Q3 2021 Unity Software Inc Earnings Call
Which was issued earlier today and is available on our website under the Investor Relations tab.
With that let me turn the call over to John.
Thanks, Richard and thank you all.
We are really happy with our third quarter results and we have great news to share.
We reported another strong quarter with results well above our expectations, we delivered 43% revenue growth as revenue hit a record $286 million in the quarter.
We continue to invest to drive future growth, resulting in a non-GAAP operating margin of a negative 4% flat to the same quarter last year.
Since we went public in September last year, our revenue growth has averaged 45%. We're encouraged by the execution across all of our business lines and geographies and as you'll hear later from Louise we are raising our revenue guidance again this quarter.
We have even more exciting news we've entered into a definitive agreement to acquire Weta digital specifically its award winning engineering talent artist pipeline tools and technologies.
What a digital will become part of unity create solutions led by Mark and.
And we will focus on bringing dozens of artist tools inside of what I taught much broader world of VFX hardest across many companies.
The gaming industry and to users across many industries. The Academy award winning VFX teams of what a digital will continue as a standalone entity called <unk> FX and is expected to become <unk> largest customer and the media and entertainment space.
We are thrilled to democratize, whereas industry, leading tools and bring the genius of Peter Jackson, and what is amazing engineering talent to my for artist everywhere.
By combining the power of beauty and better digital tools and technologies that don't characters and scenes from the world's most iconic films such as Alpha Lord of the rings and Wonder woman.
We will be able to enable an entirely new generation of creators to build transform and.
Distribute stunning real time <unk> content.
Now until now what is tools were used exclusively in house at <unk>.
We plan to take these tools to artists and creators across the film industry. The gaming industry from India to AAA games into other industries, such as automotive architecture on E Commerce.
Plan to offer a cloud based version of water for the millions of consumers, who generate content every day on social and gaming platforms and on the web or to use the current binocular metaphors.
In addition, what has built thousands of digital assets such as fully formed character skins trees houses automobiles fire trucks.
Many things we plan to offer these objects as a content library, where creators can import these digital assets into our editor and applied physics, volumetric lighting and sound to them.
In summary, we plan to do what we do pass create and develop amazing technology and tools make them easy to use and available to a wide spectrum of users from technical experts to consumer hobbyist and you've heard me say this many times before we believe the world is a better place with more creators.
Now Luis and Mark will provide additional details here I'll provide a summary highlight picture we expect the purchase price of $1 625 billion to be immediately accretive and we will be even more it will even be more so as you bring these tools to new customers. Our acquisition of <unk> is expected to open new markets and access.
Our product roadmap for artist by years.
Based on internal models, we estimate that this transaction expands our total addressable market by over $10 billion, while meaningfully increasing the percentage of the addressable market that unity service.
I would like to welcome everyone, what our digital on behalf of everyone at Unity I believe youll feel at home in entity.
I want to thank the <unk> team for the partnership to get this deal done.
Year to date will be honored to have what FX, Peter Jackson Prem aka Rajeev <unk>, Terry and the entire organization is a key customer with love your work.
I look forward to many years of strong partnership and with that let me turn the call over to Luis.
Thank you John definitely an amazing quarter.
I'll start with our earnings results and then share additional perspective on that when acquisition.
The unity team delivered another strong quarter.
We exceeded guidance and street expectations here are some of the key financial highlights for the quarter.
Total revenue of $286 million increased by 43% as compared to the third quarter of 2020.
Great deliver another very strong quarter with 54% year over year growth create accelerated in the third quarter and delivered 34% year over year growth.
We delivered another non another strong non-GAAP.
Gross margin of 81% up from 79% last year, we generated a non-GAAP operating loss of $12 million compared to $8 4 million in the prior year.
Free cash flow was $34 million for the quarter, bringing our year to date free cash flow to negative $100 million, which includes approximately $50 million in charges from our lease dispute, which we reported last quarter. We continue to expect to breakeven on a free cash flow basis within fiscal 2023.
<unk>.
We're encouraged by the strong continued customer success this quarter.
Base net expansion rate for the quarter was 142% and customers generating more than $100000 annually expanded from 739, a year ago to 973.
Here are some of the key highlights for the quarter.
Operating performance was very strong across money mutation and multiplayer services, which includes hosting services voice and community tools.
This quarter.
You'll need the absolute reported partners lag Warner brothers gains <unk>, CD and meaningfully and games, such as Crazy lapsed Super Stylists and dream gains Royal match, what do we deliver outstanding results at scale, while navigating the challenges from Io is the key.
And in multi player we supported the launch of some exciting new games, such as <unk> 17, warms Rumble and Amazon's game Studios New World.
In addition, we announced some important additions to make our operating platform even more compelling.
We launched <unk> the game services or <unk> this quarter with some more than 5000 sign ups in the first 10 days.
This is a new platform experience for developers that unifies unit is existing operating solutions for games and introducing new tools and services that are designed to simplify developer's ability to launch cross platform multiplayer games.
We also launched unity mediation, which includes waterfall and meeting within unit DFS. These mediation offerings are designed to help developers feel additional strong revenue streams by easily optimizing demand for their best performing AD formats and network partners within the same <unk> and <unk>.
Phase <unk> build and manage their games experience.
