Q1 2021 Unity Software Inc Earnings Call
Interactivity crew treaty and real time is so much greater than with alternative forms of media. Our goal is to enable these real time three D creators, where he was a popular phrase enable and power much of the matters, we intend to enabled us and extreme scale and.
<unk> seeks to enable millions of endpoint locations, both with our creative tools and our operating solutions.
Now we recognize that we are and a privilege position relative to under other content creation tools.
Content built with unity gives end users agency or from what they see the distinctive characteristic because they are fundamentally different and more engaging and we believe better way to interact with content.
And I think it's worth noting that there are many thousands of developers that transitioned into productive 20, <unk> century jobs and part as a result of learning and using unity.
But our one of our key competitive advantages, we've built unity platform to be relevant per developer throughout their career from high school hobbyist to their first job and beyond we will continue to invest to enable more creators to join this 20 <unk> century economy.
Now what do I mean, when I say scale to career throughout their career.
We believe that our commitment to R&D competitively differentiate us from less sophisticated platforms that aspire to catch up with us in terms of technology and market share.
For example, with unity only write once and can publish anywhere we built our editors.
Full range of users from <unk> to advanced developers can build real time and <unk> applications.
It means you can start with visual scripting and moved to see sharp programming and toward more advanced developers worked directly with unity source code if needed.
With these on ramps to unity, we enable creators to develop and operate many application types from games to car configuration will run high scale AI stimulation.
Not easy to make the complexity of this easy.
This is our role and our strategy to enable more and more creators to be successful.
Technologies that support the successful growth and real time <unk>.
Applications are quickly reaching scale massive bandwidth with <unk> multi core processors scalable AI AR VR.
<unk> cloud compute and more now.
And that was the time for real time really to scale across games across industries and across user types.
And what was once two D will become three day back which was linear becomes interactive and what was not real time to come and real time as.
As we saw when the cloud displaced on premise and subscription and replace perpetual license.
Let's shift to real time, <unk> has the potential to create multibillion dollar opportunities.
Our vision and to assure unity is a once in a generation company a true platform that enables creation and operation and real time, <unk> applications and extreme scale.
We envision a world we have hundreds of millions of creators on our platform from consumer creators to professionals and gaming and dozens of industries.
By executing on this vision, we believe we can build a company that delivers revenue growth from approximately 30% over the long run and <unk>.
Businesses like life are not linear so it is likely that some quarters and years will be higher or lower than we expect but even so we believe the opportunities in front of us make such a goal achievable.
Let's move onto financials first off I want to thank Kim from all for all her contributions community I believe many of you know our new CFO Luis <unk> and this time at Palo Alto networks, Amazon and AWS, where he oversaw significant growth and scale.
And I'm thrilled that Luis agreed to step into the CFO CFO role at Unity Lewis served and our board and joined US from a position of knowledge with energy and passion and drive the business I know Luis will have a great impact on unity and look forward to working together to continue to build this great company with that I'll turn the call over to Luis.
Thank you John and thanks to everyone and unity, Florida, a very warm welcome and I'm very happy to be here.
I believe that the opportunity in front of US is almost limitless as uniquely enables us to transition from to be to real time bidding and gains and across industries.
We delivered another strong quarter with excellent execution by the unity team, beating guidance and sweet expectations.
Q1, 'twenty, one revenue of $2 $35 million grew 41% year over year with strong performance across the board Cree and revenue of $70 million was up 51% year over year operating revenue revenue of $147 million was up 40% year over year and strategic partners.
Chip revenue of $18 million was up 12% year over year.
And particularly encouraged by the continued customer success.
We had 837 customers each and generally more than $100000 of revenue and the trailing 12 months as of March 31, 2021 up from 668, a year earlier and.
And our dollar based net expansion rate as of March 31, 2021 was 140% up from a client and 33% a year earlier as cash.
Customers expand their business with unity.
And our platform as a competitive advantage.
<unk> enables creators to develop and operate realtime, Sweden content, providing them the right infrastructure and tools to create and monetize their work.
This platform enables us to attract new customers and expand our business with existing ones.
Unity is customer base is becoming more diverse as we expand from games into other verticals and good illustration of this quarter is in our simulations product, which we sell under create.
And we added customers and household appliances and home improvement healthcare aerospace and government.
Q1, 'twenty, one non-GAAP operating loss was $23 4 million compared.
Compared to $13 $4 million last year, as we increased our investments in R&D and vertical expansion that we expect will enable future growth.
Q1, 'twenty, one non-GAAP gross margin dropped from 81% a year on year to.
And 278% due to mix and higher cloud hosting costs, we expect to breakeven on a non-GAAP operating income basis within fiscal year, 2023, and expect gross margins to fluctuate and and high 70%.
Q1, 2021 free cash flow margin of minus 42% was particularly impacted by the payment of our fiscal year 2020 volumes higher payroll taxes, mostly related to employee stock vesting prepayments for software licenses and increase in working capital as our business growth and our.
