Q3 2022 Unity Software Inc Earnings Call
Thank you and welcome to <unk> third quarter 2022 earnings call. After the close of the market today, we issued our earnings press release and earnings presentation.
Materials are available on our investor website at investors that unity Dot com today, I'm joined by John <unk>, Our CEO , President and chairman and by Luis <unk> Our CFO .
Before we begin I want to note that today's discussion contains forward looking statements, including statements about goals business outlook industry trends market opportunities expectations for future financial performance and similar items all of which are subject to risks uncertainties and assumptions you can find more information about these risks and uncertainties in the risk factors section of our filings with SEC.
SEC Dot Gov actual results may vary and we take no obligation to revise or update any forward looking statements.
As in prior quarters, we are providing both GAAP and non-GAAP financial measures unless otherwise noted we will be speaking to non-GAAP financial measures when describing our results. The earnings presentation and press release are available on unity Investor Relations tab as well as SEC Dot Gov and they include full GAAP and non-GAAP reconciliations.
And in the fourth quarter, we plan to present at Investor conferences with <unk> Credit Suisse and Barclays. Full details are also available on our website with that I will turn the call over to John .
Thank you Richard.
I want to start the call welcoming everyone at Iron source unity. The merger closed on Monday as expected. We will report consolidated results starting in the fourth quarter of 2022.
Together you already in the iron ore write the next chapter of Immunities journey is recapture the large real time <unk> opportunity in front of US in fact, we feel more positive about the merger now than we did when we announced the deal on July 13th.
Today, only a fraction of creators succeed and the creator economy. We are passionate about changing this reality because we believe the world is a better place with more creators in it.
Combining forces, we believe European Iron source will transform the industry and increased creator success I, replacing lock with science, we expect to achieve this through an end to end platform that enables creators to build better games and better user acquisition and everything in between by solving our customers' toughest prop.
And as a result, we expect to be a highly profitable company operating with positive cash flow.
Moving on to the financial performance of the third quarter.
Usually delivered a good quarter with revenue and non-GAAP operating income in line with guidance create posted a strong quarter and our internal performance challenges and operate are behind us.
<unk> revenue for the third quarter was $323 million up 13% year over year create.
Create delivered $129 million in revenue this quarter, an increase of 54% year over year.
Operate delivered $172 million down, 7% year on year, and up 8% as compared to the previous quarter.
Strategic partnership revenue of $23 million this quarter is up 28% year over year.
non-GAAP loss from operations of negative $37 million came in at the better end of the guidance range as we continue to make progress with our cost structure on our way towards breakeven by the end of the year.
Now, let's dive in to create <unk>.
Q3 was another strong quarter for create solutions, we continue to have strong customer pool, and our core unity engine and our newer segments of digital twins and artistry.
We are enabling our customers to create extraordinary real time <unk> experiences in games and across industries, which we believe will accelerate our growth.
Innovation is the foundation of everything we do.
A great example of this is our data oriented technology stack or for short docks.
Got it allows creators to get more performance and more screen density on any device they target by optimizing real time <unk> experiences in ways that take better advantage modern chip architecture.
This quarter, we released our entities one point I'll expand on experimental relief.
This release includes critical functionality to allow creators achieved native code performance with the ease of see sharp development support massive data streaming through all unity rendering pipelines with significant improvements in rendering performance with our updated occlusion culling system.
Encouraging thing to see compelling examples of creators using these tools to look to deliver spectacular games of all types from Oprah World Mmos strategy to racing.
Some recent gains that use dots include the rising by sunlight Studios Zenith last city by Robin VR.
By casino games and destination ratio by electric square.
Another. Good example of the end to end focus on enabling creators to build launch and scale terrific games as our work with modules Marvel snap developed by second dinner <unk>.
Second dinner develop their game using year to date and are also using a unity game services customer.
We'd loved this effects are seeing their new watch currently number one on iOS and Android app stores in their category.
As Aaron print center setting the senior director of software Engineering second dinner Unity is a very close relationship for us. It feels like we are one team with a shared purpose taking on challenges together.
