materials, available on the IR website, and some of the charts there. In Q4, our bookings were $1.127 billion, reflecting a 25% growth year-over-year, with strength across all geographies. On Pages 12 and 13 of our materials, you can see expense growth, particularly focusing on compensation and infrastructure, growing at a slower rate than bookings growth, which yields healthy operating margins and more cash flow from operations. Our cash from operations has shown growth year-over-year both in Q3 and in Q4. Reduced capital expenditures are yielding significantly higher free cash flow. I want to touch on some seasonality, which might help with your models. We are observing good seasonality in the business; in '22 and '23, we have moved past COVID-related comparisons, and you can now see trends more clearly. Normally, Q1 tends to see a decline from Q4's holiday peak. Q1 and Q2 are similar in bookings, with a slight uptick in Q2. We anticipate strong sequential growth in Q3, followed by a substantial jump in Q4 due to holidays, and then a decrease again in Q1 of the following year. For cash flow, note that Q1 is often the highest cash flow from operations rather than Q4 because of working capital. We see a buildup in Q4 due to holiday bookings, which releases in Q1, leading to higher cash flow. Looking at covenant adjusted EBITDA, the seasonality aligns more closely with bookings, showing a drop in Q1 and a slight decrease in Q2, with improvements in Q3 and Q4. There’s more to come in terms of seasonality. A quick note about DAU and hourly growth: great numbers were reported across all geographies with older users. I want to call out monetization as our bookings per DAU increased by 3% overall. The monthly unique payers reached an all-time peak in Q4, and bookings per monthly unique payer were the highest in Q4, marking the best performance in history. Our share count rose by about 3.7%. Let's discuss guidance and then open for questions. We're guiding toward GAAP revenue and GAAP net loss, which may be challenging for precise modeling due to deferred revenue factors. We’re also guiding non-GAAP on bookings and adjusted EBITDA, with the difference being that covenant adjusted EBITDA includes net charge deferrals. Margin guidance is about 100 to 300 basis points year-over-year by quarter and for the whole year. For example, your expectations of around 18% in margin for Q4 were exceeded at 23%. This compares to 20.3% the previous year, indicating a 270 basis point increase for Q4 and about 230 basis points for the full year. Looking forward, the midpoint of our margin guidance suggests 13.4%, implying an improvement of 110 basis points year-over-year, with the high end hitting about 14%. For Q1, we’re estimating around 8%, which is also 110 basis points higher than last year's Q1. With that, we can turn it over to questions.

Yeah. And I want to highlight two growth rates: Q4 bookings growth at 25% and fiscal year bookings growth at 23%. So, thanks, Mike.

We'll first go to Omar Dessouky with Bank of America. Please go ahead.

Hi. Thank you for taking my question. I wanted to understand how much the developer layoffs in the video game industry could potentially be a tailwind for you in 2024. Some experts estimate that over 10,000 workers lost their jobs in the video game industry in 2023, and we've seen reports that over 6,000 have already lost their jobs in January, including 2,000 from Microsoft. Did you notice more mobile app and PC console game developers than usual joining the Roblox community in Q4 or in January so far? And what is Roblox doing in 2024 to attract some of that video game talent to your ecosystem? I have one quick question after that.

Hey. There are two ways to look at this. Firstly, within the company, we continue to hire throughout this year. The cohorts of creators on Roblox have continuously grown and generated more revenue whether it is the top 10, top 100, or top 1,000. What you're asking is already in place for several years. With our growing bookings, we naturally expand the economic opportunities on our platform. Therefore, we are confident that irrespective of the layoffs, our creator community will continue to grow.

Okay, got it. You've answered my question, so I'll let the next person go. Thank you.

Thank you, Omar.

Next, we'll go to the line of Jason Tilchen with Canaccord Genuity. Please go ahead.

Great. Good morning. Thanks for taking my question. I'm curious about the really strong bookings growth in Q4. To what extent can you share that was driven by advertising? Additionally, where do you stand today in terms of building out some of those additional capabilities and measurement tools we discussed at Investor Day?

