Good morning. My name is Amy and I will be your conference operator for today. At this time, I would like to welcome everyone to the Roblox Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. It is now my pleasure to turn the call over to Stefanie Notaney. You may begin your conference call.

Thank you, Amy. Good morning, everyone. Thank you for joining our Q&A session to discuss Roblox's Q3 2024 results. With me today is Roblox Co-Founder and CEO, David Baszucki; and 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. 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. 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. 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. Good morning, everyone, and thank you for joining us today. We're excited to share our outstanding Q3 results. But before we get into our numbers, which are included in our shareholder letter and in our 10-Q that we filed today, I want to take a step back and talk about what we're trying to accomplish at Roblox. Our mission is to connect 1 billion people with optimism and civility. We believe this is an admirable mission. And over the years, I've had an untold number of parents, users and developers reach out to share the enormous impact that Roblox has had on their lives. This is personal to me because I've had several people share with me that their kids are literally alive today because of the connections they've made on Roblox. Contributing to online civility is challenging, but it's very much needed, and we believe we can have an outsized impact. And this is even more important today. Since the earliest days of Roblox, it was clear to Erik and me that safety would be paramount. And so building safety into our product has been a huge effort for almost 20 years. We have every incentive to prevent bad behavior on our platform. Our approach to safety includes multiple proactive measures as well as parental controls. And we partner with leading safety organizations around the world. Even one person having a bad experience on our platform is too many and, thus, we continue to invest heavily. We've shipped over 30 improvements to our safety and policy systems this year-to-date. And for example, in Q3, we reduced toxicity in voice chat through our improved nudging models. We gave our developers improved tools to moderate their experiences. We launched major improvements in agent training to improve the accuracy of our moderation for voice chat and image moderation. We introduced numerous improvements in our internal tooling to increase the overall quality and throughput of our moderation and support systems. Enhancing moderation and safety systems with artificial intelligence is an exciting tool we have to combat bad actors. For example, our internally developed voice safety model, which we have now open-sourced to the world on Hugging Face, has been downloaded over 10,000 times and is being adopted by numerous other organizations. As part of achieving our mission, we'll never stop working to make Roblox as safe and civil as possible and this goes all the way to the core of our values. One of our core values is respect for the community. We consider our impact on the world. We strive to make decisions with everyone's best interests in mind and to communicate authentically. We prioritize our community, including users and investors above the company. When we report our results to investors, we strive to be accurate, consistent, and transparent, so that investors have the information they need to make decisions. We also do our best to make that communication as clear as possible to everyone. As you very well know, another core value of Roblox is to take the long view. This means we drive innovation by setting a long-term vision. We do our best to optimize the long-term in accordance with driving enterprise value. As a result, we're willing to focus on hard problems if these can lead to significant long-term gains. We announced at RDC in September our goal of 10% of the world's gaming software market running on Roblox. We believe this is achievable and we're now mapping our plan towards supporting the content that will drive this. And now turning to Q3 results, I'm really pleased to share our Q3. We delivered high growth across our key financial and operational metrics and we surpassed the guidance we provided on our Q2 earnings call. Revenue in Q3 was $919 million, that was up 29% year-on-year and ahead of our guidance of between $860 million and $885 million. Our Q3 bookings were $1.129 billion. This grew even faster at 34% year-on-year. This was ahead of our guidance of $1 billion to $1.025 billion. We had record DAUs of 88.9 million, which was up 27% year-on-year and strong across all regions. We noted huge improvements year-on-year in the US and Canada, up 26% year-on-year, and in APAC, up 37% year-on-year. A few countries to highlight: Japan DAUs grew 59% year-on-year, and India DAUs grew 55% year-on-year. Over 13 DAUs were particularly strong with 34% year-on-year growth, and now over 60% of our total DAUs are over 13. We also had record hours engaged at 20.7 billion hours in the quarter, up 29% year-on-year. The biggest growth improvements included the US and Canada, up 28% year-on-year. APAC grew 45% year-on-year. Japan hours engaged grew 69%, and India grew 57% year-on-year. We also managed costs in Q3 of 2024. Our developer exchange fees were $231.5 million, an all-time high reflecting our commitment to creators, an increase of 36% year-on-year. Our infra, trust, and safety costs were up 4% year-on-year and 6% versus Q2. I want to highlight that this increase versus Q2 is driven by investments in AI, including migrating more of our safety infrastructure to AI, where possible and responsibly. We're continuing to improve the quality of both our content and communication safety systems. 14% of revenue and 11% of bookings went to infra, trust, and safety compared to the previous year, showcasing our ability to leverage our strong top line. Personnel costs, exclusive of stock-based compensation, were $202.2 million, which was 22% of revenue and 18% of bookings. This was a decrease compared to the previous year as both a percent of revenue and bookings. Through this combination of thoughtful cost management and robust top line growth, our Q3 cash from operations was $247.4 million, up 120% year-on-year, better than our guidance of $147 million to $162 million. Our Q3 cash flow was $218 million. Free cash flow increased by 66%, exceeding our guidance of $105 million to $120 million. We're confident in our strategy and the long-term growth of the Roblox platform. I want to highlight a few key initiatives that fueled the quarter's outstanding performance. Since Q1, we've been focusing on search and discovery with enhancements to our AI-powered discovery algorithms, improving personalization, and continuing to showcase more relevant experiences to our users. We've improved our virtual economy and marketplace by introducing dynamic price floors, UGC for everyone on the platform, and launched in-experience price optimization for all creators just in the last month. On overall systems performance, we've continued to improve our app launch times, reduce crash rates, and increase frame rate and app quality across all platforms. Happy Halloween, everyone. We're in the middle of the Haunt, one of our LiveOps events attracting new users and showcasing new technology including image capture inside of Roblox. As we go through our shareholder letter, I wanted to share a few developments we're seeing on the platform. First, our dev community is publishing more significant content updates compared to last year, further driving DAUs. We're seeing more content updates and a faster cadence. Experiences continue to go viral; for example, in Q3 of 2024, experiences like RIVALS and Dress To Impress have risen quickly. RIVALS is a team-based shooter, while Dress To Impress is a dress-up experience, both have shown strong viral success. We've also seen distribution of engagement and spending on the platform becoming more balanced. Spending growth is more evenly distributed among the top experiences in Q3. We recently welcomed the NFL, licensing their IP on NFL Universe Football, which became the 30-second highest experience by spend since its launch on September 13 and is continuing to rise in October. In terms of partnerships, DoubleVerify for standard measurement is live now, and we added WPP to accelerate brand education, along with announcing our integration with Shopify. At RDC, in September, we highlighted our goal of 10% of the world's gaming software market revenue flowing through Roblox, a market we currently estimate at $180 billion. We recognize the enormous headroom here, as we're currently at less than 3% of our TAM in the gaming market space. We shared our strategy for achieving this and have great traction in genres like simulation, role play, and action, while also identifying opportunities for growth in genres such as sports, racing, shooters, and open-world RPGs. Our roadmap includes evolving our platform tech to support higher performance and fidelity for these genres, increasing our developers' economic opportunities, and amplifying creator growth through off-platform organic and paid acquisition, alongside the organic growth that already drives our platform. AI continues to play a core role in all our systems and strategies at Roblox. We announced a 3D foundational model at RDC and an open-source 3D AI generative model, which will begin with object creation and evolve to scene creation. We are already utilizing AI in our Roblox assistant, Code Assist, and for material and text generation, applying AI extensively for safety and discovery throughout the platform. Lastly, our keynote from the RDC Roblox Developer Conference is available online, and I encourage anyone interested in our technical roadmap to check it out. With that, I'll hand it over to Mike.

