Q1 2022 Unity Software Inc Earnings Call
We take no obligation to revise or update any forward looking statements. We will also be discussing our non-GAAP financial measures today and reconciliations between our GAAP and non-GAAP financial results and discussions with limitations of non-GAAP financial measures can be found.
In our earnings press release.
Relations website with that let me turn it over to John .
So.
Good afternoon, everyone.
Thanks Richard.
I'm going to start launching in who are off our script today.
For discussing earnings I want to express our sincere thoughts for the people of Ukraine and hope that there is a peaceful resolution to the conflict as soon as possible.
Our report today as a tale of two cities first we experiences challenges and monetization that negatively affected revenue in February and March and will persist through the third quarter with minimal impact on the quarter.
Second we continued to perform very well and created both with our gaming customers and with our non game digital twins business, where we saw meaningful growth a trend we expect to continue.
For the total company revenue was $320 million was up 36% from a year earlier and came in at the top end of our guidance range.
Upside to the forecast and create was offset by challenges in operation monetization business.
non-GAAP operating margin of minus seven 2% improved 280 basis points from the first quarter of last year as we continued to invest in innovation to capture the very large opportunity in front of us while improving non-GAAP operating margins.
I'd like to address our operate business first.
Operate started the year strong in January but then significantly slowed down in February and March.
This resulted in first quarter revenue of $184 million, an increase of 26% year on year.
While there are external factors to consider the operating challenges, mostly caused by internal factors and unity modernization in an otherwise healthy market.
We see these challenges is temporary and not structural and do not expect them to impact future prospects of our business beyond 2022.
The most of the think framing for the challenges. We are facing is that we built more for growth and less for resiliency.
Long years of rapid growth and working through the challenges of Apple's privacy changes, we got hit hard by two issues.
The first was a fault in our platform resulted in reduced accuracy for audience print quarter tool a revenue expensive issue given that our pinpoint or <unk> experienced significant growth post the idea of <unk> changes this.
Second is that we lost the value of a portion of our data training data due in part to a suggesting bad data from a large customer.
We estimate the impact to our business of approximately $110 million in 2022 with no carryover impact to 2023.
Luis will provide a more granular update to our guidance in a few minutes here I will provide a deeper deeper exploration of the specific revenue in box.
First we have the.
Direct near term impact, resulting from the two issues I just mentioned affecting the first and second quarters.
We expect a recovery to go through steps in sequence data rebuilding model training and improvement and then revenue recovery as our customers scale up further on unity monetization.
And third as a consequence of re prioritizing work and our teams that can really address the resilience may embedded training issues, we delayed launch of certain revenue driving features such as mediation header bidding and new releases for audience pinpoint or for sure our original plan.
We understand the problems and we're well advanced in addressing them, we are deploying monitoring alerting and recovery systems and processes to promptly mitigate future complex data issues, we are strengthening and innovating our audience and Warner product and we are already scaling unity mediation. Once done we should be ahead of where we were at our very.
Best.
We have the right strategy to us to address today's challenges and we have the right talent that has overcome many challenges in the past and come out ahead, we are on it.
None of this takes away from our fundamental competitive advantage with unity monetization.
The advantage is based on the fact that a strong majority of games are built with the unity engine and analytics, we have proprietary data and insights coming from our reach to over 3 billion monthly active users <unk> architectural models, we have deep context gameplay when players like supply when and how they play games and in gaming. This.
Data has proven to be the most relevant for advertising.
We have strong conviction in the long term strength and growth of the in game advertising business first the games industry as the largest and most engaged audience of any form of media today with more than 4 billion monthly active users that we expect will continue to grow in scale and engagement.
Second less than 3% of players pay for their games. So an AD supported model that is based on performance outcomes will always be a major part of the business model for game developers and there remains substantial opportunity for increase that exposure and gaming.
As a comparison television has approximately eight minutes of ads per hour primetime and comparison, we estimate that gamers see an average of four minutes of ads per hour of gameplay.
Third and as we've proven for years in game advertising works.
Based on this understanding of the gaming sector and annuities durable competitive advantage, we believe that unity monetization as an attractive growing and durable business for the long term.
To close the operating discussion, we're very excited about <unk> gaming services, where you GFS going into general availability by July UBS as our self serve cloud platform that enables developers to operate and optimize our games and includes our multi play business.
Its beta launched in October we've seen was 74000 organizations sign ups with over 60, 8-K completed which is more than a 90% conversion rate and we already see that 30% of those new users are leveraging multiple products within the system. We are encouraged by these early adoption signals and feedback from our <unk>.
<unk>.
Moving on to create we're very pleased with the momentum of our create business not just this quarter, but the momentum we are building with our customers.
Create delivered a very strong first quarter with $116 million in revenue an increase of 65% from last year's first quarter or.
Our progress and create as deep and broad and more creators and more industries adopt real time three to eight.
In March we shipped introduced 2021 long term support version of our editor.
Dispersion livers powerful improvements to create workflows a great example is our integration of visual scripting that enables creators to make content without having to write a single line of code.