And one time payment related to our real estate.
We expect free cash free cash flow margins to improve significantly and the second half of the year.
We have 4389 employees at the end of the quarter of 50% from last years March quarter.
This brings me to guidance given the strong momentum, we're raising our revenue guidance for the full year 2021 from $950 to $970 million to now one zero billion to 101, 5 billion, which represents 29% to 31% revenue growth year over year.
This is an important milestone for unity, a few software companies scale to the $1 billion Mark.
And finally as a reminder.
Our revenue guidance still assumes approximately $30 million of headwind related to <unk>, which was implemented and the end of April.
We're also narrowing our non-GAAP operating loss guidance for the year to $90 million to $100 million.
We continue to see significant opportunities to drive long term growth by investing in R&D and vertical markets.
For Q2, we expect revenue of $240 million to $245 million, which includes two months of <unk>.
And represents 30% to 32% revenue growth year over year.
We expect non-GAAP operating loss for the quarter to be between 30 and $40 million as we continue to invest and the business.
In terms of our share count we're forecasting three declined 29 million fully diluted shares outstanding for the quarter and $334 million for the full year.
In summary, we are encouraged by our strong start to the year with Q1 results above expectations.
This strong start gives us confidence to raise our guidance for the year as we continue to lease a two day to real time, three D and transformation.
We are well position and the industry and continue to invest to capture new opportunities with that I will turn the call back to Richard who will run through questions.
Great. Thanks, very much. So okay, we are going to move into the Q&A section of the call So and is it.
<unk> tried to be innovative and so what we've done as I've said is we've collected all the questions and sorted them out and a kind of a logical fashion. So instead of using 20 year old methodologies are actually going and to be late.
Late 2020, mid 2000, Twenty's and any case, so let's start with us.
Let's start with some of the financials questions.
So let's begin with our newest member of the unity team Luis.
Who joined the slides and you know last month, so <unk> of William Blair asks.
Can you remind us of how you think about allocating operating expenses sales and marketing R&D G&A and kind of between enhancing your existing portfolio.
And new products and whether this is going into gaming our verticals kind of so how do we kind of allocate those things out and how do we think about it.
Thank you Brian.
And Fortunately I do have many opportunities in front of us that it's good to have choices right.
We actually prioritize investments in R&D as we continue to strengthen capabilities to capture a very significant opportunity in front of us resulting from this to lead to a real time <unk> transition and that both John and I have been talking about but overall, our investment behind and we invest behind idea that have the potential to be.
Large solutions with attractive financials, we're always looking at the long term, we want to create value long term.
So we strive to both enhance our existing portfolio and investing new products and gaming and verticals and we will do that creating leverage as we improve margins over time.
Great. So another financial question for Luis.
<unk> Bahrenburg asks when thinking about the vectors of growth and the midterm, if you've kind of had to stack rank kind of the components.
Monetization of premium costs create customers, some new seats and gaming things like that cross selling new industries, and how should we think about kind of the underlying metrics and how they grow and those kind of things and how do we think about that.
Yes, thanks for the question and Gal and.
I think of this vector SaaS and not <unk> or <unk>.
Keep in mind that many of them and keep the abilities that we that are required to win and gains also enabled us to win and other verticals.
This means that while the customer use cases are very different we have already build out that platform that is the foundation for real time, <unk> content creation, and our application and built.
So we believe when you combine the head start that our platform gives us with a leading market share and several segments. You'll get this virtuous cycle that helps us build our growth across gaming and verticals and the intended result is that we were able we're able to cost effectively meet our customers wherever they are in their journey.
From basic workflows to full blown applications.
Okay.
Okay.
Our favorite topic for a lot of people and <unk>.
It's been on my mind of analysts for a while and investors. So let's dig into this so Chris Merwin at Goldman Sachs assets on our February call. You suggested that <unk> would begin in the spring and we'd be about a $30 million headwind to your revenue growth. This year iOS 14, and five came out April 26, So did that help you.
March quarter, and more importantly, kind of what are the implications.
Early indications and in terms of your opinion on that impact and what the plant and rely on that land and land looks like Luis why don't you run with that one.
Thanks, Chris.
It's a very important question. So let me try to provide you a little bit more details.
The team has been preparing for IV <unk> for at least the last two years.
I was part of several of these conversations as a board member before joining unity and it was always very impressed by the quality of their thinking and now that I'm on the other side <unk> been even more impressed and seed planting detail.
Let me try to Dimensionalize that for you.
Our operating organization captures and analyzes 50 billion in App events each day.
You do the math, that's about $35 million in App events every minute and.
And we do this across 20 platforms.
This includes roughly $1 billion in App events in iOS 14, five each day.
We believe that the ability to analyze this data positions us very well in the industry.
So as we talk to the teams there are probably five key takeaways that I would like to leave you with.
First our spending and our planned spending on our platform is very strong.