Thanks, Dave, and good morning, everyone. I just want to make a few quick comments. First, this is the best financial quarter in our history, highlighted by fantastic top line growth. Additionally, I want to call out the strength of our operating leverage, improvement in margins, and cash generation at the company. I believe we laid the foundation five quarters ago in Q2 of 2023 when we started to see sustained 20% plus growth on the platform. We invested significantly in infrastructure and people over the prior years to catch up with the demand seen during COVID. We had several conversations with many of you at the time, assuring that we could successfully manage those costs as we began to see the benefits of those investments, and this quarter really highlights that. Five quarters ago, our operating cash flow was $28.4 million. Today, it is $247.4 million. Free cash flow was negative $95.5 million, now turning into $218 million. The business has great unit economics. This year, we've made incredible progress not just on top line growth but also on driving significant growth in cash flow. Further comments will be made in November at our Investor Day, highlighting our continued growth of over 20% top line, driving operating leverage, and turning that into free cash. Cash balances now stand at $4 billion, with $3 billion of net cash. Moody's upgraded our senior notes this quarter from BA2 to BA1, aligning with S&P's position last quarter. There’s no immediate need for market entry again, but when that happens, we want to position ourselves as an investment-grade credit. Overall, an incredibly strong quarter. Now we want to open it up for questions.