We added new rendering capabilities across all devices through our universal rendering pipeline and we enabled higher fidelity graphics across devices with our high definition render pipeline.
We shipped numerous improvements and volatile workflows, focusing on performance and iteration time, reducing the time to create.
We've added new features to our world building tools and enhanced artist friendly tools like our powerful VFX graph shader graph instead of machine tools, we expanded our already world leading platform support adding in Google Chrome OS as a platform and we added Apple silicon support for the editor.
We are focused on constantly improving our tools for real time to really creators of all types. In fact, just today, we shipped the latest release of the 2022 tax stream, enabling game customers that are early in their production lifecycle with more tools for at our extensibility productivity platform optimizations rendering capabilities performance.
Inside and other key new features.
Unity is the leading tool in service for game creators of any size to deliver their ambitions the flexibility and multiplatform capabilities. We provide are often critical unlock for our customers and allowing them to deliver against their own vision.
Let's start with our game customers Here's a few interesting examples.
Xena last city by Robin VR has been a runaway hit on virtual reality.
This title is a multiplatform massively multiplayer online role playing game for virtual reality, where players explore an anime inspired world on meta quest meta risked Playstation VR and Standalone VR devices.
Robin VR relied on unity for AR VR capabilities as well as our advanced data oriented technology stack with docs.
Based on their success. They are now growing their team to bring the game to even more platforms, including PC and web. This is something we see frequently with our unity game customers, where our facility with multiplatform capabilities enables creators to find success and rapidly expand to more users and devices.
Another exciting title on box and shipping this quarter as Siberia, We will before the fourth edition of the Siberia series that March to critical acclaim for PC, Playstation and Xbox and soon on Nintendo switch. This title, both huge and buried environment and more than six hours of stunning cinematic made possible unit utilizing our high Def.
Emission render pipeline.
Many large publishers use entities to create sustained mobile versions of their games. This quarter are two great examples of that.
<unk> bought back angry birds classic to mobile App stores using unity to relaunch this treasure game and easily make it work across multiple modern devices.
<unk> softness unity to deliver incredible visuals and vast gameplay and Rainbow set <unk> mobile.
One final example back to virtual reality status status pro unveiled the first true NFL football game for VR with NFL Pro era enabled by entity.
These are just a few examples with one thousands of unity game that launched on console PC web Exxonmobil this quarter.
Moving on to our work with artists we are focused on delivering the most important growth for creating and three D. Whether in media and entertainment games or digital twins in January we officially transitioned the incredible pain from what is digital community and since then we have been making significant progress in three specific areas.
First we continue to push beyond the edge of what is possible to deliver and visualization of simulation.
We bought a digital not just a great set of tools that have been developed over the last 20 years, but specifically for their incredible exploration what they would do next as you may have seen with the trailer for Avatar two released on May six.
These tools continue to set the standard for the part of the possible.
Second we are focused on building the framework for interoperability requires deliver these tools for moral harvest into more use cases and supportive. This the team has been developing an end to end USD based workflow. The first of its kind replacement component based workflows.
<unk> also been evolved in the USC stack to support performer procedural data parameters as well as physical camera and might standardization.
In addition, we have been working to deliver a cloud based vendor solution for the pipeline delivering millions of hours of render time to whether FX per week.
This is foundational work in building critical capabilities for artists and new revenue streams for unity.
Finally, we are focused on the work to bring these tools to real time, we will be talking about some of these steps in this area at SIGGRAPH in August .
Beyond whether digital or art tools like Viva and <unk> continue to make rapid progress in Q1, we shipped <unk> and Viva via FX to point out delivering more capabilities in both games and media Entertainment and entertainment.
We see significant traction these tools in games like Halo Internet and movies like dune users of our Zebra dynamics technology in Winter Six Academy awards, including the Asa Oscar for best visual effects Keven.
Keep an eye out for those sand ones.
One more note on zero in the first quarter, we received more than 8000 sign ups in a multitude of cloud up loads for our beta zero Zebra faces. The service enables artists to use advanced machine learning models and massive data to train measures for full expressiveness instead of requiring teams Novartis has been weeks doing manual Reagan.
This is an extraordinary and expeditious result that speaks to our goal to make <unk> and media games and everywhere 10 times easier 10 times faster and 10 times cheaper than it is today we.
We have more work to do but we're gratified to see all this early traction.
Moving onto this always wins our business continues to expand we entered 2022 with nearly 3000 customers. In this space are digital twin customers are spending more time with us as we land and expand to drive tangible outcomes with real time three day across the enterprise.
This quarter, we closed 34 deals above 100, K up 126% year over year and up 13% quarter over quarter unity is being used in construction commerce manufacturing advanced simulation and much more.
We are seeing broad based adoption of these tools from companies like Mercedes Benz.
<unk> is partnering with Mercedes to power the infotainment domain of a new operating system called <unk> Dot OS MB that OS is fully comprehensive architecture, covering electric and electronic hardware as well as software, which will hit the road in 2024 it.