There is a shift towards ROI based campaigns on our platforms through audience in pointer.
This is when advertisers determining the outcome there day, one from the campaign and we determined the right channel and price for them to achieve their kpis. So that's point number one per number two our contextual model, which very importantly does not rely on Ida Fe is working well.
We need to perform for our customers even in a more privacy and where environment unity game engine leadership is a strength and it provides us with deep context for our ads business.
Third point, our scale and depth provides the facts and.
Vast amount of and user engagement and platform performance data, which is the point I was mentioning earlier about this $50 billion and Napa events every day and across these two platforms.
The fourth point, which is probably one of my favorite is the customer feedback we're getting is very strong Chris.
Let me, let me read to you three quotes that I got from the team that come.
Coming from our customers close number one.
Out of all our partners, we're most happy with unity and we're having a lot of progress with others.
Two.
We partner with every single network available and unity is readiness and guidance are far above the rest code number three we work with every network and none of them are able to compete with unity when it comes to iOS $14 $14 five readiness and we acted and this.
So if I look at everything with this customer feedback I'm fairly confident that we're in a very strong competitive position.
And the last point I wanted to make on this is we are raising our guidance by $50 million and a driver of that increase in the operating business.
So we have momentum we beat Q1 expectations and are raising our forecast for the year.
So.
<unk> will most likely impact the industry and we believe that our data and analytics advantage.
This advanced preparation that I was mentioning position us very well to manage the <unk>.
And.
And we'll obviously keep you informed and we learn more.
Great Thanks, very much and.
And then Dave on CRE at William Blair asks and interesting question about what <unk> means to our customers, especially in terms of how user acquisition teams will evolve and what role does unity plan that transition so I'll take.
And take that one and it's kind of in addition to what Luis just said, but basically there.
And Theres no question that <unk> is a challenge for a lot of creators and while while Luis outlined a lot of the levers.
And ways that we can help our customers navigate.
Not underestimating the challenges that our customers and others and the ecosystem, including some competitors are facing so and the short run and Theres No question that it'll be a challenge for some of our customers, but in the long run we believe the more innovative and nimble studios will come out ahead and in that case, that's a good thing for the industry.
Because it will make us stronger and more durable.
Alright, let's rotate over to a macro question.
And zoom out a bit and another question from Chris Merwin with Goldman Sachs quote as we start to see a broader reopening of the economy can you speak to the engagement trends of your customer base, how should we think about those trends impacting operating revenues as we move through the rest of 2021.
John Why don't you have you take that one so it's correct youre speaking about and and users Chris and.
What I would say is look there's no question and 2020. It was a watershed year consumers are enjoying gaming at levels.
I might well are expected by the year 2025, and they visited US in 2020, so it is clear that certain.
Behaviors and move forward several years.
Now earlier Luis mentioned.
All of those data points, we have Josh we understand engagement and LTV.
And our cost to acquire literally.
And every country and the world minute to minute our data understanding is huge and.
And everything I see it makes me feel like.
Big part of the lift is permanent people have changed their behaviors have changed the way they came that change and when you look at gaming people who come into the industry.
And theres going to be some changes and and.
The balance of our guidance of share does reflect some reduction and engagement and the activity associated with it it wouldn't be prudent not to include that but I think the other thing that's going to be really interesting this year and going to the exact seasonality.
Normally we would see a sharp left as we go from say October November thanks, giving holiday and.
And Christmas holiday.
Kids going home from school and.
And that pattern will start to see that but we're indexing a year ago to a period, where they were already at home for the entire quarter point and I'm, making it I do think that not only was COVID-19 and the work from home aspects of this really.
Unprecedented and driving engagement point number one it's permanent and some of the year over year look back and we're going to be interesting because it won't be the normal comparative seasonality that we would otherwise expect.
Great.
We have a question from.
CRE at William Blair about data so given that we have a large population using unit using the unity platform.
Gives us deep insights into the <unk> and the customer kind of behavior and preferences. So as we kind of get these network effects up and running and how we're thinking about the opportunity to introduce even a marketplace for consumers and drive recommendations based on trends that are playing et cetera. So maybe John if you want to run with that.
Well thanks for that question, it's one of my favorites and what I've been talking about inside the unity boardroom for seven years.
First off we're proud to say that over a third of the world's population is on our.
Our platform and Thats, a substantial differentiator for our customers and it really helps us understand our marketplace and allows us to leverage network effects and games with game developers write were better and more relevant marketing and protect fuel messaging and the rest of it that sort of supports for monetization.
This was the thesis upon which we began our operating solutions business, we didn't want to be another buy low sell high arbitrage and monetization network and those who follow this market have seen many of those undifferentiated companies part of the way side.
What we've done well and this market just take our data advantage to better understand and build a network around the optimization of LTV versus cash so we understand the cost require understand.