I'll provide a high-level response, and then let Mike address it. Throughout this year, we plan to add more capability for our partners to measure and assess their activities on the platform. In Q4, we achieved real bookings; we have a quarterly target for advertising internally, which we are not disclosing at this point, but we are very focused on maturing the size of that market.

Hey, Jason. We mentioned previously that we would start sharing specific financial data on advertising when it becomes material and critical to our financial results. While we are pleased with the progress we are making, we have not reached that point just yet.

Okay, great. Thank you very much.

Thanks.

Next, we'll go to the line of Brian Pitz with BMO Capital Markets. Please go ahead.

Thanks for the question. While you continue to make progress aging up the user base, this remains one of the biggest questions from investors: what do you attribute as being the key factor in attracting and retaining older users? Is it higher quality content or is it different content? Additionally, how are the different age cohorts engaging on the platform? It would be great to hear about gameplay and spending habits among different age groups. Thanks so much.

Hey. First, I want to highlight that we've been on this path for two, three, or four years now. Several years ago, the majority of our platform users were under 13, and the growth over 13 is a very positive sign. We attribute this growth to a wide range of factors, including platform quality, search and discovery improvements, and the organic growth of new older players, along with the retention of existing players aging up. We observe gameplay habits of older players aligning with trends seen in existing gaming and communication markets. Certain cohorts may lean toward longer PC engagements while others may prefer mobile social interactions. Importantly, we're seeing growth patterns on Roblox that reflect larger markets of gaming and social communication, resulting from multiple factors contributing to both retention-based growth and viral new player acquisition globally.

Hey, Brian. Just to build on Dave's comments, the growth of older users has consistently outpaced younger users for an extended period. This group now represents the majority of our user base. In terms of engagement, older users do tend to monetize better on a like-for-like basis, indicating that as we see growth in older users, it generally boosts overall monetization.

I also want to point out that the expansion of content intuitively appealing to older players is evident, especially in genres like realistic battle and fashion.

Great. Thanks so much.

Thanks, Brian.

Next, we'll go to the line of Clark Lampen with BTIG. Please go ahead.

Thanks. Good morning. I've got two questions, one for Dave and one for Mike. Dave, regarding the network effects you mentioned in the Shareholder Letter, can you contextualize how much of your user base is utilizing voice tools or the recent text translation features, and how that impacts user behavior? Mike, with the uptick in bookings per DAU this quarter, should we expect that to continue, and what recent releases or economy items might drive that?

I don't have the exact voice DAU number available, but I shared that our voice DAUs grew by 161% year-over-year in the quarter. Our internal metrics indicate that users utilizing voice show significant gains in retention, engagement, and other metrics. Thus, there is a network effect; the more users that use voice, the higher the other metrics tend to go as well.

And Clark, regarding your question about bookings per DAU, we'll primarily focus on bookings growth. If DAUs grow slightly faster, that may cause that number to decrease; if growth is slower, the number will increase. However, I will say our economy team has compelling initiatives underway that I am excited about, which boosts our monetization potential.

Thank you.

I would also look at that number and adjust for seasonality, ensuring you compare like-for-like periods.

Next, we'll move to the line of Ken Gawrelski with Wells Fargo. Please go ahead.

Thank you for the time. I appreciate the opportunity. I'd like to revisit the topic of advertising. While I understand it's too early to quantify, could you provide some key signposts we should monitor as you develop this initiative? How do you perceive the development of your direct sales force? Are you prepared to go to market?

I can provide some signposts to watch for. We've shared, anecdotally, the overall growth of brands advertising on our platform. This year, you will observe enhanced measurement capabilities for our partners to attribute brand advertising. We're also running experiments focusing on physical shopping, but we are not disclosing specific timelines. The team is working on this; we recently hired Stephanie Latham, who is leading an impressive team, growing our brand partnership efforts. I met with them yesterday, and it’s an impressive group.