It can be seen in the vision <unk> prototype vehicle as part of our partnership. We're also upgrading our hey, Mercedes personal assistant intelligent and interactivity into a three D star Avatar it'll be more akin to a digital Butler.
Additionally, the MB OS system will allow for <unk> navigation that consumed from satellite view down to 10 meters.
It will also account for what time of day. It is a journey and accurate real time <unk> display.
Also in March we announced how is retiree is changed in a way that large scale solar projects in South Africa are designed created an operator <unk>.
<unk> is using <unk> real time, its redevelopment platform to automate large scale solar photovoltaic projects to reduce the time required to develop design level insights and decrease costs.
Not only does this very complete.
Completes on tracking and trading for each solar panel, but they also optimize solar sites to optimize the number and position the panels installed in order to increase energy output all with immunity.
<unk> is also using unity to explore additional sustainable energy facilities.
During Q1, we also achieve customer wins with our digital solutions across several new categories from one of the largest energy companies in the world that is deploying our digital twin products across the enterprise to run their own downstream operations more effectively to an iconic luxury brand that is leveraging unity to bring to market a differentiated digital.
Variances that can only be done in real time <unk>.
Lockheed Martin is model example of land and expanded action. Our first project in <unk> started in 2017, when they bought a few seats for design visualization within 12 months. They had deployed 132 licenses to develop more interactive experiences for product development. Five years later Lockheed is nearly five.
500 licenses plus nine business units for multiple use cases, including simulation training and guidance and collaboration.
We're also making a difference in enabling how greater work <unk> are becoming critical tools of the hybrid work world creators need effortless access to high fidelity workspaces and the ability to collaborate regardless of their location.
The average time spent on parsing per teams customer is more than 27 hours per week.
This is what hybrid work looks like.
Creator shift back and forth between direct access to powerful machines and remote virtual access all without skipping a beat.
Fact that we see incredible numbers in growth in such high sustained usage is a signal of the future that creative work requires as.
As you can see we are making good progress, enabling crinite creators across industries to adopt real time three D. I've never seen such a global surge in accretive innovation in my career and we are honored to be powering much of it. We're seeing this innovation in gaming AR and VR and in many non game verticals across thousands of projects that are created.
Annuity everyday.
I want to reiterate my expectation at unity, with Spain, and sustainably grow revenue at or above 30% per year over the long term, even as we gain scale I'd say this in full recognition that we're presently experiencing a self inflicted challenge with our monetization business that we expect to correct learn from and build a more of a is there.
Oregon platform platform for the future.
As we expect to drive 30% revenue growth, while achieving strong levels of profitability, but the $110 million revenue impact on our revenues this year.
We've been deeply considering ways for us to realize our vision on less more focused spending we can we can make it into a stronger company with this tighter focus and with it a faster move to profitability been made previously promised we remain hugely focused on the long term and these adjustments will make us stronger and leaner as we lead to the future.
Luis will provide more details on this shortly.
And when I say focus on the long term this is what I mean.
We introduced operating business lives in an exceptionally large market, we have a material data advantage, there and our monetization business continue to gain share with <unk> as well as our hosting capabilities and believe we are more focused on gaming that are competitors. These are real advantages immunity create is now hitting an inflection point.
We have long anticipated we were not only growing our gaming footprint on take rates, we are seeing strong adoption from industries beyond gaming.
The tech industry received she's waves of innovation in personal committing to Internet cloud online retail today, we're in the foothills of another big wave. This time the way people interact with digital content, we call. It interactive real time, <unk>, others call it spatial computing or more recently, the meta versus whatever its called.
It is different it is more engaging and it is inevitable.
We are beginning of this journey with substantial market share lead over nearly two decades, we have built a strong product and engineering oriented team and business model that has let us earn the industry's larger developer footprint by a very wide margin compared with others in the space, we're selling into a large and growing markets. Our original core market of game.
<unk> could double in five years to more than 300 billion as it touches most people honor and our opportunity in the gaming space is not just doubled or like five to 10 acts as we grow into the largest user group artist and buildup.
Ratable consumption based services to augment our SaaS subscription.
Meanwhile, other industries are just catching on.
We have exciting momentum in digital twin, which boiled down will basically be the real time digital replica of most places objects in person on the planet.
And when I look at projects in our development pipeline I see more opportunities with the potential to scale multiple billions in revenue non gaming verticals have now gone at unity from theory to early traction to scaling.
We have to execute on our future opportunity. The challenges we discussed today will be addressed and resolved. It is not an industry or sector ratio, we are well underway towards recovery in building and adding resiliency and redundancy.
And since all of you on this call as the publisher model. The question becomes exactly when that will cover and what that trajectory look like it is always harder to forecast where changes trajectory than a continuation of what our guidance reflects our best estimate of that curve and with that let me turn the call to Luis.
Thank you John .
Let me frame a few considerations to understand that first quarter financials and balanced 2022 guidance.
The challenges that John described for Uniti operate business negatively impact our first quarter results and are expected to.
<unk> to negatively impact our business in the second and third quarters with minimal impact to the fourth quarter I will provide further details in a minute.
In the first quarter of 2022, we delivered revenue of $320 million of 36% year over year Creek.