LTV of our customers, we understand the interplay and a level of nuance. It really helps us to a better job per customers and Thats, what our network really is and so it is a network effect, we count our <unk> to $3 billion, even our largest customers are rarely and a great Mark 10 percentage, it's a massive advantage and it.
Amplify on some of the data and it's always highlighted we hit 50 billion and prevents an offer 20 platform and that.
That's the important reason why we are able to develop these deeper insights into customer behavior. We work behind the scenes to recommend what would be interesting or new book to an existing customer based on multiple factors and thats the core tenant and how we built our marketplace for consumers to drive recommendations.
Right.
Let's switch over to another part of operate so operate beyond monetization so Tom Roderick over at Stifel asks.
And while monetization is a very good business. You also have several other operations our offerings under the operate umbrella.
So how are we thinking about operating solutions beyond monetization and kind of which areas and we most excited about and the near and long term John If you want to run with that sure I can predict.
And excited about multiply we plan.
And to grow this faster than or operate.
Becoming a larger portion of the operating revenue mix.
I believe it's a multimillion dollars more and let me say again and time, a multibillion dollar opportunity it's cloud orchestration.
Australia for real time, three day, we put this business hypothetical Thunder and grid and the team who continues to do a great job running operating there.
And they're making it easier to self position and the streamlined pricing models. There is a concerted sales effort looks like its paying off several large deals and the pipeline.
And seeing the trend to move consumer is really resonating with multiplayer games Soc.
Social was playing views and wants to get more success, we feel great about the multi play business and the long term prospects.
And <unk> smaller and it will scale faster and better.
And it's the best in class scalable voice service used and gaming.
And it's been used by some of the world's best known GAAP, New features and functionality are coming and going live and the second half of the year.
And then we've got our cloud delivery network.
We are really on the right side of history here.
A lot coming.
And we feel confident that more user generated content more content updates is going to drive increasing uptake there.
I'll admit that there's more features coming and Thats, an important part of how we're going to scaling.
We continue to work new features and internally.
We look for tuck in acquisitions to accelerate our growth in this space, but we really feel great about operating rural great.
Great.
Let's go over to create for game, So Franco Granda at D. A Davidson asks as large.
And as large AAA video game developers renew their focus on mobile gaming number one has there been a tangible uptick and engagements number two.
And how has unity engaged with them as they look to maximize not only the efficiencies of game development process, but also the monetization aspect. So John do you want to run with it. So the first point is we have seen more engagement from AAA studios, both for AAA games and for the mobile games that they are building on the AAA and intellectual property.
We've seen industry and dynamic of last few years, a lot of AAA studios are increasingly realize they need they need something different as they get into mobile and they think about bespoke engines, but find its time consuming costly and often.
And of <unk>.
<unk>, if not just <unk>.
The path to commercializing successful game has changed for example.
And highway fast from AAA franchises like call of duty come to unity to use our development platform to build from mobile youre getting there faster quicker better and if you look at the chart, you'll see many of the worlds largest most successful mobile games are built on unity.
Secondly, we've begun to see some games start and mobile and.
<unk> and then moved to AAA and sometimes we book city of launches successful game on Nintendo switch and move that type of other platforms, whether it's mobile or console title and finally with the rise of cross platform play and we've seen PC games crossover to consoles and vice versa.
The value of using unity platform becomes even more obvious and these circumstances cross play and multiplatform.
<unk> published on all platforms, and that's our bread and butter and Thats, what we bring to the table and we keep up to speed on these platforms minute competitive rate per day to day, and maybe something and it's been and.
And they make changes and the technology stack, we're always there and ready.
Big Publishers, sometimes don't have the time to keep up with the smaller ones never do play and catch up with unity. There ahead of the game.
Okay.
So banana and another question on the creative side.
Your addressable market or Tam addressable market for game artists is multiples of that of the programmer opportunity due to the shifting trends involving more artists and at game Studios could you update us on the progress youre, making with penetration into the artist market and what differentiates art engine relative to what is currently being used and the market today.
John.
Welcome and thanks for that question, it's an important one and a scenario where it made the most progress and realistically also still have a lot of progress in front of US investments, we've made and visual scripting, new rendering pipelines and over and workflows and many artists on the unity platform and.
And the early work done with AI augmentation for artistry and putting what we provide with our and engine.
Also with bringing artist and the platform and for those of you don't know exactly what I'm talking about.
AIA augmentation means that we're using the power of AI to essentially make and artist 10 times more productive or 'twenty talk more productive because it completes a lot of the task and and finishes and lot of the work, we're enhancers and work that would otherwise be doing price.
Now.
More context on that.
You might want to look at a case study of its on our website one of our AAA Studios. It was featured from the GTC showcase and.
<unk> Youll see them there. It's a good read it gets exactly to the question you are asking about but here's the thesis artist amongst numerous creators of content and real time Treaty and every day, we seek to serve them better more tools better tools.
Great.
Pivot over to kind of create for vertical so Brent and bracelet and over at Piper Sandler asked to what extent is the recovery and construction market been a tailwind for you and how those visualized fit into that kind of go to market strategy John.