Create deliver 34% revenue growth for the quarter as we accelerated from the prior quarter.
Our games business continues to perform strongly with growth across geographies and customers as we feel as we continue to add seats.
We won several deals in the industry machinery space.
A good example is a deal we closed with a manufacturer of commercial grade farming equipment, where our more immersive and interactive <unk> capabilities enabled us to win their product configuration business and there is much more to come.
We're working on several digital twin projects that range from large objects things cities and buildings to small objects things shoes watches and other consumer goods. We will keep you posted as we make progress.
And finally, we officially announced that we're going live with net cash.
This is unit is first we think with the sports platform for creating and delivering interactive content directly to the consumer launched in partnership with the UFC, the leading mixed martial arts organization.
Together <unk> and UFC.
We collaborate on research and development of potential applications for unity <unk> within the USD.
We're encouraged by this partnership and long term potential.
We do not expect meaningful revenue in the short term from this partnership.
Now onto guidance.
We're entering the fourth quarter with very good momentum.
We're guiding we're guiding revenue of $285 to $290 million, which represents 29% to 32% year on year growth.
For the full year, we're again raising our guidance. This time to 108 to $1, <unk> 5 billion or 40% year over year growth.
This represents an increase of $25 million on the high side of the range from our previous guidance we.
We expect non-GAAP operating loss from operations of 20% to 25 million for Q4 and.
<unk> $59 million to $64 million for the full year.
We're forecasting 329 million fully diluted shares.
I will turn it turn the call to Mark to.
To go into the wet acquisition in more detail.
Mark runs creative solutions had unity.
As you know create solutions includes the unit the engine and maybe the.
The tools and services, we use to deliver digital twins for other industries and our worldwide sales and professional services.
380 is also our homes or artist tools, including our the engine fixes and speed trees now foundational Liang court by way of digital.
Mark joined Us at <unk>.
Nearly a year ago from Amazon, where he oversaw product execution and the delivery of entertainment to over 100 million active users on Hyatt <unk> Hyatt tablet Kindle Luna and Amazon Appstore.
Prior to that Mark was one of the creators of Xbox and Xbox live ultimately serving as the chief product officer for Xbox and leading Xbox live for many years.
Mark over to you.
Alright, Thanks, Luis and thank you everyone. It's a pleasure to be with US on this call with you before.
Before I start I want to welcome everyone. That's listening from the Western digital team.
Welcome to the unity family and everyone from what FX, It's an honor to partner with you. It's an exciting time for unity and it's even more so today with new markets that opens for creators.
I'll walk you through some of the things that make us the most excited about bringing on board the way the team and the amazing technology, they built but as the saying goes a picture or in this case a brief video is worth 1000 words.
The new era of creativity is really something bigger than it's ever been performed unity has really been focused on this mission that the world a better place with more creators in it but what we see now is that there is a new generation of creators that are going to want to.
<unk>, even more and rich <unk> experiences avatar or Florida. The brands are wonder woman wouldn't have been possible without what is tools and a great artist behind them. We use the digital effects of it sorry, much possibility for us to be able to create the worlds and the creatures that we were mentioning now we're taking those tools and.
We have created and handing them over to unity to market them for the entire world altogether unity with a digital can create a pathway for any others in any industry, who will now be able to leverage these incredible creative tools now those tools will escape the western world and there'll be available everywhere, we see that being used in just about every <unk>.
Industry, you can imagine from retail to medicine to film and TV and gaming of course, I think for generation to come what is going to be one of <unk>, most important partners and probably our greatest source of inspiration offering you an aspiring creators exits that way the digital technology will be game changing we're incredibly excited.
To continue that deep partnership where we work with them as they are working on their next movies as they continue to sort of create the <unk>.
Real Magic here is what both of US are each also independently great.
We do the best is where we make incredible be effect shots and animation clips for fulfillment television and we are going to be great uptake all of that innovation and make it accessible to a much broader set of creators around the world.
Alright.
At the end of the editor, which the core of our create business has historically focused on two broad categories of users developers, who code and artist who can code.
One of our key strategies is to bring more artists to our platform by making our editor easier to use integrating machine learning based productivity tools like automatics and offering specialized artistry tools like <unk>.
We're entering a period of what we believe will be unprecedented growth in demand for great <unk> content that starts with movies TV and short form video.
For the ryzen streaming we're in a golden age of content and with content comes the need for deep VFX capabilities take Marvel and their growth from a couple of movies a year to the addition of dozens of hours of amazing quality TV, we see no end to this hunger for great content and games <unk> has been the standard for years, but on every plant.
Form the capabilities to deliver higher and higher quality content are only increasing.
And of course, there is the need for <unk> content in every industry in AR and VR in virtual worlds and much more.
Whatever the word met diverse means it's going to be built by millions of content creators and we're on a mission to give them the easy to use and high performance tools that will bring their visions to life.
Weta digital accelerates this mission by years, bringing an incredible team to join ours. This is an incredible cohesive pipeline powered by dozens of amazing tools.
Each of these tools is impressive on its own but has a consistent pipeline. They represent the most complete tool chain for three D visualization ever created as.
As we spend time working with Weta digital we were consistently blown away by these tools.