Thanks to everyone here, who has joined US on this journey, which in all reality is only just getting started.
We couldnt agree more.
Outside of games, we are seeing similar results. This quarter has continued our strong momentum in digital twins.
Few examples.
Sure very Douglas just launched or connect configuration. This enables them to bring forward insights and better decision, making with their clients earlier in the construction process, eliminating delays material waste and rework.
The Orlando economic partnership is working on the initial phase of the world's first immersive three D. Regional digital twin. This project combines 80 different existing data sources over an 800 square mile region to provide an immersive <unk> experience and provides companies looking to expand their businesses to the Orlando reason with a much more effective.
<unk> and engaging way to understand the region infrastructure and demographics.
I wanted to talk about our progress with <unk>, and <unk>, which together make up our create innerwear business. We continue to see very strong demand as companies around the world reconfigure and make permanent investments some of our creators collaborating and creating an hybrid work scenarios.
The combined <unk>.
The businesses and create interact with north of 100% year over year through product innovations that continue to upscale our product led growth accelerate our enterprise sales in fact in the third quarter, we closed our largest <unk> enterprise deal to date, which was over $1 million in IRR.
And create anywhere we now have 25 customers contributing over 100000 in annual recurring revenue.
Thanks sketch has become the goto collaboration tool for creators and the media and entertainment industry.
Recently raised by Wolves, and HBO Max show from executive producer Ridley Scott.
Who has a very high bar for visual quality and their futuristic SIFI world.
I don't think sketch to collaborate on nearly 3000 complex visual effects shots the geographically distributed team.
Ah raised by <unk> team was able to work with executives vendors and the production team for viewing sessions throughout pre and post production.
Putting all of this collaboration online, but it easy to meet deadlines and deliver a world class production.
Last quarter, we announced and launched a significant pricing and packaging change within our unity Pro community Enterprise and unity industrial collection offerings, we raised the price between 13% and 25% across these offerings. The first significant price change in three years more importantly, we align these offerings to better fit the needs of sub segments and creators.
This means adding functionality like Mars, our XR authoring environment and havoc high performance physics engine, often used in the creation of advanced gains as well as optimizing support and customer success for unity <unk> Unity industrial collection and unity enterprise offerings.
Generally enterprise customers also received read only source code to enable more rapid debugging and optimization and an extra year of long term support for enhanced stability of highly demanded by these customers.
These are foundational changes that will continue to build to improve our take rate significantly by adding value our customers are happy to pay for.
We also continue our shift towards the cloud, enabling ratable revenue. This quarter, we released a private alpha of our cloud based digital twin solution.
This platform is designed to enable the end to end creation and use of real time interactive and <unk> digital twins with capabilities across any industry all powered by cloud services platform.
<unk> platform is in private preview internally and with select customers in information technology energy and construction.
We will have more details on this platform because we move beyond our alpha stage.
Across artistry digital twins games, we're encouraged and the momentum we see customer demand in the large market opportunity about short medium and long term would create.
Moving on to operate again I want to welcome team Iron horse to the entity from here emerging iron sourcing unity and our combined teams will come together under <unk> leadership.
We will refer to this larger combined businesses as Gro solutions and granted hurricane will form a key part of the new team as one of the founders and teams at Iron source.
With that I will now speak to unity operate in Q3.
Operate delivered sequential progress in the third quarter with 8% quarter on quarter growth.
This quarter, we increased competitiveness in our core product and as a result, we are growing our share of wallet with several of our largest customers.
With increased trust comes increased spend on our platform.
We continue to improve our models and have a healthy pipeline of ongoing initiatives. We also saw an increase in new publishers partnering to integrate advertising placements with unity.
Looking at 2022 as a whole there is no doubt that the AD side of unity operate has experienced a challenging year for June 2019, and 2021 team navigated essentially flawlessly through complexities that have tripped up many others and they grew revenues at a 55% CAGR, we undoubtedly benefited from Covid stay at home mandates.