Create performed strongly with revenue of $116 million or 65% from a year ago.
Operates often with revenue of $184 million or 26% year over year strip.
Strategic partnerships and other delivered $26 million $20 million in revenue up 11% from a year earlier.
We delivered at the high end of our guidance range with creates over performance, partly offset by softness in operates.
We continue to make progress in expanding our business and adding new customers to the unity platform at.
At the end of the first quarter, we had 1083 customers with trailing 12 months revenue above $100000.
This compares to 837 customers at the end of the first quarter of 2021, an increase of 29% year over year.
In addition, we delivered another strong net expansion rate of 135% on a trailing 12 month basis. This.
This compares to a net expansion rate of 140% a year earlier.
Our performance was fairly balanced by region with year on year revenue growth of 30% from the Americas, 34% from EMEA and 47% from Asia.
Our non-GAAP gross margin was 76, 2% down 210 basis points year over year, mostly as a result of including the additional engineers supporting what FX in cost of goods sold.
Excluding this impact non-GAAP gross margin would have been down 70 basis points year over year, mainly due to mix.
non-GAAP operating expenses in the first quarter increased 29% as compared to the first quarter of 2021.
This compares to 36% year on year revenue growth.
Our sales and marketing expenses in the first quarter include the cost of the in person game developer conference, which we did not have last year.
non-GAAP operating margin improved from minus 10% in the last years.
Years' first quarter to minus seven two this quarter.
Cash flow from operations was $1 1 million, which includes wettest FX 200 million subscription payment covering four years of license.
We had 348 million fully diluted shares at the end of the first quarter and 5864 employees up from 4389 a year ago.
Moving onto guidance.
Our original revenue guidance for the full year of 36% year on year growth at the top end of the range considered fairly even growth in each of the four quarters.
As John mentioned earlier.
A talented we're having now with monetization growth percent of substantial short term headwind to our revenue growth.
<unk> quantified this headwind at.
$110 million with roughly 60% impacting the second quarter, 30% impact in the third quarter and 10% in the fourth quarter.
The recovery.
Substantially re faces our year from being fairly even quarterly year over year growth to a new that is both frontloaded and back loaded.
For the second quarter, we expect revenue of $290 million to $295 million representing growth of 6% to 8% from last year's second quarter, which was our strongest quarter last year with 48% year over year growth.
For the full year, we're lowering our guidance to 1300 $50 million to 1409 and $25 million. This implies 22% to 28% year on year growth.
We are widening our guidance range to reflect different speeds in the multiple monetization recovery.
As mentioned our modeling assumes partial recovery in the third quarter and to be largely back to our prior trend line in the fourth quarter.
With our revenue coming down for the year. There is of course, an impact on our operating margins.
This is not new to us today.
While we believe Uniti has massive opportunity no future. We also thing we can realize elevation with less spending we have look hard and kind of reduce our spending by over $100 million versus our internal plan.
We believe this will make us a stronger company short and long term.
Savings will not have much of an impact in our second quarter, but it will have a substantial impact on the second half of the year such that we believe we will achieve profitability in the fourth quarter of this year, which is sooner than previously communicated.
We expect to be profitable for the full year 2023.
As a result of the slowdown we expect non-GAAP operating loss in the second quarter between $60 million to $64 million for the full year, we expect non-GAAP operating loss between 60 and $75 million.
We continue to invest to capture the large opportunity in front of us as we lay the foundation for the next 15 plus years, yet we have adjusted the pace of our investments given the slower revenue ramp to protect our margins.
We expect $350 million fully diluted shares by the end of the second quarter and 356 million fully diluted shares by the end of the year.
With that I will open the call for questions.
Great. Thanks, very much so we'll go around the as before.
We will call on the different analysts and if we have time, we'll also do virtual hands up so why don't we start with first question Kash Rangan from Goldman Sachs do you have a question.
Sure I don't know if you can see my video not just.
Okay.
<unk>. Thank you so much for all the perspective.
And these issues in the quarter John My question for you is.
Can you talk a little bit about the cadence of apples.
Obviously changes.
Starting from when they implemented it to today and what.
But what impact that might've had on the pinpoint or two.
In regards to that if that is the correct hypothesis, what remedy issue tools are you offering to offset that headwind and also maybe.
Looking at it but as you look at the Ww D C.
They were to make further changes, making private relay a default option. How are you prepared to handle the potential impact. Thank you. So much so enquiries on with US today, but I'm going to give you one quick headline sure are well aware of Apple's plans. When we provided our original guidance. So the change in guidance is not based on a change understanding of what Apple touring bike.
<unk> here, it's her business I'll, let her address your question more specifically.
Thank you.
Hi, Kash.
Just wanted to be clear that that issues that John outlined today.
It's not as a result of <unk> impact.
Those are two different issues.
And then as for iOS 16, Andy.
The outcome there we've seen several media stories that speculate on what you just mentioned that for the privacy changes could be coming in <unk> and that privacy relate could remove the use of IP addresses. However, apple has not announced any details and today, we are actively working to make sure that our CIS.