And I guess I can say that the construction market recovery has been a tailwind and it.
It will be for some time, but but realistically.
Relatively nations and this industry from low customers. So it's more the macro trend is really interesting and helpful. But it's really at this point growth is driven by case by case penetration with our tools and architecture and construction companies. For example, we continue to work closely with innovators like Sweden based accounts, Scott and fifth largest construction company and the World recently signed Jay.
<unk> done per.
Site license for visual live J, <unk> 5 billion and top 25 construction company.
And we have other wins and AUC that went out and lines of the lease I wish I could.
The point here is that we've begun to see the who's who of prospective customers and architecture engineering construction and whats driving US right now is penetration and the existing business and I guess, there and a better mood when they see their market growing so maybe that makes it a little bit easier.
Great.
And with another question from Brent price limit Piper Sandler he asked.
Theres been a handful of new product releases, and the last quarter and tied to enabling AI and machine learning robotic applications and manufacturing and industrial markets.
Via models computer vision and stimulation synthetic data could you frame the broader opportunity and manufacturing and industrial market for these tools and others John So.
I'm going to slightly reform here, we have frame your question, but it could be held specifically to manufacturing and the industrial market.
Our goal at unity is to build a product portfolio that give us really and unbounded opportunity to expand beyond gaming. The key thesis is as we move from industry and industry. Their needs are incredibly similar they need what is core to our gaming engine, but theres a handful of additional needs.
Salt per use case after use case across industries want to think about it one way to think about it computer vision and use cases content per stimulation and extreme scale for training of AI models streaming with the particulars right per real time three D. <unk> plenty of this is quite different and the ability to resolve elegies and level of detail and fly.
These are capabilities mirror inherent unity were fairly easy to address and they opened massive opportunities and gaming and in many other industries there and so a few additional building blocks and you'll think amendments legos and our toy box and capabilities like our tools for larger team collaboration for version control through large amount of data that go with real time every day.
The habit believe were truly unbound and opportunity.
And at an EBIT.
And just the last few years and expanded our market presence and product portfolio are pretty substantially today, many well known brands use unity technology, and AUC automotive manufacturing media and entertainment and as you saw on our press release, we announced new customers and healthcare government retail and look to bring real time to read it as our customers and employees, we plan to keep investing and new features and.
Functionality today, our portfolio encompasses our core unity editor, but also format for AC production, it's pretty content reflect for VR for Bim models.
For streaming and real time <unk> experiences.
<unk> for heads up displays bars for XR creation, but here's the thesis there is a handful of additional tools capabilities on top of unity that will essentially make us relevant for virtually any use case and in and outside of gaming and it's getting to this unbound opportunity that has to be so optimistic.
Okay, and we'll make this the traffic that we will have Brent price.
And that's good question about how are you thinking about partnerships as you expand into other verticals and I can take this it's basically and in addition to what John just said look up to this point, we've been seeding the market mostly through our sales, but also working closely with our verified service providers. However, as John just referenced we have a strong and growing foundation.
<unk> and gaming that makes sense for us.
And our beyond gaming and makes sense for us to kind of partner with a handful of global professional services firm. So stay tuned on that front, we don't have anything to say now, but hopefully if we keep working hard on that will be well in that regard.
And then last.
But not least gal Munda Bahrenburg gets the most interesting question award this quarter and we'll do that every quarter.
Hey, guys.
And with Nvidia, becoming quote a new software company, how does the met averse strategy affect unity and of course, Nvidia isn't the only company talking met averse epic Roblox, EBIT big platforms, like Apple and Google Facebook and Microsoft have suggested that they too are net of versus.
So could you help investors sort this thing out and how does the unity fit into this John This is one of your favorite topics. So I'll, let you run with it.
It's become a favorite topic for me because I think that we have a problem with terminology, where I'm not sure. We're all talking about the same thing and I'm going to try to define it in such a weighted maybe can and hold sway on our marketplace and we start by saying that I.
Think of Jeff and as a friend and I don't see and very as a competitor. They are a great company and will collaborate with them and a lot of FX.
So let me frame out some ideas and the first one is going to sound a little upside down.
And I'd argue the meta versus already here and it's really just another word for the internet, but better and.
And let me draw the clear distinction between them and.
And I Wanna be clearance following this out and I would argue that say for example, if I go online to buy a shirt like this and the shallower. It shows me a picture of a.
Black or dark Green buttoned down.
And I see a picture of that.
I'm on the Internet and I am not really and the medical.
But when I see.
Our model and the same walking and turning and my direction that model is me wearing their share and I can find my family to the same environment help me decide whether this shirt looks good on me or not goes well with the blue suit that I might be wearing and.
And I can invite family and they could be looking at me and laughing at me and laughing with me.
And then I'm and the Metaverse and.
And let me define exactly what changed.
<unk> heard this from me before <unk> became three day.