But in 2022, we experienced operational challenges we are well described in prior calls these.
These problems have been addressed or now in our rearview mirror, our teams have rallied and executed well to begin the process of regaining market share and position.
Moving onto unity game services or <unk>.
We are pleased with the uptake for UGI since going general availability of this summer.
<unk> unified in a single suite more than a dozen analytics tools cloud orchestration and embedded voice in multiplayer functionality.
<unk> is an example of how we address acute needs reduce complexity for our customers we.
Repricing surfaces on a consumption basis, so should be those only play for what they use and we scale as basic feed.
<unk> also unlocks added synergy on our model.
Operate and uds working together solve more of our customers key challenges a great example of how developers second dinner use our editor to build Marvel snap our editors seamlessly connects to our <unk> services, which made a simple decision for second.
For second dinner to self provision, our cloud content delivery and cloud build modules that are part of UGI.
The result was a blockbuster game is brilliant design combined with exceptional user experience delivered by UBS.
This is our mission every creator.
In September we introduced multiply and matchmaker self serve the mobile game market is evolving and will evolve to player versus player much in the way that the market for console games and <unk> games have evolved.
Multi player games have proven to realize much greater player engagement players enjoy them more and with more engagement and more opportunity for revenue and.
But until now building multiplayer functionality for mobile games. It was just too complex.
And the launch of these two self serve products, we solve this difficult networking challenge and made the technology easy to provision and manage at scale for developers and studios of all sizes with that I'll step back and look at the games AD market overall.
Current softness in the AD market weighs on my mind.
I want to address this with you to put future performance and plans in the context.
One key question, but it has happened in the games adds market overall in recent years in light of Apple's changes in privacy programs, which began in Q2 2021.
While we did see some change in spend between iOS and Android the overall bad market had an incredible year of 2021, partly fueled by higher player engagement due to players being at home during Covid.
Looking at 2020 to Q1 2022 with strong for in games that sector with year on year growth in the teens.
We estimate overall endgame as growth was up approximately 10% year on year in Q2 and slowed to low single digits. In Q3. We currently expect the sector will be flat year on year in Q4.
In terms of player engagement as the first half of 2022 unfolded, we began to see some softness in overall player engagement versus the elevated coverage levels of 2020 in 2021.
But it's important to note that engagement was up cumulatively, a full three years worth versus pre COVID-19.
And when we look at daily active users or.
Actually seeing an increase in Q3 this year versus Q3 of last year.
Despite market conditions users continue downloading and playing games proving the sticking power Best Entertainment segment. This speaks to the long term resilience of the game business.
What is new starting in late Q3 is that Cpm's have declined on both mobile operating systems. The timing here is clear.
Declines take places world's banks increased interest rates and the specter of recession was everywhere in the press not earlier when privacy changes took place.
When we talk with our advertisers since we get is clearly one of caution and reticence to commit the aggressive campaigns pads that would crowd out competition at the bank and elevate Cps.
In this context, we remain confident the market for ads is experiencing recession sentiment and while we don't know when it will end strong consumer engagement will ultimately bring back growth in this <unk> dynamic ads market.
With iron source, we've become the leading end to end platform in the market supporting the developer throughout the entire development cycle from opening of projects and unity editor all the way through making a successful business and supported by our data science as such we are positioned to lead the market and be the main beneficiaries of <unk>.
Recovery.
When market conditions are challenging we have a unique opportunity to gain market share and invest in positioning ourselves to grow rapidly once macro conditions improve.
Our end to end platform will be a critical enabler in helping creators thrive even in a challenging market by enabling more grim creators to build successful businesses ultimately will be growing the market overall.
Level play becomes unities mediation offering.
<unk> unparalleled reach to creators helped tap into a combined global network of players of more than 3 billion monthly active users.
You don't need level play plug in integration to the entity editor and deliver superior performance for the entity ads and iron source has networks supersonic like critical publishing capabilities through our offering helping even more developers successfully launched and scaled our games.