<unk> already for Scott and prepared for the different possible outcomes to address any changes in the privacy landscape.
Great. Thank you so much.
Great.
We'll go to the next caller mat cost at Morgan Stanley Matt.
Great. Thanks, Thanks for taking the questions.
So when I when I look at sort of like the cadence of growth that's implied by the new guidance.
Assuming it kind of accelerates as you move through the year, it's something maybe like from $2 95, and <unk>, maybe adding $50 million and maybe $100 million in <unk> and <unk> to get to the high end of the full year guide just round numbers I guess, when we think about what precipitated.
The issues its audience pinpoint or pinpoint to earlier in the year. What gives you confidence that that pressure will abate, so quickly and you'll be able to step up kind of so rapidly over the course of the second half of the year and then I have a follow up thank you.
Sure.
So I'll take a high level and Greg you may want to add some value to us its up to you or for Luis but.
We spent a fairly substantial amount of time as you might imagine understanding exactly what happened and we've got the deep insights into each of the component parts.
And it gets divided over correcting problems that were in the process of completing so we're well through a fair amount of the architects to address the problems you've outlined and then one thing to keep in mind as well as for the past years, we've been meeting or exceeding our numbers in a major part of that.
Is attributing revenue to new features and new performance enhancements, we've been very good at that.
And so the corrections or like the inverse of a performance enhancement and we still have the feature math that we've always had and so it's really just drilling down and doing what we've always done for our forecasting.
But this time around.
Well, it's almost like a feature to correct the problem because it has the same impact.
Of an install are carefully and correctly understood.
Reaching more users through our.
Pinpoint or towards another example, we know how that math works Ingrid anything you might want to add.
Yeah, Matt.
This is the nature of machine learning based products, we expect a recovery to go through several steps in the sequence first is data rebuilding the <unk>.
And its model training and this is an interactive process that will drive better performance and the third.
Customers' experience these improvements nail scale up their spend and monetization with US. We will then see the impact on our revenue.
These changes incrementally built upon one another as each step in this progression is the foundation for the next.
And look we are building this business for the long term because we truly believe in this sector. The games advertising market as John mentioned, we'll continue to grow we have highly engaged players and professionally created content.
This will always be attractive for advertising and we know what we need to do to address this temporary challenge and.
And we need to go through the motion to ensure additional aid foundation.
And lastly, what I would mention is that in.
The beauty of this business is that no customers just have a loss in the sales cycle is short.
And for many of these developers UDP has enabled them to achieve their vision and build the business that they have today.
We have built a trusted brand and our reputation over the years such that when we deliver value. We are confident that they will scale up their business with us again.
Great. Thank you and then just on an operate.
In the prepared remarks, you mentioned.
Basically an idiosyncratic issue and <unk> in a market that has otherwise healthier stable I forget the exact wording, but I guess when we think about your expectations for the growth of like the mobile game advertising market through the end of the year.
Are you assuming relative stability through the end of the year or is the as the market backdrop that you are imagining and your guidance, including any impact of some macro weakness potentially.
So.
It's always difficult to be exactly precise on it.
What happens in the macro world.
Arguably more going on in the macro world today than there has been a long time.
Mike I don't I don't see any long term impacts on engagement and the overall health of the monetization business writ large or small on a year to date as we recover.
We're expecting relative stability and let me give you a little bit of a <unk>.
My long history in the game industry.
Through virtually every major crisis.
The game industry as ground through recession, the garment industry is ground.
Through catastrophes like 911, the game industry had strong weeks immediately following it is what people do when they're frustrated if what they do when they stay home because they can't travel it's what they do to fill their time when they're stuck at home with Covid and its the habit by pickup and they carry with them.
Can there be uneven quarters from time to time, they can but theyre exceptionally rare in the gaming industry.
It really is the habit people pick up and maintain once they start.
And it's one of those few things where when people come under more pressure and more stress they tend to gain more.
So again im highly confident this industry are strong can cause things get knocked back and forth in a quarter of course they can.
But the trend lines in the industry that we look back.
More than decades, now has been pretty consistent up to the right no major retrench yours now.
Years past, when we had primarily physical media in the gaming industry you saw some cycles, where the console business would would go backwards in the year, leading to the console launches because customers would wait to get their new console.
By more desks that phenomenon is trivial now what happens today is increased growth based on new users being more engaged over time.
Yeah.
Okay, great. Thank you. Thanks.
Thanks, so much Brent.
Brent bracelet Piper.
Good afternoon.
I wanted to go back to the monetization challenges you're seeing.
I guess I'm, a little surprised to think about one customer and data from one customer having kind of this big of a challenge so what maybe just stepping back how dependent.
As the operator business on data from your your other customers or is this data from a third party that youre getting to help drive the services a little more color on.
And kind of how data from one customer could have this big of an impact on the business here just this quarter.
So like where do you want to take that I don't add share.
Brent.
I just wanted to.
Make sure that we're clear it is the whole impact it's not because of this one data from the customer there were several factors that.
Let's outline the first to us a fault in our platform.