<unk> is a revolutionary physically based renderer that delivers unsurpassed visual fidelity.
Remember Jack into Tara enable building unprecedented environment that feel lived in all through intuitive artist controls with barbershop artist can room here in <unk> with the ease of a hairstylist all the while creating powerful hierarchies of guide hairs scaled out to hundreds of thousands of individual hairs, resulting in the most artist directed grooms loci is this.
<unk> engine par excellence able to perform huge stable controllable and predictable simulations with outstanding complexity and results, whether you want to create intense explosions turbulent ocean flexing muscles or.
Or anything else that you can dream up.
It is a super high performance rigging evaluation engine that automatically optimize day formations for faster artist feedback.
For every type of content creation need Weta digital has created tools that help artist be productive quickly herd barbershop feathers, <unk> cities and environments city builder and scenic designer vegetation lumberyard into Tara on and on even when we looked at the production management tools high Def and shocks up for instance, we found them.
And to be built with capabilities beyond other tools that were available.
This is an incredible collection of tools, and which whether it's top engineers invested more than 500 person years of engineering time to develop their amazing and Theyre unreplicable in any reasonable time frame.
But again each of these tools as part of an integrated pipeline and Thats. The key for US as we work to product ties the collection as a cloud service by being deeply integrated and artist can move from tool to tool and get consistent coherent results more importantly groups of artists can collaborate together in different tools, all with one source of truth.
These tools have been pressure tested by hundreds of productions and are able to produce great results predictably no matter the complexity.
This is the approach that has powered weta digital success and why we're so excited to welcome the new unity and enable millions of other creators through this pipeline.
Going forward, we will continue to provide these tools Peters creative teams, whether FX as a customer and at unity, we will learn and benefit from the years of experience that is close to 300 Weta digital engineers bring with them. We believe this deal is a massive win win because unity will be able to bring to bear the expertise to package and bring these tools to artists around the world.
That means not just the FX industry, but gains in real time, three D verticals and overtime consumer creators.
We don't have enough time on this call to give you the full sense of the power sophistication and forward thinking that weather's engineers put into building a suite of tools, but I want to double click on just one tool city builder, because it's a template for what we plan to do with several other weather tools cities.
Cities require scale, an immense amount of details yet humans have evolved quickly since patterns to create an interesting and believable cityscape that means you can't just repeat the same object every fourth house real cities also have an organic life they evolve.
Or how they are because of the unique circumstances that geology, the time and much more that have driven their growth, that's where city builder comes in city builder procedurally generates worlds and provides artist correctable easy to use controls that let them shape, the resulting cityscapes and artist can drag of river through our along the city and.
Let's see how that river would impact the layout of markets or buildings and whole sections of the daily life.
Any change in artist make changes how the rest of the city bites and this in turn makes environment artists Modelers layout artist much more productive in their work.
Many of Weta digital design tools city builder included required cross disciplinary models that span light sound heat in motion physics, but also embed advanced algorithms from computational fluid dynamics finite element analysis and machine learning.
As a compelling value proposition for anyone creating this kind of content.
And whether you are a creator for the highest end massive world's ore in India, who just wants to create a street or a room our vision as the tools like city builder delivered through the cloud helped anyone get to the next level of productivity and creativity.
Of course, what are operating in an ecosystem of other tools and vendors. We're excited to continue to work with companies like Autodesk Adobe and side effects and more we plan to launch a suite of our tools as plug ins directly into the creation suites that artist use everyday.
It easy for them to get the full power from these amazing tools and will also.
So be populating, our content library with some of the content created from the masters of what FX.
So use the canvas you already know and love.
Get access to incredibly powerful tools used in movies like Avatar, and Avengers and get incredible content from our content library to fulfill your vision.
Parallel with those efforts, we will work to make what a digital technology more applicable to a broad customer base that means upgrading the user interface, the workflows and evolving what is tools into the way that cloud and bringing them to real time use cases like gains.
Leveraging <unk> incredible streaming capabilities to drive low latency high fidelity rich input on any device anywhere.
We believe that these enhancements will open new markets for us not just one thousands of artists, but will expand into the pro sumer market millions of creators.
With the great teams already at unity, the great teams from <unk> and automatics and now with team Weta digital we plan to win with artist at scale high and low VFX games industrial use cases and more.
Let me turn the call over to Luis who will provide the financial details of the west transaction, but before I do I can't help myself here is one more quick video speaking to the power of what of tools and how they enable the incredible VFX, we have come to expect.
I am thrilled to welcome the incredibly talented engineers scientists and graphics experts of what a digital unity and im honored to work closely with the amazing artists.
Yes.
When you're making a film every piece has to work the thing that you know about visual effects is shot sales you lose your audience. The world class team with what I have created starting there.
These are state of the art fleet of artist fault and they have won six Academy Award.
<unk> has been created to make the best way to create content for each specific team. These tools to price every time with their power their flexibility sophistication, we've got years and years of visual effects experience that has been dedicated really towards trading films like Florida.
Like King Kong like the harvest like Avatar now, we're hoping to see what other artists can do with this as we released these tools into the wider world together unity in Atlanta Digital will bring these tools to not just the FX artists, but to game developers and artists across industry and overtime to milling.
And as a consumer created.