We believe the new unit grow platform can and will materially outperformed the industry gaining share through our ability to drive success for our customers.
Before turning the call over to Luis I want to reinforce a few points that we've made before.
First he is well positioned to capture what we believe is a.
Very large opportunity as the world moves from linear <unk> to real time three D. We have a strong position in games and are making strong progress across industries.
Second we believe that unit with Iron source provides a unique end to end platform that sells more of our customers' toughest challenges.
Enabling us to accelerate our revenue growth, making unit cash flow positive and new capabilities and amazing leaders.
We believe the new unit growth platform can and will materially outperformed the industry gaining share due to our ability to drive success for our customers.
Third.
Advertising is an integral part of the games business model gamers are highly engaged and only a small minority pay directly for the games they play.
Advertising and in App purchases are the ways creators monetize our gains and most players welcome at as a way to discover new games to play.
And while we are in an advertiser sentiment recession, we believe that as market will remain resilient, even with last year's changes to privacy.
We expect unity to sustainably grow at a 30% growth rate as we have said in the past this will not be the case every single year, but as the compounded growth rate that we expect to deliver.
We will guide 2023 on our year end earnings call. When we have a better view on the economy and in particular the in game AD spend trends at that point, we have a much better handle on advertiser sentiment.
We have clear plans for creative continue to deliver strong growth and for growth to outpace any AD market we experience.
Finally, a word about profitability and cash flow.
Luis will drive into this in more detail, but in the fourth quarter, we will be positive.
It's always been important to us it's even more important in challenging times. This strong financial position is further testament to our ability to capitalize on the opportunity ahead of us with that let me turn the call over to Luis.
Thank you John .
Quarter came in line with guidance for revenue and non-GAAP operating income credit continues to perform strongly and our operating challenges from the beginning of the year are behind us.
In the third quarter of 2022, we delivered revenue of $323 million up 13% year over year and in the middle of our guidance range.
Create continued to execute well with revenue of $129 million or 54% from a year ago.
Despite the challenging economic environment operate the libre $172 million in revenue up 8% quarter on quarter and 7% below year ago.
Strategic partnerships and other delivered $23 million in revenue up 28% from a year earlier.
At the end of the third quarter, we had 1075 customers with trailing 12 months revenue of about $100000. These.
This compares to 973 customers at the end of the third quarter of 2021.
The lower rate of growth in our customer count at about $100000 driven by operate.
Our 12 month trailing net dollar expansion rate came in at 111% down from a 142% last year the drop in our net dollar expansion rate is driven by our operating business.
Our third quarter net non-GAAP gross margin was 74% down from 81% a year ago.
The year on year gross margin decline is mainly due to the lower mix from monetization, which has a higher gross margin than the average as well as the impact of winter as engineers supporting that business are charged to cost of goods sold.
non-GAAP operating expenses increased 16% versus last year's third quarter, and 4% sequentially as our cost containment efforts continue to take hold.
We expect to significantly over deliver against our $100 million cost savings plan discussed at the end of the second quarter.
We closed the quarter with 6244 employees as compared to 6246 employees at the end of the second quarter.
non-GAAP operating income for the third quarter was negative $37 million or negative 12% of revenue.
This compares to guidance of negative $35 million $50 million.
Cash flow from operations was negative $70 million, which includes an $18 million payment to a publisher that had not collect their payout for several years and a $10 million and a cash payment that is excluded from non-GAAP operating income.
Unity had 301 million basic shares outstanding and a $4 3 million fully diluted shares at the end of the third quarter.
The difference in fully diluted shares compared to our Q2 guidance of $375 million is entirely driven too.
Due to the lower share price, which impacts the conversion of the comparable notes.
Moving on to the fourth quarter. Our guide includes iron source financial results as of Monday of this week and our best estimate of the impact of economic environment.
For the fourth quarter, we expect revenue between 425 million to $445 million, an increase of 35% to 41% year on year.
We expect full year revenue between 1365, and 1380 $5 million, an increase of 23% to 25% year on year.