Linear content change to real time, my solo experienced became social and an accurate and interactive and a phrase it became real time three day.
So what I think so many get wrong and they think and <unk> as they see it as a competition as to where the roadblocks or fortnite and when I see it very differently, there will be millions of endpoints and the med <unk> and Israel and good shopping sites games' social network's messaging apps really conferencing and job sites and constructions augmented by real time, and <unk> and <unk>.
Form of unity reflect.
We can get all we get all these.
These websites going millions of endpoints are destinations are the <unk> and it will expand and huge waves and years to come.
And what we're doing at providing a lot of the underlying infrastructure to make this happen.
Now before I get into that let me make this point, even a little bit more clear.
So back to the point I made about the manner versus today. Just today are quite a few games made three online purchases with two online shopping sites are participated in several zoom meetings and connected with my family and face time, I jointly edited and document online and I visited and OMB website, and you get some data for presentation and Megan I interact.
And with other people and businesses and six of the seven averse continent, now one and Antarctica yet today.
This is using the internet on full tilt, but more and more of these endpoints and destination, you're changing from static to day content to real time <unk>.
And as they do I believe they become part of the <unk> the matter pursues in other words, the more engaging more interactive and more <unk> more real time version of the Internet and it is happening now.
So how will those metaphors come into existence.
Huge scale as I predict I see four major enablers and one of them is physical and these are the fiber optic lines and faster Gpus and stuff that gen set and ready and make the provision of five G. The satellite GPS system is getting better and stronger the underlying infrastructure of it at all and Wi Fi.
And second is the underlying operating services, enabling real time per day, hosting and like multiplayer extreme and computer vision modernization services.
Third there are other contract creation tools and real time, <unk> tools and lastly, there are those millions of endpoints and these will include all and all of the examples I've mentioned and more.
So today.
And as the substantial majority of all the real time, three D content created and gaming and and industry, where the tool of choice for these endpoints unity is a substantial player offshore and operate services and as you know, we don't provide hardware and we don't make and.
But if the <unk> has music, it's really plan our song and so with this we don't see and videos competition, we view them as a partner and co conspirator, where we could not we couldnt do it without them.
And with Autodesk, and Microsoft and Google, where and it together building the future of the meta versus Epic's Fortnite roadblocks, Marcus and Microsoft's Minecraft, our endpoints are destinations and the matter versus and we'd love to see them growth proving the point and.
And if I were to referenced and most recent presentations and the mono versus the Oasis and ready player one and moving it use unity and part of it is production.
These are important rides and a theme park and will take US and makeup the entirety of the matters. So thank you all.
Back to you Richard Okay, great well now we have.
Open Mike, It's Mike and.
Mike Friday, or whatever but if you all have questions that you want to ask live feel free to.
Pop your hand up or whatever so.
Otherwise I'll just call on you.
So I think we have any questions.
And to set the raise hand button.
Yes.
And maybe your request.
Hi, This is Kevin.
Wanted to know I had two questions you can address either one of them the FERC and the first one which are the services and create our operating you think has the most room for growth right now that investors aren't paying attention to and the second is as you and me ever plan to produce games.
Epic and Unreal.
Alright.
And I think the first one and I'll take the second.
Yeah, Hey, John Yeah, I think in terms of the growth that we expect I think John referred to a little bit about it as a multi play is an area, where we see significant opportunity for growth.
But frankly im optimistic across the board and as I've said in my prepared remarks, we've seen very strong growth across the company and there is no reason why that's going to change in and my view after being here for a month, but I'm optimistic across the board actually.
So in terms of making games.
No.
It's come up a lot of times and passed and the answer is no.
Look I don't think competing with your customers is the easiest way to win conversion.
And honestly I think it's one of the reasons why particularly in mobile where I think we have advantages over other.
Engines.
And have competitive products out there.
People don't necessarily want to trust the operation of the creation of their contract with someone that compete with us.
It's one of the reasons we've grown from.
I don't know.
Low double digits, low teens, five years ago and market share and wasn't measurable back and it's our best estimate.
271% and the Christmas quarter vis posture, we've been steadily increasing market share across the board I think one of the reasons as our customers Trust us inside their building with their deepest secrets not worried that we're going to pop up and and compete with them.
Okay.
Alright, and so I see a couple of hands up.
Mario are you able to on mute.
Great. Thanks for taking my question. So just have a couple one on the full year guide.
You guys beat by roughly $20 million and the first quarter as our revenue and.
And raised the full year by close to 50, so just wondering.
And any positive trends to kind of call out thus far in April and May.
And kind of that gives us additional confidence.
Yes, I think overall, we are feeling good about the business now it's a little bit premature to talk about Q2, but we are we are confident and off on based on the factors that we discussed ride very strong Q1, very very strong business across <unk> broad based as I, just mentioned and our projections for the year and Luke.
Very healthy so we are comfortable raising the guide by about $50 million that you mentioned.