It resulted in a reduced accuracy for audience pinpointed tool.
As we grew significantly last year and on Dan's been planar as John mentioned.
We paid more attention for growth and new features versus the Bristol E&C. So this was an expensive issue given that pinpoint and <unk> is a big component.
<unk> of our business post apples privacy changes.
Is that just to be clear, though is that pin.
Pinpoint or product.
Data dependent oriented actually like a software bug issue that.
Cause the problem I'm, just trying to dissect is a data challenging <unk>.
Challenge or is it actually a software bug issue.
So the first component that I, just mentioned is I wouldn't say so.
Hey.
It's a combination of different things that reduce the accuracy for audience and cleaner in the second.
The second factor that we experience with several incidents that impacted our dataset.
That is an input to our machine learning model training for audience and planar.
One specific example of downloads et cetera, exactly is that large.
A large amount of that data from a customer it felt a little bit like it was one customer that is it sounds like there are several factors that had an influence on the data training issue and then there was obviously something that also impacted the pinpoint product.
Last question maybe for Lee.
We use as we think about the guide for Q2.
You talked about some of these challenges cropping up in February and March it looks like the guidance implies about a $60 million drag to operate for Q2, that's $20 million a month.
Why would it be such a bigger impact if you saw some of these initial impacts in February and March for.
<unk> two is it seems like it's a more material impact clearly for Q2 than what you saw in Q1 why is that.
Yes, so it's just a timing so in January we started very strong as John mentioned the impact of February was relatively small the impact to March was with larger so you see a partial impact in Q1.
Got it so it's not like the issues are worse it looks like you are.
Addressing most of ratios in this era, okay, great helpful color there I'll cede the floor. Thank you.
The next question from Dylan Becker over at William Blair.
Yeah, Hey, guys first maybe wanted to touch on the value of the creative platform. So an area that obviously saw a lot of strength.
I need to see strengths here, but if you guys are thinking about kind of the confidence in this in this ramp throughout.
The middle quarters of the year and into the back half how much of that activity on the creative side and the insights from the data that you are able to draw.
From that tool gives you the confidence and support as we think about the ability to kind of retrench a lot of the a lot of these models from a user targeting perspective, and then I have one more follow up after that.
Mark do you want to.
Help without a little bit or I can take it Marc sure I'm happy to start.
Question was a little bit about how the flywheel between operate and create so what's been awesome and particularly on the gains is that.
Our create toolset.
Used by an incredibly broad set of creators across pretty much every platform where users are found and as.
Those creators are going to market.
Huge number of them then onboard into the operate tool chain now because we start from the very beginning from the very first time that someone hits file new project inside of unity, we start sort of understanding where they're going we're able to sort of work with them work with them at a teens level and then move them over onto the operating.
The other part that we continue to strengthen together is the work between the operators has been doing and what they call unity game services, where it's not just the monetization side, but also the other areas around analytics around voice and multi player.
Around sort of cloud content and delivery that ties in very deeply into the both the creation and in the long term operation and then egret I don't I don't know if you'd want to add anything on that on how the.
That helps from your data perspective.
Yeah.
Yeah.
Yeah, absolutely so.
As we've seen as John mentioned since beta launch in October we've seen more than 74000 organization sign up with over 68000, complete which is more than a 90% conversion rate and all of that.
During beta is coming from the <unk> platform.
And made with unity developers so to just give some data points to support marks.
And our attempt there.
We are seeing the impact on this particularly on unity gaming services.
Okay.
Get into your question exactly because I interpreted the question slightly differently, we answered that I want to make sure. We're answering your question, yes, I mean, I think from a high level right. It's around how they create side can serve as the on ramp from the operation monetization dynamic and as you guys are kind of trying to.
Two again figure out and dig into to better optimizing some of these models.
It helps address it from a high level and maybe a quick follow up to just seeing kind of the strength I know you mentioned on the digital twin size like the interoperability visualization here too as we think about seeing kind of traction and expansion into some of these non gaming use cases, how should we think about maybe areas that are seeing the most momentum and then maybe the opportunity.
To drive.
Operate strength outside of kind of the core non gaming combined today is I think a lot of the momentum you see us solely and creates the ability to kind of leverage the outreach side of non gaming component as well. Thank you.
Sure why don't I.
I start with that one and then John I don't know if you have something to add but I think it's a really great question.
Digital Twins, I think we're seeing really broad growth across multiple sectors as.
We see industry is kind of using these digital twins to manage their business at every phase, we see them using it at content creation and ingestion time to product configuration and sales collaboration and then really deeply around management operations and simulation and you can look at that across whichever industry that you want to look at they tend.
To be focus across those different basis.
Today, we have been and we continue to be strong in areas like architecture engineering and construction manufacturing automotive, but we're also seeing a lot of significant growth in areas, such as high end and luxury and retail and also in.
Complex products, yes, I think everything from elevators to boats and sort of being able to build systems that support both the on ramp of new customers through the operation of those products.
What's been very encouraging is that where we see our customers as they begin their beginning to staff dedicated engineering teams in these areas not just asking for professional services and so what we see is that they see digital twins not as a point of engagement, a one time thing, but as a continuing capability and that really speaks to.