Thank you. The floor is now open for questions. Our first question comes from the line of Tom Champion with Piper Sandler. Your line is now open.

Hi, good morning. Congrats on the really nice results. Dave, I'm wondering if you could talk about some new initiatives and learnings in the virtual economy, particularly regarding dynamic pricing. I think earlier there was a blog post about new paid access experiences where developers earn larger payouts. What are your thoughts on this?

Yes. I'll share one learning regarding price optimization for developers. We started an experiment with an early subset of our creators for dynamic price optimization for the items within their experiences. An interesting finding was that our optimizer often suggested reducing prices generally rather than increasing them to drive overall revenue for individual developers. It also indicated that it is not a zero-sum game; every developer can optimize their pricing independently without detracting from others. In exploring the efficiency of our infrastructure and the trust and safety systems, we're seeing improvements as they're increasingly powered by AI. We believe we'll be launching, in December, paid access experiences where developers will earn 70% at a price of $49.99. So stay tuned for that.

And Tom, I want to add that if you look at our metrics, bookings per daily active user grew year-over-year by 6%. Sometimes changes in the economy take time to manifest. While our user base is constantly growing, we did see strong growth in bookings per daily active user at 6%. In the meantime, bookings per payer grew year-over-year at 4%. We're starting to see the benefits of changes within the economy and monetization, which is our core metric of focus.

Okay, thanks. Hey, guys. Good morning. Dave, can you follow up on your earlier comments regarding new content moderation tools and adjustments to parental controls? When will these go live? Should we anticipate a step change in investment spend? Will these affect user behavior? Mike, there's been significant bookings growth in Q3, well above your longer-term notional model, but you seem hesitant to endorse higher growth over the long term. What would give you more comfort with that?

I don’t foresee a step change because safety is already our utmost priority, and we dedicate substantial resources to improve our systems continually. Safety improvements occur several times a month, not as discrete step changes, and we anticipate several releases before year-end focusing on enhancing verifiable parental consent and filters. You'll see many updates in the coming months.

Drew, regarding bookings in Q3 at 34% growth, we're very pleased. The non-console business grew at 28%, which is fantastic and exceeded our guidance. What we're looking for is more time and consistency before endorsing faster long-term growth. There are many strengths highlighted in the letter, and we are excited about the dynamics we're seeing, though we prefer to remain cautious.

Thanks. Good morning. I want to talk about the monetization growth in the quarter. It was helpful to have console and non-console comps called out in the shareholder letter. Did the console impact contribute to the 6% growth rate? It's the fastest rate of growth we've seen since the business was smaller during COVID. What should we expect regarding advertising’s impact on monetization going forward?

I'll start and then Mike will follow-up. Remember, we're always driving to increase users, their time on the platform, and monetization. We track monetization and bookings per hour, which has also increased. In Q3, we had monetization improvements and the introduction of PlayStation, which has increased our console market size, effectively doubling players on console. This provides a better economic situation for our creators.

Hey Clark, console does monetize well. It certainly contributed to the monetization improvements, but quite frankly, everything contributed this quarter. We saw growth across all platforms, regions, ages, and genders. It was a very robust performance across the board. Although console is relatively small, its impact on overall business is beneficial. We believe that monetization can continue to improve due to our economy team's efforts, while we're growing users and payers. Although we may not see a 6% uptick every quarter, we remain optimistic about higher monetization opportunities.

Thanks for the question. I would like an update on your advertising initiatives following your PubMatic and DoubleVerify partnerships. What are the next steps to build your offering, and Mike, can you provide insight into how advertising might contribute to 2025 bookings?

Yes. There are three major systems on the platform we’re currently improving. The first is traffic. We've added paid sponsored tiles to our homepage, complementing organic discoveries and curated listings, along with teleport traffic ads. We have introduced search advertising, where creators can bid against search terms to increase visibility for their experiences. The second is video. We’ve launched video ads and are introducing rewarded video within experiences. Lastly, our partnership with Shopify enables developers and brands to sell both in-game and physical products. While we’re not disclosing specific numbers just yet, we highlight that these systems complement the growth of our existing economy.