And that's where we are Mario we are we're very encouraged with the health of the business, particularly given the environment. We're in.
Great and then just one on high level question.
So I think last week, we were able to see the financials and one of your competitors and if we can be the game engine space.
So I think that JV combined comprise less than 2% of total gaming revenue and 2019.
And so I'm just wondering at a high level what percentage do you think would be fair economics offer and game engine overtime.
And that's a tough question and I think it's almost in a way self limiting.
So.
I believe that.
It's pretty obvious that if we do $1 billion per share and you've got.
And industry approaching.
And a couple of hundred Guardian.
Our take rate is under 1% and gaming pretty straightforward, but as we expand the number of services and capabilities some of which we charge for incrementally as we're doing vertical and some and gaming as well.
We can and we can increase our take rate.
Led by the simple thesis that we add more value from <unk>.
So it's not <unk>.
Leveraging some sort of advantage on our customers and raise prices, although if thats possible and raise prices I think we're going to expand our take rate and a growing industry. As we have and will continue to do as a consequence of adding more services more capability.
There was a question earlier about.
AI and art engine.
If we can help make artist 10 times more productive there is no reason developers and won't pay for that and one of two ways artists coming to the platform, which ended up itself increases our take rate and there is premium products and services. We can provide around data training data and AI, which we also charge for and so we have the ability to.
Increase our take rate and proportion to the way that we add value and we're increasing that value that we add across industries that particular and gaming every day.
Alright got it.
Super helpful. Okay.
Tom Roderick and did you have a question.
Sure and luxury.
Can you hear me okay, yes.
Alright.
Hi, I'm, even give any video here.
Hi, Dan.
Hey, John can you I know this is a small deal and I know theyre not directly competitive but it was interesting thing zynga and make it through an acquisition.
Digital advertising marketplace would love your thoughts on.
Other players out there that directly own operate build game titles as opposed to having development platform.
And what you see as a response from those game developers.
It's the response to <unk>, but how you feel about that and new emerging competitive.
Marketing and digital advertising marketplaces.
First off I have to say frankly that was one of my favorite people on the relative to quote me on that so.
Anything that you guys are saying I'm sure he's got his and thoughtful and smart.
The second thing goes.
The situation with unity is just really unique.
Sure.
We've got a bead on 3 billion users, we're increasing our ability to understand that user base dramatically every quarter that leads to competitive advantage for our customers have come to us with their supply and work to drive their demand.
They are granted yield more installs were really good at that.
There was a time four five years ago, when we were smaller than chart boost.
Four years ago, or even there was a time not that long ago, where we couldnt, possibly imagine competing with the major Mega cap.
Layers and our space and.
And we've made up a lot of ground and gain a lot of market share driven by competitive advantage and the way we do it.
So we never really worried about competition.
More amusing things I find as well.
And when I talk to journalists and keep waiting for me to say something nasty about Tam over at <unk>.
Over and epic and like Tim.
I think they do really important bags I'm glad that they are out there innovating I am sure, but our business is bigger because of the innovation and they've done that bring us to our best competitive spirit and execution.
Love competition.
Like winning.
And so I like 41% quarters, and I'd like to spend a lot of them together.
And it's on the basis of being competitive in the marketplace that we're going to succeed and I was answering the last question I said, we increased our take rate by increasing the value we add.
Constantly focused on that.
Short term and we can always maybe eke out a few dollars per messing around with pricing or messing around with other things that are hard to lap.
Value add is easy to scale and that's what we're investing and and I'm highly confident and our monetization platform as part of our price is going to continue to win.
Outstanding that's it from me Thanks, John Thanks Man.
Hey, Franco Granda.
You have your hand raised lump and talk to you. Thanks, Brian.
How has it gone and <unk> fair.
First off welcome Luis.
Got a couple of questions for you.
So <unk> had about a month to settle and I guess what are your takeaways.
Not only the finance platform, but.
Unity and general and what are your remain areas of focus as you embark on this next stage of growth.
Yeah, Great question. So the good thing is I knew what I was getting into.
I spent some time and the board and see.
And like a long time, but he was like only nine months and I had a blast and every meeting I was in and I would like one now sitting on the other side and they seem to be having more fun and Iowa.
So.
Decided to join I think in terms of them.
Price is.
People are so passionate about winning here nothing is impossible you have a problem and everybody smiling, which is not happening and every other company has been part of and and the key problems and solutions that we can bring to the table and it's.
It's great.
And the thing Thats very unique and you see when Youre sitting on the board and you can and <unk>. When you were part of the company the culture.
It's a company, where you can agree and disagree and everybody expects that expect you to be honest and.
And and it's just it's just a fun place to be.
I think in terms of priority to the other part of your question.
Think it's about long term shareholder value creation.
And we do it by.
Driving strong topline growth and I think that is the fundamental piece of that but and we also want to maintain proper and.