Putting this new pipeline into the cloud we will be connecting every real time can we be device available, creating a unified ecosystem.
Not just for gaming and movies, but the net of yours and beyond.
Wow. Thank you Mark that was amazing.
As you have heard what I said very strategic at strategic acquisition for unity, bringing artist to the unity platform is fundamental to unit. This vision.
We plan to provide professional users a collection of tools and Linkedin deeply into the unity platform and also bring to market a set of extremely easy to use tools for the growing consumer audience by doing so we estimate that we will expand our addressable market by over $10 billion.
Specifically with this transaction unity will acquired technologies and tools and the 275 engineers at create and maintain those technologies and tools.
Purchase price is $1 625 billion.
FX will operate independent from unity and will continue to be vetted out some of the world's best movies and shows what FX will be our first customer what FX, we licensed back the technologies and tools that we're acquiring from them. We have signed up for new life license agreement was 50 million.
Per year, we expect this relationship between both companies will last much longer than this initial term.
In addition.
<unk> will contract with Uniti for commercial services that we will provide to the engineering organization that he's joining unit DSI result of this transaction.
You from this contract is expected to exceed $20 million next year.
We also expect this relationship between both companies will last much longer than this initial term.
We expect this acquisition to close in the fourth quarter of 2020.
As we work through customary closing conditions the business, we'll be reporting on the creative solutions going forward.
We do not expect any material revenue or operating impact in 2021.
We will include this transaction in our 2022 guide, which we will share with you with our fourth quarter earnings for.
For now I would say that we expect the transaction to add over $70 million in revenue next year and have no material impact on our non-GAAP operating income in 'twenty two.
This transaction does not change our goal to breakeven on a non-GAAP operating income and free cash flow basis within fiscal 2023.
We'll fund the transaction with $1 billion in cash and $625 million in equity issued to <unk> shareholders.
As of September 30, we had $1 2 billion in cash cash equivalence and marketable securities on our balance sheet, and we have ample access to capital markets.
To close let me reinforce our stand on M&A.
We do not see M&A as a strategy per se, but as a way to execute our business strategies at unity, we constantly evaluate build versus buy alternatives and make decisions based on the impact to creators and consumers and customers the time to market on cost.
While we expect our acquisitions to become significant contributors to our business, we have not acquired businesses with significant revenue at the time of closing.
Instead, we have acquired technologies with great potential.
For perspective in our third quarter less than 0.5% of our revenue came from acquisitions completed over the last 12 months.
With that let me turn the call over to Richard who will get us organized and take your questions.
Great. Thanks, very much Louise so as with past calls I see some of you have already done that but raise your virtual and in I will call on you as time permits and then please turn on your video when you called out and then you can turn it off.
Afterwards, thank you very much and we'll start with the cash if you can pop in there we'd love to hear your question sure. Thank you so much for Richard the John Lewis and Mark Congratulations on a spectacular quarter and water and acquisition John I'm curious to get your thoughts on.
The total available market that is available to unity as a result of this transaction can you talk a little bit more about that target market. What are the new opportunities that are afforded to intuit that you could sort of community that you cannot pursue before and.
A follow up for Louise.
I know that you're not giving guidance beyond the 50 or 70 me.
Obligated revenue, but can you give us some historical perspective on what.
What's the revenue generation, whether that was a movie studio but.
How should we expect the synergies from this transaction to materialize.
John's going to give us the answer on how you expect to reach new target markets I would assume that it's been a transmitter revenues above and beyond the contractually obligated $70 million. So you can talk about that conceptually that'd be great and wrap it up with that thank you so much.
John you're on mute.
Europe many Joan.
Thanks, Kash and I appreciate it nine part question.
We'll do our best set to navigate through that.
And I am going to ask Mark to bring up a couple of examples because I think examples actually like.
Picture are worth a thousand words.
We estimate that.
What what it brings to otherwise it digital Brexit was is about $10 billion in incremental Tam and increases the portion of our total Tam that's available to us in a more addressable it sounds like addressable form.
The reason for that that sort of more instantly addressable form is that typically make up.
Most game teams.
Eight.
Nine out of 10 people. If you follow me, so 60, 70% of teams and film, it's even more and in many many industries are dominated by artists they need tools like this and so it's easier to drive across the unity platform. When we offer something that is essentially the hidden treasure. The artist is what we have worked with.
What a digital.
So I believe we can pick up a lot of users inside of the effects industry beyond wetter or beyond what FX. Many others in that industry is a huge demand for several of these days, it's directly applicable today to the gaming industry and its also directly applicable to a number of our verticals outside of gaming and I'll, let mark pick up on them.
Yeah, Thanks, John So.
Yes, so imagine that Youre building.
We'll start with movies, so youre building a helicopter crashing in a snowy forest after it's been shut down by.
Some armed monkeys.
The complexity of the simulations involved in making that happen are enormous and its what is enabled by these tools. So you could imagine lumberjack into Tara can build the trees and something like that.
<unk>.
Low key can simulate the snowdrifts covering everything ready to be knocked off its massively parallel finance elements simulations like literally have you covered it can even do the flowing water in the creek.
Smoking flame that came down as part of the helicopter.