Let me break down the details first this is down approximately $60 million from the time adjusted prior guide for the combined companies.
Within this we expect <unk> to continue to perform strongly with regards to ads, we have taken a conservative view this quarter and given that we have not yet seen the seasonal rise in CPM that typically happens during the holidays, we have reasons to be optimistic given our recent gains in aviation in the expectation.
These kind of resulting in share gains.
For the fourth quarter, we are guiding non-GAAP operating income between five and $15 million.
Implied full year non-GAAP operating income is between negative, 88% and $98 million.
For perspective, we expect uniti to breakeven and be cash flow positive at the end of this year, we will build from that base in 2023.
With the Iron source merger, we issued approximately 113 million shares. In addition, we issued $1 billion of convertible notes with a 2% interest rate and a $48 89 since conversion price.
We expect to have 416 million basic shares outstanding and 562 million fully diluted shares at the end of Q4, which includes 46 million shares to convert the convertible note and 29 million shares to converted type investment.
We will provide full year guidance for 2023 with Q4 earnings.
Our guidance, we factor in a very large opportunity in front of us the synergies from the <unk> merger and the near term impact of the potential economic recession, we remain committed to our 1 billion EBITDA run rate goal by the end of 2024 and to deliver significant EBITDA and free cash flow progress in 2023.
Near term, we are cautious given the potential for recession.
We expect to expand market share in 2023 as long as the ads market sentiment remains one of recession, we expect to guide revenue growth lower and our sustainable growth targets.
To close.
We believe that the real time through the opportunity is very large and we're very well positioned to capture it given our strong capabilities and create and operate.
In create we enjoy a leading and growing market share position in gains.
We have best in class are these tools with weta.
<unk> and strong customer pool with over 750 leads generated at <unk>.
We're making strong progress to scale, our detailed twin business with the launch of platforms that <unk> services, such as presence in Ah patients three D data identity data workflows and livestream data.
And we're evolving our business models to be cloud based and ratable and we're very optimistic on the <unk> business.
We then grow apps remains a critical part of the game industry.
The iron source merger strengthens our position within.
With the best mediation platform out there unit level play.
A leading game publisher supersonic three avnet worse with unity adds <unk> <unk> joy and the leading device management partner with aura.
We're optimistic about this business and our ability to build market share.
That tempered by the market expectations.
With that let me turn the call over to Richard who will coordinate the Q&A.
Okay.
Great.
Well, thanks, very much everyone you all kind of know that the <unk>.
Plan and raise your virtual hands and we will answer questions for the next 2025 minutes.
[laughter].
I guess, a questions or answers or so good and there is a hand raised by Tim Nolan.
Tim Okay, Yes, Hey, Tim Thanks, Bob Thanks.
Hi, guys.
While a lot of information to digest could you maybe I may have completely missed this but could.
Could you give us some indication of iron source results for the quarter at least was made with the revenue growth was.
And then could you speak a bit more about the mediation platform in the market share gains and kind of multipart.
Question here given the issues that you had earlier in the year and you see that problems are behind you.
Were you, indicating that you are already regaining market share from that or are you, saying you can gain market share now with the mediation platform that iron source brings in.
Look I will take a little bit of that and ask Luis add to it.
So first off we didn't provide independent and separate iron towards results Luis may want to speak to the why an explanation on that.
Secondly.
And what we would say is from this point where combined.
And on the network side.
Really really strong growth in the create side I think we just reported 54% growth in the third quarter.
Things have been going well all year for us with strong gains across our portfolio in gaming and digital twins and the recent launch of the digital twin platform adds ratable revenue.
In terms of the AD network side.
We expect our expectation because now we do mix these things and work them together, but our expectation in Q4.
As to be slightly up and combined network year over year.
Flat market, so it implies a little bit of market share gains and seeing in the market.
Those.
A very large number of customers are excited by the combination of unity and iron source and adopt coming our way.
Yes.
Yes.
So it was good yes, Tim just we closed the transaction last <unk>.