How you think about not just the creation of an original digital twin but its use over a lifetime to operate capabilities and the opportunity to create services and value add on that long term let.
Let me add a little bit to this one.
So.
Starting point our.
Our company is born in the game industry.
We're very we're I can't tell you how much energy goes into doing an awful job for game developers, which is why you see over the last handful of years, we've gone from nowhere to market, leading on all the consoles from nowhere to market, leading on PC and from <unk>.
Low double digit market shares in mobile to over 70% in mobile so huge energy around that and now we've got all of the stuff we've been talking about with artists and new services to increase our take rate. So that's underway nothing is slowing that down.
Five years ago about eight.
Eight blocks from here.
I hired somebody the first person that we're going to work on our business outside of gaming just five years ago restaurant.
A dozen blocks away.
And I was describing something that might be true.
And what was fascinating about it is.
Was able to hire the sky, but it was fascinated I kept coming up examples as I said Youre draymond that'll never happen.
From that 0.5 years ago.
We want with our public offering.
A loss of two years ago, we talked about this and we were getting with the time, we're talking about hundreds low thousand customer base and starting to get there, but we didn't we caught it early traction.
I've never seen anything like this because I have in the last six months I meet with customers every week.
Ceos boards of directors and the auto industry architecture industry construction industry.
Retail literally a spectrum of companies across so many industries and we're talking about companies huge organizations.
And it reminds me ever so much of 2000 and I remember in 2000, and we thought by 5% of companies that have a website maybe can someday maybe literally every company in the world has a website today. It is it is endemic to running a business to be able to define your customer through the computers.
Today, what I'm, saying.
Similar traction around essentially what they're thinking of is the meta versus but what that really means is the next version of the internet that allows them to do things like virtual try ons bring their boutiques into your home. It's a real time three D customer connection for complex products for simple products for fashion project for technology.
Products and when we talked about it at the IPO. It was interesting and we had good stories to tell but this is it.
It's changed the character and a pretty dramatic way, it's not just leaning in its jumping in and setting up camp. They all know they need the centre it is coming in a huge way.
Great. Okay. Thanks, guys.
I appreciate it next question Andrew.
Jefferies.
Andrew.
Ergo.
No.
Okay, Andrew we'll circle back to.
Stephen Ju over at Credit Suisse do you have a question.
Yes, Sir so.
Just wanted to circle back on pinpoint or so it looks like a product that helps app developers reengage users who have already installed the app. So can.
Can you confirm that this is indeed, the case and if so.
Can you talk about what kind of campaigns were impacted in terms of different buckets of what advertisers.
We are looking to achieve.
Also secondarily, what's the problem that was presented to you by your advertisers were starting to report compressing rois and therefore, starting to rotate budgets away from you.
Just trying to figure out like how this problem was identified in the <unk>.
First place so in terms of the practicalities of getting the budgets back on board.
As a matter of just retail trading your models to wrap rois back to where it was in the first place.
Yes.
So audience been player if our user acquisition product.
Our MLP <unk> user acquisition product that allow us game developers to acquire players based on a target return on their spend.
So we have different ways that advertisers can buy one is.
Return on AD spend target another ways a target price by installing for example.
And we have and the factors that can retention et cetera, and I think the buyer on that as well.
So.
So just to clarify it's not a re targeting it's what I think you mentioned this is all user acquisition based on return on AD spend in.
In terms of how the.
Problem was identified it was a combination of factors.
Between we saw data.
Our own.
Customers' data as well as our own data and our engineering team.
Looking at net with cognizant and finding those issues.
Okay. So presumably on a go forward basis would.
Would you have access to less data that would be informing.
I guess the models.
Would you anticipate that the rois, using pinpoint or would be better or worse versus where you were before yes as I mentioned the <unk>.
The recovery will go through several steps the first is data rebuilding.
The second is model training and this is an iterative process and.
And as we train the model more the performance will improve and the third is then at the customer experience. These improvements they will increase their spend and monetization with us and that's when we will see the impact on our on our revenue.
Just a clarity.
We didn't lose any customers and one of the early signals. We saw was we saw less revenue and so they are spending less because theyre getting less performance out of our 10 quarter <unk> team.
Took that apart and I saw a multivariate analysis showing each individual component parts and that was driven in part by some of the data issues, we talked about so the diagnosis is Chris.
Those same advertisers when they start to see the performance that we know we can drive as new data fills in and we train those models.
It's a straightforward process of bringing them back up into their share of wallet.
These people are really data driven for those work in other industries, primarily or have worked other industries. There is almost nothing like the data driven nature of a user acquiring marketing team and the game industry.
These guys move on 10th of a point and one point and we know what we can do on performance, which is why we're able to confidently give some good sense of how those come back we saw how it won't win a hard comes back.
Okay built on John .
That doesn't take away from the <unk>.
Breadth of datasets that we have to inform our contextual data and since we have some.
Challenges and issues.
As a result of speeds.
These temporary.
Technology issues.