And you have to think about the characters that are covered in wet hair built from skeletons out you've got crew from past multi character performance you've got tissue for the muscles, you've got arbitrage the hair again using low key for the simulation of how they work and then you've got a composite that you've got to be able to sort of coordinated all of those come through a setup.
Tools, but the interesting thing is that same scenario would that helicopter also you can imagine that being used and again the same the same tools being used to create both simulation.
The effects and the ability to use it now in the past what that's meant is two different pipelines two different sets of tools.
<unk> two different.
Levels of detail and you'd actually rebuild assets, but through what we're going to be able to do with what a digital will be able to build that into a consistent pipeline that allows you to output at the highest fidelity.
For both offline or <unk> or.
Movies, as well as sort of multiple levels of detailed it lets you target the highest in gaming rigs all the way into the highest scale mobile devices, all with one set but it goes much farther than that.
Imagine that you want to check whether the HVAC system that youre installing in the digital twin of a high rise building is going to work well. It turns out that Wilkie is tailor made to do that level of stimulation and tools like Eddie can actually be used to visualize airflow and stimulate it throughout that space. So it's.
Even when we think about artists and content creators, it's actually a very very broad set of people who have never had access to these tools they've been in the domain of experts are in very special.
Sort of tool suites suddenly, we're going to make those accessible to across all of those different types of industries.
Luis.
The other side of your question a little bit difficult to give you a historical revenues because they are not as relevant. So let me let me just.
Repeat a little bit of what I said, we're going to have we're going to operate as two independent companies right on what FX as you know it's a private company. They are the best in the market. They are they are actually having an amazing year with new new films pad, but we are not disclosing their historical revenues. The revenue that we will get comes from two parts.
Right. One is we license it goes back to them for US I mentioned $50 million per year for this four years, which we expect will continue after that.
And then we will provide them engineering or worth $20 million per year, which again, we expect to continue to expand so how should we do model. This.
$70 million I would expect that that number will continue to grow north Matt as Mark mentioned, we see huge opportunities for us.
Media and entertainment and games, adding more seats in with our test. We believe there is an opportunity in architecture. We believe there is opportunities in automotive. So many many different industries. We will continue to see growth at their historical revenue growth of what is less relevant to answer that question.
And just one additional thing.
One additional spots across into the mix for those that have been listening to me from before we went public or listened to our roadshow.
One of the points I made was we believe that we could increase potentially our revenue inside of gaming pie.
On the order of magnitude 10 asks how was that possible when half the world's games or 70% of the world's mobile games are already built in unity and the answer to that question has always been in large part. The fact that we don't have all the artists on our platform.
And this is one of the answers to how we access that marketplace.
The artist has the largest audience of creators in the world and as <unk> becomes the norm for consumer creators, it's going to be a staggeringly large marketplace for users now we don't count all that on our new Tam because we have to bring those consumer creators into the world, but that is happening now and this is this is the first really.
An important step in that direction now speech, we helped US automatics helps us <unk> helps us. This is another step in that direction.
Thank you so much.
Bovine slashed Dylan are you available.
Hey, guys. Thanks for taking the question.
I guess first.
And I think you've kind of touched on it maybe John too, but thinking about this kind of more holistically. There's obviously been a lot of talk about.
What the meta versus could look like and this really seems like kind of a key enabling technology at least kind of the development of those kind of type of environment. Maybe can you did you guys kind of expand upon the thought process and kind of investment around around that opportunity.
So I'll start with that my colleagues can add.
Perspective.
First off I want to point back.
I read snow crash when it came out.
I guess I mean, you can see the gray hair, but fascinated by the matter for us for a very long time, but.
The point I would want to make here is.
Is that.
It's helped me been about nine months or so with a pivotal event, meaning about the matter of her go back and read our S. One what we said was a relatively small percentage.
<unk> content in the World is truly real time truly treating a truly interactive.
And what we've said is the majority of content by the end of this decade will be.
My definition of the <unk> is pretty straightforward.
We've gone from web one to web to web one <unk> staff I had mosaiq in a box web two enables an Uber if you will.
Satellite data sell data tracking information App on your phone it's magic the car shows up.
Three as these experiences become real time, they become three day, they've come interactive and often spatially aware Facebook they call that presence for <unk>, there or whats there. It's in your living room, we've been showing lately to folks hey, we can put up through webcast. We can put a sports about on your dining room table breath.
Take care.
And the answer to your question is essentially for us.
<unk> expects to be at.
As industry after industry after industry wants to move into the <unk> or become real time, <unk> interactive with their presentation, whether it's a car configure rate of our shopping experience, we want to make sure that.
60, 70, 80% of the time that contract got by all of those industries in all of those customers.
As built in unity and then the second thing we wanted to ensure that more often than not it's operating in unity around analytics monetization hosting voice toxicity issues, what we offer in the operator side and.
What we've said and I'd say, if there's if there's been a weakness in our armor Levonne ASIC.
The.
The lion's share of the people, creating the matter works are going to be artists.
And while you could use unity.
A lot of things.
Not the best tool to make a mustache or get somebody's hair, right or get the environment right. There are other tools for that.
Very most important collection of tools on this planet.
As in my industry, a little bit like that treasure that we fantasize about the we follow a map all the way on New Zealand inside of a private company used just for their purposes.