Monday, So we're not reporting Q3 together US companies, we will we guided together for Q4, and we will report Q4 as a combined company.
Okay. So no iron source Standalone Q3 revenue number to share that is correct, okay and I know you've only owned it for two days or three days or whatever it is now.
Any.
Anything you can tell us now that you've actually got to cover off the afternoon. After a new merger now yeah I'll tell you I'm Super excited Super Super excited I think that getting the two companies together is going to be super helpful for us on and I'm very optimistic on the value, we can create for our customers and our shareholders.
And just to build on that I'm Super excited as well the management teams have come together Super well positive energy synergy really at the executive level and all the way through the organization. The second thing is just <unk>.
A reminder, how complementary the offering us.
So our biggest gap was mediation, we now have a leading and I think best in class mediation solution.
<unk>.
Secondly, their skill set and offering and products like op supersonic on the publishing side, which relates to AD revenue growth, but also as an independent business onto itself that is profitable and then on top of that businesses that we don't spend a lot of time talking about like <unk>, which has had a strong position good growth and then Luna.
I'll, probably have a little bit of anxiety around apple entering that space well Luna is one of the very few partners there and it's an opportunity for.
<unk> also are threatened more of an opportunity to grow for us.
Thanks, a lot.
Great.
Jason.
I just had a question for Luis.
Before everything slowed down in the mobile ad market.
Just look at the consensus numbers for where the street was on iron source for unity and add in the synergies the street wasn't at $1 billion of EBITDA by 2024.
And yet if I heard you correctly, you are sort of standing by.
That that sort of outlook for the year. After next 2024 is that is that accurate, yes, and just to be Super clear, Jason The one <unk> is our <unk>.
Run rate at the end of 2024, it's not a forecast for the whole year.
At the end of the year will be at that rate.
Okay, and we continue to believe that that's the right place to be for us.
We believe there is a significant revenue opportunity between the two companies as we've talked back in July and there was a significant cost opportunity and we'll be driving them and we've created a lot of value we believe.
So yes, we're standing by the $1 billion by the end of 2024.
So a really important just to keep them in mind really rapid growth on create for our confidence in our business there.
We are seeing across pro R and digital.
Digital twins in the gaming sector makes us feel really good.
I'd mentioned in the prepared comments are everywhere strategy, what we're getting with customers in a remote hybrid model is very strong as well and then drivers on.
On the network or the AD side are also really strong we've got.
Think we can gain share in virtually any market and.
We feel good about that combination the gap on our network locker mediation is a big part of it. The data combination is a new combination that yields upside for us and our customers. So we feel quite good about the combination and don't see any reason to.
Sort of walk away now of course, we will be giving guidance.
Early part of the year, we'll have a much better fix on the economy at that point and we'll be ready to talk.
Okay Super helpful. Thank you.
Hey, Clarke Landon.
Hey, guys can you hear me.
Alright wonderful.
So I E.
No.
So we listen we lost Clark.
And then we go.
Great pop back and he'll play.
We didn't quite get enough of the question I think to answer that one.
<unk> <unk> and.
If I back now we're back.
Okay, sorry about that so John earlier in the call you were talking about.
The value for developers.
And a tougher operating environment with an end to end platform and I'm curious if you could give us a sense for.
Although it's only been three days now.
Yeah on the undertaking with integrating all of the pieces together and bringing.
Our solution for building prelaunch optimization and monetization together or is that something that.
It was really sort of herculean in sort of bringing everything together or is this more.
The thing about the opposite end of the spectrum basically just a re skinning, where you're bringing together everything in the dashboard that can come to market pretty soon second question I have is on the pricing adjustment that was made this quarter I know that sort of just started to take effect, but is it is it possible that you could give us a sense for how much that's contributing.
To create in the quarter and bigger picture you guys talked about the way that there are new features being bundled in.
To help I guess sort of provide some value alongside that uptick in price should we expect that going forward.
This hikes could become maybe a more ordinary course of business. Thanks, a lot Lewis and I will take that 17 part question.
Do our best to remember as we go along.