I echo that sentiment. Both Dave and I have had the opportunity to connect with this new organization, and it's expanding with exciting talent. The number of engagements is a crucial point; we’re observing the rising number of brands collaborating with us in Q4, along with growing quality and depth in engagement. We will continue to discuss this in upcoming quarters.

Thank you, both.

Next, we'll move to the line of Eric Sheridan with Goldman Sachs. Please go ahead.

Thanks for the question. I'd like to hear more about your updated thoughts on emerging platforms such as augmented reality, spatial computing, the Quest 3, and Apple's Vision Pro. How do you plan to expand distribution and new experiences for users in the medium to long term?

I'm proud that we are on Quest with Meta and have launched on PlayStation in Q4. This highlights our vision of immersive 3D connection and communication across multiple platforms, including phones, tablets, computers, VR headsets, and consoles. We are assessing other platforms, including Vision Pro, as being logical candidates. Looking ahead, we are excited about the connection and communication capabilities we're building, including our open-source Roblox Connect, which features numerous communication APIs. We acknowledge that aspects of this communication could transcend VR into mixed reality and augmented reality as these technologies become more prevalent.

Thanks, Eric.

Next, we'll move to the line of Drew Crum with Stifel. Please go ahead.

Thanks. Good morning. Regarding the introduction of real-time chat translations on the platform, could you share any early learnings? As you push for platform globalization and launch features enhancing localization, what are the next milestones? Will voice translation follow? Do you have any timing on that?

As noted on Monday in our release, we currently support real-time text chat translation in 16 languages, built on our ML platform which also facilitates content translation safely and appropriately. This is a promising first step toward achieving our goals, such as connecting classrooms in the United States to partners overseas. We are also refining our AI platform to support generative features alongside significant improvements to voice processing for safety and civility. There are no set ship dates for future features as we continue building. Voice translation would be a wonderful addition once our foundation is solid.

Next, we'll move to the line of Andrew Uerkwitz with Jefferies. Please go ahead.

Hi. Thanks for the question. Mike, can you discuss full-year '24 guidance regarding DAU growth, spend per hour, and spend per payer? What metrics should we monitor to determine performance?

The forecasts we build internally are generally derived mainly from user growth, and we maintain conservative assumptions about engagement. We have relatively high engagement levels, so we don't often expect significant increases in engagement per user even though we have achieved them over time. We remain conservative in our projections for conversion rates and monetization improvements, although we expect some enhancements based on our initiatives. Our models typically prioritize user growth as a fundamental driver.

Got it. Thank you. I have a housekeeping question: does covenant adjusted EBITDA have any adjustments beyond deferred revenue? So, is it truly your historical adjusted EBITDA plus the change in deferred?

That's correct. The supplemental materials detail this on Page 36. You will notice that the guidance for adjusted EBITDA appears negative; you need to add back the deferred to reach what is conventionally understood as covenant adjusted EBITDA.

Perfect, thanks.

Next, we'll move to Eric Handler with ROTH MKM. Your line is open.

Good morning, and thanks for the question. Mike, I think you mentioned earlier, but your operating cash flow and EBITDA to operating cash flow conversion is approximately 100%. Is that an apt measure for 2024 and beyond? Also, what are your CapEx expectations for the year?

When you mention free cash flow conversion in relation to EBITDA, can you clarify?

Your covenant adjusted EBITDA has been closely aligned with your operating cash flow. Should we expect this alignment to continue?

Yes, that's right. It's mostly a timing issue related to working capital, particularly prominent in Q1 and Q4. In Q4, there’s a working capital buildup, and in Q1, we experience significant collections. CapEx expectations for this year are set at $180 million, with part of that going toward real estate, not all infrastructure based. We've seen a reduction in our infrastructure investments.

Thank you very much.

Thanks.

Next, we'll go to the line of Brandon Ross with LightShed Partners. Please go ahead.

Thanks so much. One of the tools you’ve introduced has been subscriptions. Do you see this as an important monetization tool? How has it impacted developers' abilities to create new experiences? Generally, when you roll out new tools for developers, how long does it take for them to be integrated into the creation of new experiences?