I'm frankly, Stan we were able to come to an agreement around something as complex as separating our company into an acquirer of the tools, but we were able to do that and we welcome them to us and it's that.
That's going to really help us extract and helped build the meta versus around the notion that there was a better place with our creators in it and now they're very many millions of creators in the world. They think of themselves as artists are welcome on our platform and we got something that's going to delight them. So this really <unk>.
Under our platform something that is at least one artist perspective truly magic and they are the largest tap of audience, we have in our universe.
That's fantastic thanks for detail John.
I'll just add one quick point on top of that.
The magic the power that they go after is getting you to.
Far towards Division Thats in your head before you have to pick up a paintbrush. So it's not about when you think about the millions of people we're going to have these amazing visions of what they want to create an <unk> it's about.
Starting not from a blank canvas from something Thats sort of Bacon expressed the type of intent that they want I want the city. It Hasnt River I can see it in my head and then what did that grow and evolve and then they already have where they're trying to go and they can go further and so that accessibility that brings the power of the procedural artificial intelligence power to a broad set of.
People will drive up an extraordinary amount of creativity I have a strong belief that the meta versus just going to be made from lots of creative people sort of imagining the future forward and these tools are going to be foundational for that.
Great. Thank you guys I appreciate it thanks.
Stephen Ju.
Alright, great. Thank you so much.
You talked about the build versus buy decision for unity, but.
Do you think the buy versus build decision that what our presents to creators in the movie industry will be fairly similar.
Two what the video game industry faces are there other nuances that we should be aware of.
Do you think also that this acquisition will help to skew the decision toward unity for the games industry, particularly for those who might have made a decision against you and.
And I guess more of a product integration question John.
John maybe this question is maybe it's too early but there is an explicit link between creative and operate for the mobile games industry.
What do you think that link between what <unk> brings to the table and operate could be outside of the games industry. If there is one.
Do you think you could help creators monetize their content.
So.
First off David Thanks for the question and you've now it sounds like you've had a microphone in the room, where Luis and Mark and I have been talking for the last nine months, because it's a nexus of what youre getting out there.
What we're getting on so first off.
Not only what we bring the artist onto our platform. This is going to serve as a way to if you will build our net expansion rate because when the artist come to our platform, they're going to bring their friends and they're going to start using the rest of the unit pipeline rest of the energy platform, including our tools for analytics and monetization in hosting and the rest of it so we've always.
Really explicit so I think it was on the last call, but I explained that.
We built that code and that echoes fruit.
Checkbox to multiplier for hosting your game that can be a multimillion dollar so proposition that goes multimillion dollars per quarter literally forever. If it's the right time.
And so we do a lot of things that are sort of long term greedy and short term generous with our user base.
And I don't think Theres anything thats better in that regard than investing $1 $6 billion of bring these tools to Hungary collection of millions of artists on the platform that want to be part of a building.
Building on the <unk> and the and the tools are trapped inside of one amazing company now what it is.
By far the leading light and the world of video effects, they've got great Arts incredible orders have great vision, they've got Joe <unk>, who is one of the greatest visual effect editors in the history of time and the most decorated events with Tom but they've also done something that I find almost stunning.
They've invested well north of 500% or is it building a tool set to do that.
And any other world that would have been considered completely crazy.
But peter could afford to do it because.
He has such a resounding historic.
<unk> setting success with Lord of the rings that allowed him to build what he thought was the right way to do it.
No one in mind to my knowledge has ever tried to do something is gargantuan is putting together.
Dozens of tools with a common data back infrastructure with common workflows that resolved to the same scene in the same image.
It's when our team looked at it.
I mean, all the expressions and emojis for mind blown but mine Glen.
And that we were able to negotiate this transaction. Thanks.
Luis and the team at Mark.
Thrilled and for them interestingly enough.
They've made this.
Incredible.
Collection of tools, a jewel in the entire world of artists.
And I think they wanted to be seen.
Mike.
This is like one of those 10 lifetime achievement.
Outcomes and hidden.
Small town in New Zealand the output from it is there. So there's a lot of win win here now honestly, we're very.
I don't think we would have been the world's best company. It would be a video of ex special.
Digital remained competitor et cetera, they're great at that so they're going to keep that we're going to do good.
What we do best wishes to build on these tools bring them into the crowd integrate a deeply with unity <unk>.
I always have to use or be creating a real time three D game to uses as Mark had mentioned, it's going to be used for visual twins or digital twins, it's going to be used in the game industry, it's going to be used in the movie industry it'll be used in many many different ways, sometimes that was both the unity engine, probably most times, but not all mark do you want to add to that.
No I think that.
The key there I think is we're going to make artist superheroes debates supercharge supercharging their productivity they'll use those in a lot of different ways, sometimes with the unity engine and sometimes without but at the same time, we will be also integrating more deeply into the unity engines, we're providing really cross.
Cross services. So I do believe we're going to make unity itself, just a more and more attractive opportunity for people to build great art, whether thats a game.
Doing digital twins, and certainly in movies and entertainment. So I do believe that that adds to expansion as well and.
And there is wonderful financial math behind it.
You are right. There are so many explicit linkages between our create an awkward colfax.