So first off the combined synergies if you will from grow to create.
Hum.
There is multiple layers divest, but think sooner than later.
Is it long out there it's in front of US we've been talking about a long time was the key part of what we investigated when we looked into the merger with iron source.
It is an area, where the coincidence of opinion Reacquaint. Our create came in <unk> <unk> is exceptionally high and theres effort on that front.
The second thing is I gave you. An example today of what we're doing just that.
The new marble top of the charts game, but is that in fact doing just that across the unity portfolio not.
Not yet the iron horse of our portfolio with a well I'd also mentioned something as simple as a plug at so we can do things like a plug in for.
Our level five mediation and of the auditor.
When a customer is up and coming and they're trying to figure out what tools, whereas she has.
It may not be obvious to everybody in the investment community, but a creator makes a game and then suddenly they're faced with what feels like a grocery aisle full of potential SDK, what do they want to integrate.
One of the massive advantages and why we're doing well with EOG acid multiplayer and why will.
This will help US do better for example, leading with mediation is a lot of the time. These choices are made prelaunch there isn't a commercial application of testing things.
And they test on unity more often than not.
When they are building on unity and of course most of this takes place in mobile and as we've indicated multiple times, we have north of a 70 share.
So what we're talking a lot about synergy.
Sure.
I think it's easy to imagine that we did this to makeup.
To the merger to make up for a gap in mediation.
There is so much more to us when we talk to our board literally all we talk about is the synergy across the ecosystem and exactly how we're going to realize that we have our board meeting in December we'll be hitting on that point again, we'll be sharing a lot more with you on the next call.
Now on that side of the business.
Louis you want to pick up some piece and I'll come back on the pricing question.
We think that this is the right move and we will we have not seen any financial impact in Q3 as you may remember, we announced in pricing at the end of Q2, our new will take a little bit of time on <unk> would ramp and we get new contracts into the new pricing. So you should expect really an impact in 2023 not in 2022 now.
Now on this we had explained how for game developers digital twin customers and others.
Enterprise customers.
We've refined our offering to better meet their needs essentially what that really means is more enterprise scale solutions for them and more cloud solutions for them, including the digital twin platform.
Now.
Our customers like our SaaS model.
There was literally no resistance to the price increases make up the value was there.
But the the more from here the pattern from here is to save our customers money by.
Connecting to them solutions that take out more costly approaches they have on their own either through other third parties or.
Developed on their own the.
The digital twin platform for example supports a number of things from hosting true.
Set of data manipulation and calculation work.
Build processes et cetera. These are all really expensive things unbundled and we can bring them together generate railroad ratable revenue per unit in the process of saving our customers.
Big headaches and big money.
Yeah Clarke unless you alluded to we're going to be innovating for each of our customer groups differently. So that they get more value and therefore, we can charge a fair price so that they gain and we gain as well so thats kind of what we're trying to do as John mentioned in his prepared remarks.
Thanks, a lot.
Great.
Anyone else next question up Brent.
Okay.
Thank you Paul.
<unk> for a little background noise in airports year, but wanted to talk a little bit about the great business I get the games that market's got a lot of controversy.
A lot of moving parts will continue to be probably controversial well into next year, but that create business crossed over a half a billion dollars for the first time this quarter on a run rate basis triple digit growth in the <unk>.
Anywhere create segment and then obviously it looks like over 30% organic growth.
The durability of this.
Great.
Just kind of heading into a recession, but what's the pipeline opportunity looks like talk a little bit about the create potential.
Particularly going into a recession, where it looks like things are really strong.
But how durable is that strength. Thanks, So I'll take the start of that and then Luis may want to add but look we have strong conviction that this is a multibillion dollar opportunity and it's probably not just a single digit billion dollar opportunity second point is while gaming is the majority of the business now there are multiple sectors out there that look like.
Have the opportunity.
Paul or possibly greater than gaming, so while we are gaming heart and soul.