And reduction in data, but in terms of the fundamentals.
The breadth of data that feeds into our conversion. This is some takeaway from that.
This is I don't know that I can say this with enormous precision but.
In an industry like this one.
The data you build over the last 90 to 180 days is the majority of the value ever half from the data. It is recent data. So this is one of those situations where.
Self in a way, it's a sort of self correcting once we fixed the issue.
Now, we're being more aggressive in self correcting but it is it is one of those things where it's easy to draw the wrong conclusion.
And so the revenue issue that we picked up was related to the message that we've talked about in terms of hitting us directly but time to rebuild and on the re phasing of features.
And we're pretty confident of those belts.
Thank you.
And our last question Parker over at Stifel <unk> available.
Yes, sorry.
Can you hear me Alright gotcha.
John wanted to talk about the opportunity outside of gaming you touched on it briefly a couple of questions ago, but I'm just thinking about the way that these organizations across a variety of industry think about their investments and innovation in real time through the is there anything uniform about that or is it won't really get a different piece like when you think about the customer.
Expansion opportunity there is it perhaps many factors larger than what you would see with traditional gaming customers create Budd.
So there's a lot of pattern recognition you can talk about here.
Im going to ask Mark to build on this but.
I'm going to give you one part of it almost an organizational level, one and I'll ask mark to talk about some pattern recognition around whether its simulation centered or it's configure raters or its reaching their customers with the new presentation.
One of the things that I've seen is if I go back to five years ago and I mentioned this before talk my first person into working on this business three years ago, I show up with a customer and we'd get handed off to a relatively junior person in the organization and three engineers, one of whom has occurred that programs in unity. There just curious to meet us and we.
Show up and we'd say how do you do this and how do you do that whether it's design or how do you get your car configure out of a shocker power Tech some of that was and there was nobody very senior and these organizations that were interacting with I started to change about three years ago, we were getting into important people in the marketing or design or.
In different parts of the processes that those organizations today, what's happening.
CEO is accompanied by their boards of directors and their entire senior management team say I know I've got 10 experiments with you at a low level. We want this to be transformative for one really significant point.
Pattern recognition is where this has evolved to and where they get resources from which is why I'm very confident that we're in the we're in the scaling phase and it will move well under that I'd love to talk about a number of specific but I will take the air for Mark and I will let him expand on that.
Sure. Thanks, John Yes, I think there is some really interesting patterns that are relatively common across industries. And then you can also see where theres a lot of growth to come.
Many industries create at least in some level in <unk> they used CAD tools.
They create their manufacturing or their designs in some sort of PD package for many years those within sort of transformed through their own process and then someone will come with a camera and take photos of the final product and if you wanted to show a different configuration. They take photos of another product that was configured differently.
Because the data from that sort of core engineering component didnt easily flow to our customers were or the use case need was over the long term. So we see if there is a very common pattern, where these companies want to ingest the huge amounts of data that they have in <unk>, which by the way and in many case.
<unk> be much larger than the content even in large gains in terms of polygons in terms of messages or point cloud data.
When they are looking at whether they want to take that they want to be able to easily configure. It not just at an engineering level, but at a customer or product marketer level, they want to be able to manage it across multiple screens take automotive as an example, many of the use cases that automotive pads for the HMA systems inside of the car.
They also want to work effortlessly on a customer's phone and so the three D capability to be able to transform from kind of static creation at the front end of a process through every phase of creation, whether it's simulation management configuration, all the way to the end user following the exact same pattern that.
We have seen in gains which is customers want access too thin across the screens that matter for them, whether that's a.
A PC, a laptop or mobile phone or MBR and so when we look at what we can do to deliver on a bunch of solutions inside of digital twins is about enabling that easy flow of data and use cases across the lifecycle.
And then just one more layer on patterns.
One part of us as customers wanted to reach their customers sell better configuration or is.
<unk> showrooms virtual try ons.
We're trying to communicate better more risk weighted average basket sizes increased transactions. Other thing people are asking for it they want to operate their manufacturing consolidate they want to run into the digital twin they want to run massive simulation and parallel to that to get 510, or 1% improvement in efficiency and effectiveness I want to run and test new configuration. So is that.
Operating Iot driven thing and then another arena for this design.
And by way of example is relatively easy to use unit data put a car on a bridge into what you could do on our wind tunnel infinitely cheaper and infinitely better to run simulation around that and help inform the design.
Another fourth area as people are using it for training. So a lot of training around that so operating something from an airport to a manufacturing facility, reaching a customer for retail and helping to buy these are all patterns and so we're getting closer and closer to being able to say the professional service component can shrink away over time, we'll still be doing a lot of professional services.
Mrs. But these are increasingly product we can put in front of customers. They can just use to do a lot of these things.
But that's where most of the energy is going for this stuff.
Got it appreciate all the commentary thanks Scott.
Alright, well, thank you very much everyone.
We'll be at conferences in June at Bank of America.
And Blair and Stifel in Wedbush, and we May see with those conferences. So until then have a good rest of your day. Thanks. So much. Thank you all thank you.