They're going to be very many explicit connection between this collection of tools. The <unk> trend, what we havent pretreat, what we have in par stack, what we have and so what we've been trying to build as a platform and it's largely there now where we can hook them with par sac on our communication service points like that.
We can hook up with Vivox from any voice, we can multiply it when theyre running.
Running a game, we can hook them on the engine when they're trying to develop a game we can hook up at the artist level, where they are building out their first visual representation of what they wanted to.
We can hook them lots of different ways and a year to date almost always seems the fact they start as a.
Some sort of a experimental customer doing not a lot.
Then we get inside and they do a lot more than they do a lot more than they rider contracts the sharp moving more of our services.
I mean, it sounds I would hate to say is from our customers.
No.
Land and expand is like endemic to the entity, it's exactly what we're doing and theres so much efficiency here.
Around common data formats, and that may not sound like a big deal, it's a gigantic team to our customers.
Thank you Okay, Yeah, we'll go to Matt costs.
Great. Thanks, everyone for taking the questions I guess, just thinking about what is tools like what is the level of investment in time and in R&D thats necessary to get the tools ready to license out and also to kind of work on real time and interactive application. Since those are so core to kind of what <unk> brings.
The table and then just on the operator side, obviously kind of a tumultuous time in the AD markets. Just anything you can add about puts.
Puts and takes and what drive what drove kind of a slight uptick in growth sequentially and three Q. Thanks, Mark why don't you take the first part of that question and I'll take the second.
Yes, well. So there is there is two things there. So first of all obviously is the intent to acquire we're getting through closing getting the teams together and doing a lot of planning. So we'll have a lot more to talk about on our future roadmap upcoming but one of the most fundamental because we have talked a lot about this strategy internally around.
The future of art and art creation is the fact that it's a pipeline.
And so.
There is a lot of different things that are needed artist is a very overloaded work because there are different types of artists that are different at whether in terms of their sophistication of their type of specialty.
Or the domain that they're going after and so individual tools if they don't work together if they don't have one common data model can.
It can be very complicated and sort of not really support getting to the right result, and so the big win that we get from starting with something like the foundational technology.
Digital has is all of these tools already are well integrated with a common data model. This data river of all of the content flowing through which makes it a tailor made to move towards the cloud and we've spent a lot of time of understanding what it takes to move that to the cloud and then also to think about how do you move some of those tools.
Awards real time, some of them are already there by the way.
<unk> is used quite a lot in pre visualization and sort of the ability to sort of imagine shocks before they're pushed forward and then also we're very clear on the work that needs to happen to ensure the right level of details management decimation in some of the other technical ways that drive the same assets to be able to go towards something that's going to be used on a mobile.
Loan or pre rendered over time, so more to come in the future as we talk about our plans.
An incredible foundation to start with a consistent pipeline that's been built for such a long period of time.
So on the operating side in particular monetization.
I'd be remiss, if I didn't point out that outside of monetization. The rest of our operated stack is working extremely well so it's across the board right inside of our product portfolio. So we're gaining scale everywhere. So we feel really good about our business there, but specifically to operate I think topical <unk>.
Now in challenging for investors is you see a lot of.
You see a lot of quarterly results.
Some companies pop up as a winter in some companies haven't popped up as a winner.
The roll through.
By adding a pay changes introduced by Apple.
Something I've been saying for a very long time is that generally benefits from a very unique dataset driven by over 3 billion people.
<unk>.
And our analytics platform.
And hundreds of millions on our IAP platform.
So.
I'm going to introduce something that I think probably most of you think it's pretty obvious, but I'm going to emphasize it again.
Most.
Most ad networks.
Their business is based on the identity specific identity.
The user interacting with the application.
However, it is not.
Ours is based on understanding contextually, where they are and what they're doing and what they have done before and what theyre going to do next using.
Predictive models based on AI on the $50 billion plus data as we adjust for that.
And as we intimated in the call.
Nearly a year ago, when we were talking about the early innings of <unk>.
We felt that that would lead to a relative competitive advantage for us.
As one advantage.
Targeted way of driving modernization.
Became weaker realm.
Relatively weaker.
And that's exactly what's happened.
So I would argue that the puts and takes it comes down to a really simple thesis.
Ours is a better way to monetize even absent the changes that were introduced by Apple with IFA and choice around privacy.
And on a relative basis, we gained advantage, although overall those who use identity individual's identity. They know you and your brother.
Birthday It is.
That became relatively weaker and we became relatively stronger and we have the single largest largest.
Data insight based on the largest miu count for anybody in our world.
And.
More or less at it played out to our script.
Almost exactly as we'd hoped but better than we were willing to forecast given how cloud it was a year ago.
Great. Thank you.
A few more minutes left that Brent bracelet.
Thanks, Dave the question here I guess, John I wanted to go back to the discussion we've had in the past a little bit around.
The technical product and thinking about addressing a larger consumer opportunity pro Sumer opportunity I guess my question here is speed three par sac now.
Did you closer to the artist and directly gets you closer to kind of the consumer and so maybe is there an opportunity to democratize some of the better functionality into kind of the consumer space or should we think of.
More really as that more technical.
Market solution.
So other people have had.
Microphones are the private room, where we're talking <unk> on my headboard, what I'm muttering at night, when I go to sleep.