We didn't provide much detail on 2025 projections, other than we're confident in our continued growth of around 20% as mentioned previously. At our RDC this year, we talked about getting to 10% of gaming dollars flowing through Roblox. We believe we have a long way to go in growing our core business organically at the growth rates we've projected. Our non-console business showed 28% growth this quarter, indicating we're capturing a larger share of the market.

Hi, thanks for taking my questions. I wanted to start with LiveOps. Now that you've hosted a few events, is one per quarter the right frequency? How do you assess engagement in these specific events?

Great question. I believe the frequency may actually be higher than one per quarter. We're using events primarily to highlight our amazing creators and showcase technology on the platform. The current event, The Haunt, allows users to take screenshots of their costumes and vote within our safety and civility systems. We have many ideas for future events and will maintain a diverse range of experiences.

Great, thank you. I noticed you mentioned increased diversity in the experiences among the top charts. Is there any color you can provide now in terms of current trends and your ideal distribution?

Overall, the distribution is becoming slightly wider and flatter. We're witnessing new entrants in the Top 25, with experiences like RIVALS and Dress To Impress performing well. The distribution should evolve as our audience diversifies and expands globally, creating a healthier indicator for our growth.

Recently, we've seen spending more broadly distributed among the Top 100. Seasons of concentrated spending in the Top 1 may occur, but this time, distribution seems more balanced. Growing the discovery algorithms and content variety has likely led to much broader spending. We are also tracking genre variety within the Top 100 and strive to enhance coverage where we're weaker. More discussions around this will come in future calls.

Good morning. Thank you for the questions. I wanted clarity around console performance, especially with the strong Q3. Since Roblox has been on Xbox for some time, I'm curious about the boost in behavior when added to PlayStation. What are you attributing that success to, and is creation rates comparable on different platforms?

The breakthrough stems from our foundational strategy: that immersive 3D content, once created, runs seamlessly on any device. When we launched on PlayStation, existing amazing content was made accessible to a larger market. This effectively doubled the player-base for console. More players incentivize creators to make more economically viable console-focused experiences.

During Q3, we benefitted from a strong Xbox upgrade, which contributed positively to our performance. As we look forward, we generally believe console might not grow as noticeably in the fourth quarter. Though console has its peak for now, we will maintain growth across all other platforms once comparables normalize.

In terms of payer conversion, I noticed it rose quite a bit this quarter. Can you elaborate on whether these drivers could push conversion further up over time or if it’s more about monetizing existing payers?

I want to highlight one trend. The economy team focuses on optimizing user enjoyment and engagement, which is our main goal. Creators may find better economic outcomes by reducing prices instead of raising them, potentially increasing the number of participants in our economy as more enjoy the platform.

Our data shows fantastic growth in payers, highlighting a 30% rise year-on-year. We credited this surge largely to our creator community, better search, and discovery algorithms that showcase more pertinent content, increasing payer conversion likelihood. We expect continued improvement in conversion rates as our platform keeps running better and creators make more engaging content.

Thanks for the question. How do you envision the growth of paid access games contributing to overall bookings in the future? Is it early to determine? Furthermore, Dress To Impress seems more viral—has anything changed in your strategy to drive that engagement?

Our infrastructure is highly efficient at a cost below $0.01 per hour, supporting substantial immersive gaming experiences and safety systems. With paid access experiences launching in December, we see an opportunity, but won’t comment on specific projections yet. Overall, we aim to create conditions conducive to virality within various genres on our platform.

Thanks so much. Could you elaborate on your thinking around the foundational AI model? What sort of direct revenue model do you foresee beyond aiding developers in content creation? Thank you.

Our vision is that in the future, users design clothing via text and voice prompts rather than traditional means. This foundational AI will run efficiently on our infrastructure, providing accessible and cost-effective AI for creators while enhancing quality and retention in our 3D experiences. We anticipate creators will innovate with AI on our platform starting next year.

This may be a difficult question, but with such strong performance this quarter, can you estimate how much was driven by platform enhancements versus breakout hits from creators?

The answer is that both aspects synergistically fuel each other. We focus on enhancing platform quality to allow creators to flourish, leading to extraordinary innovations. Building conditions for amazing creation ultimately drives our aspirations for 10% of the gaming software market to run on Roblox.

Thank you all for joining us today. I will hand it over to Amy to close out the call.

Thank you. That does conclude today's conference call. Thank you for your participation. You may now disconnect.