And our margins, we want to make progress and our free cash flow and we do want to do it and away. If we're we're always growing as fast as we possibly can and to John's point earlier, we wanted to we want growth to come from new customers and expanding business with existing customers right and we can get all those flywheels moving the right direction.
And then.
The possibilities are really limitless.
So thank you as.
Looking forward to seeing how that evolves and then one last one.
And Scott over $1 6 billion and cash.
How should we think about capital deployments over the next year or two.
Yes, great question.
We've always been acquiring a few companies here and the areas. We continue to find technologies that and will that will accelerate our growth and which we can get out the recent oil price and we'll continue to do that and and we'll continue to to look at best ways of creating shareholder value and I don't think I can give you much more.
And that but we're always looking at the best opportunities out there and new markets for sure fair enough. Thank you.
And they have run through all of the people and Brent.
Brent various Linda do you have any questions and then now if you had any of that.
Yes, I did.
For one mortgage of course, we know.
And let us retail here, but I had a question really around team and you called out <unk> as the first time and actually building.
Our platform here and so my first question is why now why did it take so long and what's unique about that relationship with King and and how meaningful is it would you displace and then too.
Louis could you just talk about R&D and John maybe ran that as well you are aggressively investing in R&D I think it's 47% of sales this quarter versus 40% last year.
Share with US where are you, putting those dogs and work.
So on King.
And first I'll say part of it and center store, where they're CTO join us on our.
Our most two ago global town halls, and so describing how and why they got to the unity platform.
And it's interesting if you look at King first up there one of the most innovative creative organizations on the planet and they are really good at business and they make their decisions thoughtfully and so when we we get a quote from or get support from Tang and it makes us proud they didn't get there by accident.
And I think that all.
And so it's sort of a little loan little bit of history here with king Besides.
Aside from being one of the most successful developers and the world and mobile it.
It was probably six.
Could've been seven years ago, but in that timeframe.
<unk>.
They announced that they're taking and mobile game engine, making it free to the universe of developers around the world and direct competition with unity commented and huge unity at all.
I have to say that was a bad day for me and particularly likelihood and we're trying to win their business denominator lucid and lost every opportunity to get there given that and and Aspen and.
And the time that path. They obviously gave a deep scrutiny they werent looking at it and learn they ultimately.
Booted that strategy and started to use unity on cash products and from there more and more they started using our products and services and today, we are a deeply respectful relationship and a powerful and that we feel really good about.
I think to your R&D question, Yes, we are we're committed to continue to innovation right and because we're committed to growth and we think that that's why we take so as you were saying about 53% of our Opex goes to R&D.
And if you look at how much we're investing relative to our growth will be we're generating leverage and sales and marketing and we're generating significant leverage in G&A.
And we are investing in R&D and Thats, particularly to drive more of as we are.
Expanding from gains and now, including more and more verticals and although there is a lot of synergies and mentioned in my prepared remarks, there are some areas, where we do need to continue to invest so that's what driving our our investments in R&D as I look forward I will continue I think we will continue to invest more.
Of the incremental dollars and R&D, but we do expect to generate leverage and of course, yes.
And one thing just to add on that question because I think.
And outside or looking at any organization that investing in R&D and always seems kind of opaque R&D as a generic.
Understand here at unity.
We have a really clear understanding and thanks for example, the question came earlier about.
Art engine across unity, we've got a lot of AI people and a lot of artists and R&D focused on building tools that artist more productive.
C a day, not none and the district and future where.
This isn't a patron promising so developers out there versus not happening today, but it's where we're going intellectually and we're building towards.
And maybe they've designed redwood forests.
And for Us and so.
No.
And you take training data and a couple of hundred thousand a couple of 10000 and totals around force and you don't have to do any work the AI transforms redwoods 212, and all of the surrounding infrastructure of a force of that type.
Or you started to revert finishes and river.
The point of it is.
And the computers that are powerful and up to do so much more for artists and that right now and some of the things I've described are already possible I could dazzle you and she came into the office and show you. Some of the things that are happening with some of the smartest engineers and technologists.
And technologists and the company.
But we want to package those and such a way that they dazzled the artist. So they can fill 10 times more productive across half a dozen priorities like that we are very clear about what we're building why we build it and how it connects to our community of users and putting dollars and cents on it how many of them there are and what they might be.
So we're really portfolio.
And it's what occupies a great part of my time and that are senior leaders like.
Ralph on the R&D side, Mark on create and grid, leading our operating teams and Jeff her R&D later.
A lot of focus on just this question.
Great.
That's a good wrap up and kind of explain encapsulates what we do.
And John if you have any follow up or did you have any other questions Brad or you've got.
And good Super helpful color, there and I appreciate it thank you and thanks, Matt.
So John if you have any wrap up questions otherwise, we cannot stop here whatever you'd like.
Hello, and thank you everyone and much more.
Questions were ready to go and we will see some of you on callbacks. Thank you so much everyone I appreciate it.
Okay.