Yes, you've spoken to by Ed <unk> Secret mind, there with that question. So thank you for that and I'll do my best answer its trade away, yes, there is a massive opportunity there.
And while we're not going to disclose everything we have planned today, we have a lot of plans here and so.
We are.
A giant believer that.
There is a future for unity.
With a 100 times more users than we have today.
We are working step by step inch by inch to getting ourselves ready.
And.
Think about for a minute what unity reflective oriented reform one is construction application or architecture construction application and the other is for shopping and for configuration and such.
I just want to make a car configuration.
We are here today.
Buying a team of people is that several years learning year to date.
Our pulldown menus on our nested nested inside of another set of another complexity, which is a level of fidelity that is absolutely brilliant if you went to Carnegie Mellon.
And studied the staff and we really do a good job.
Of owning that Mark if you think about it I mean, 90% market share for when some of the <unk> platforms in 70% of mobile games that can say they make that choice for us for that reason that level of fidelity.
These what we call runtime applications have five patents.
And with five buttons you got most of what you would otherwise get if you were that high fidelity programmer.
And our future is in taming, the perfect balance of simplicity and performance.
Simplicity and performance.
Fortunately cookie that's what's written on the other side of my Pillow. That's what we're focused on we're going to continue to drive that relentlessly.
Now the gap in our portfolio.
One we knew a long time ago, we didn't have an answer for it we looked at everything but you can find anything with artists.
We now have that answer.
The other one was the world changed.
The end of February 2020.
We've gone through the biggest change in how we work.
And literally since the 19 fifties and we all went home look at all of your with your beds behind view.
We went home.
The world changed in terms of how work is going to get done in the future.
And what <unk> brings us.
The extreme high fatality capability to allow people to work literally from everywhere and achieve what they need to from everywhere with the simplicity of a tool that was designed for the consumer to begin with.
And so watch this space unity power simplicity, and a much larger user base.
Stitching together that platform that drives any are on the basis of eight incredibly large number of on round.
And the land and expand behind it.
Rewrite RF one around that it might be simple the one we sent your way back when but that's what we're doing.
Sorry to jump on that rich just honestly interesting kind of idea and obviously it sounds like youll have some software and talked about us in the future.
Great to hear that what is part of that.
Consumers Asian opportunities while longer term. Thank you.
We'll probably have time for one more Bob Tom.
Okay perfect.
Happy to have the last question. Thank you for taking it.
I guess I'll give you all a gold medal in controlling the narrative. It took 51 minutes, even talked about <unk>. So I applaud I applaud the big picture here.
I think that also sort of speaks to that.
The interest in the big picture from investors and from everybody on this call right now.
What about what happens next quarter or even 2022.
That's really what's happening beyond that so John if I kind of take a step back and think of some of the day.
The big statements, you've made that only 2% of the world's content is made in real time <unk> today that 50% of all of that is built on your platform that that 2% can go to a 50% number within 10 years in terms of content and love to hear your big picture thoughts for what creates that accelerator it doesn't seem.
Like it's just a linear function and maybe weather is a big part of that bye bye.
Piling more tools on your platform, but perhaps it's a form function item.
Forcing function with VR AR next next generation of what those tools look like or perhaps it's really just consolidating more tools on your platform that creates this adoption factor that suddenly takes takes takes things vertical can you give us your sense when do we get to this point of critical mass and what's the big picture for <unk>.
Sure.
No.
The more tools on our platform doesn't change our trajectory of two or 3%, becoming 50, what that does it change the changes you're entities take rate.
<unk>.
Without them without.
We've doubled.
<unk> our revenue in 24 months, we haven't doubled our market share in 24 months. So we're increasing our take rate as we go along.
And Thats going to go for a very long time, but theres. So much take rate in front of us It's crazy.
And I can walk you through that another time, maybe with a post call. We can address that but to your question of what's going to be the catalyst for moving us not two or 3% to 50%.
And while I tend to roll my eyes, with the crazy, sometimes fantastical definitions of meta versus and thanks, Mike can somebody not to say that for at least an hour.
Give me a little bit of relief.
On the other hand I think.
The reality.
Two things and we got them both now.
The first thing it's going to take to get there was the hardware infrastructure on the planet the available compute the available transport.
Was it needed to be in the arena of five G and it needed to have people like John Center, and Nvidia to be successful we needed to see that plant right I mean, I am so happy with with.
<unk>.
A power behind the new M. One chipset at Apple as an example, so it needed that because absent back you can't really power high Fidelity real time three day at scale.
The hardware requirement to do right now between your cloud compute transport.
<unk> Gpus networks, it's all there the pre condition for success in this space was already there.
Interestingly enough when we a year ago, we were like the only voice hyping. This notion of the world, becoming real time treat and rack et cetera.
Now I mean, who doesn't talk about the matters.
And who isn't allocating $10 billion a year to it if you were a mega cap.
The second thing we needed.
Like the movie we powered Lion King we need all of those will debase to <unk>.
Run down the Canyon and do so.
This magnificent herd.
And guess what somehow in the last two to three or four or five months.
It's become a hurt.
And it's become a herd of companies who've, just listen to announcements in the last week and a half the companies that have 10 trillion dollars in market cap talking about that's.
Not bad.