We’re not breaking out these numbers, but subscriptions align well with our vision of creating a versatile platform for developers. A decent number of top developers are now offering in-experience subscriptions, indicating good adoption among our creators, allowing them to establish recurring revenue streams through various payment methods. We anticipate that this will contribute positively to long-term monetization on the platform. Mike?

We believe subscriptions will aid in retention as developers are free to implement them as they find fit. The adoption speed for developers with new tools varies greatly; thus, there's no definitive answer to how long it takes for them to incorporate these into their experiences.

Furthermore, Apple made changes regarding App Store take rates in the EU. Does that impact you?

A few key highlights regarding our store partners, including Microsoft, Google, Apple, Amazon, and others: Firstly, our guidance is predicated on current circumstances in these systems. Secondly, they have all been great collaborators. Thirdly, we are analyzing the EU ruling to see if it would be beneficial for us. Lastly, we have previously indicated that any adjustments in future fees should be shared with our creator community and judiciously with our operational bottom line. We believe such changes can help us drive our creator community.

Thank you.

We will move next to the line of Bernie McTernan with Needham & Company. Please go ahead.

Thank you for the questions. On the topic of bookings, could you clarify the acceleration seen in the US? Last year, there were thoughts that gift cards contributed to performance; did that have a similar impact this year? Also, where do the 3 million new payers in the last quarter originate from?

Hey, Bernie. Regarding the new payer question, there's no significant geographical shift; payer growth is strong across the board. Part of the reason for increased monetization is the growth in older users, particularly in the US and Canada. As for bookings strength in Q4, we believe it’s due to the expanding user base, greater engagement, superior content, and the platform's scaling, including our ability to tap into new platforms in Q4.

We see the current DAU figure reflecting a significant growth among users aged 13 and above, and when evaluating the overall gaming market's scale, there is considerable potential in that age cohort.

Understood. Thank you both.

Thanks, Bernie.

Next, we’ll move to the line of Matthew Cost with Morgan Stanley. Please go ahead.

Hi, everyone. Thanks for taking the questions. I have two, both likely for Mike. Looking at expenses related to trust and safety, the efficiency is now at an impressive 11% of bookings. Internally, how do you assess that figure—by user basis, hourly basis, or per dollar booking? What are your expectations for that in the future? I have a follow-up after.

We evaluate that from all angles. It's all about the cost to serve, which our infrastructure team closely monitors. Currently, it's around 11%, but with higher efficiency and artificial intelligence integration, we envision achieving single-digit numbers in the next few years.

Thank you. On developer exchange fees, you previously shared insights about reinvesting savings from the cost of revenue into DevEx. Given that it is now slightly below 20% of bookings, any comments about this trend? Do you anticipate it to rise as a percentage of bookings absent changes in App Store fees?

DevEx remains roughly where it was relative to last year. Seasonality exists, but it is consistent at around 20%. We always aim to empower developers with a fair piece of our economics.

We mentioned our goal six months ago regarding our aim to grow bookings faster than the costs of goods and expenses, including infrastructure and personnel. The more efficiently we manage these areas, the better our opportunity for developer benefits or bottom-line expansions.

Thank you. That's quite insightful.

I believe we may have time for one last question.

Thank you. Today's final question comes from the line of Andrew Marok with Raymond James. Please go ahead.

Thanks for taking my question. Returning to earlier discussions, could you indicate drivers behind average bookings per DAU growth, particularly in Europe and the Rest of the World, both of which have shown significant performance in Q4?

The longer users engage with the platform, the more they spend. Our cohort is balanced between older and younger users, with increased spending from older users globally. Also, outstanding hardware content contributes substantially; our developers are producing compelling experiences that drive payments for their work.

I also want to emphasize our dedication to building quality payment avenues worldwide, including prepaid cards, which have contributed notably this past year.

Thanks, Andrew.

Thank you.

Thank you for joining us today, and that's a wrap.

Thank you, everyone.

Thank you, everyone, for joining the Roblox fourth quarter and full year 2023 earnings conference call. Thank you for your participation. You may now disconnect.