<unk> the application outside of gaming one of the reasons, we invested in pro articles. One reason, we invested in anywhere but to capitalize on that the third thing is as much as I love, a SaaS model I love, even more ratable model.
And we're solving some really important problems for our customers both in gaming and digital twins and across the spectrum of customer types.
My belief frankly is in the fullness of time, two or three years out that ratable revenue, which will probably exceed our SaaS revenues now this requires execution.
We've got a great team on it.
Mark Witten, who you've met on prior calls and Youll see youll see them again on future calls and can wax lyrical about all the things, we're doing and doing well on how we're gaining.
But theres a lot of execution, but here's the point I don't think anyone Tonight.
You can laugh a little bit about the definition of the meta versus I do often.
And some of the things people say.
I don't know if I could roll my eyes fully Marty Feldman type, but when they're on the back of my skull, sometimes when I listen to what sad, let's make it really simple the next <unk>.
Era of the Internet is real time, it's three D. It's very likely to kind of be persistent interactive and social do that you need to build out on our game engine or something like <unk>, we have the leading position there.
Gaining across the board, we are thrilled by the opportunity and we loved the synergy back to gaming what we gain when we work on technologies that support the auto industry with multibillion Poly models, that's really helpful for the game industry in future years, when they get the models that are that big and I can go on and on about how these things work for whether it's.
Ray tracing or large scale cloud compute this will help across the board one solution adapted modestly will work in both gaming and non gaming and non gaming situations. So I think it's really durable I think it is really big I love the momentum in the business.
And I'm conscious of the fact that it's just a lot of execution and we've been executing well.
The hope is in the plan is to continue to do that.
Yes helpful color on any of these was not clear in my prepared remarks about I also think that the investment in our platform and digital twin cities and massive investment and basically what it allows us to do is to build scale not consider requires less and less people to be able to build a digital twin business, which I think is going to enable us to grow a lot more faster in the future.
Sure.
Helpful. Helpful. One quick follow up Luis for you.
Any sense around combined cash and investment level, you have now posted by both the nodes.
And maybe your appetite to.
I want to do the buyback here how aggressive is our governors. There are limitations just trying to understand the scope of your cash and investment position and then the appetite to buy back yes.
Yes, I mean, as we've talked before the board has approved a $2 $5 billion share buyback program and we'll be executing.
When we think it's appropriate right so, but we have all the authorizations to do that grant.
Okay. Thank you.
Great.
Thanks very much.
Dylan Becker are you on.
There we go.
Yes.
Cool.
Maybe starting with John you made a comment around the.
The elevated still engagements.
And download trends youre, seeing or Youre seeing and hearing I guess, maybe how you think about this speaking to the importance of the monetization piece within the mobile ecosystem.
And maybe you guys as long term confidence in that return on AD spend once that broader sentiment shifts.
Sure. So first off I think it's probably worthwhile to dispel a couple of messages that are out there.
One of them is that mobile gaming is down.
Engagement is up and have been paying attention and I believe all five of the top.
Five largest.
Mobile game publishers reported on average 4% growth in the third quarter revenue growth against their in App purchase business and of course, the AD business most waivers for outperforming that.
So I don't know if there is something about the dog ate my lunch in a world where the recessions on the front page of the newspaper every day and you hear a lot about that but I think the underlying facts support. This thesis that it is a pretty clear one yes, we are indexing over.
A period of elevated consumption with Covid that lasted a couple of years. There is no question that we are holding up better than I would've thought against it.
An incredibly challenging comp and if you look at any sort of three year timeframe.
I think it's really really evident that we've gotten more than three years of growth in that timeframe. So gaming is a very healthy business I asked about rollout.
There is.
On a relative basis it appears that it is.
Our suffering a little bit more than ads on a relative basis.
And our purchase is a major part of the ROE as model in terms of.
In terms of what actually makes the numbers work the way you want them to one user acquisition.
And.
Advertisers are generally more cautious than they have been focused more on.
Near term returns and long term returns.
A year ago, it was very easy for a publisher or creator to say to themselves.
Yes, I've got a nine month or 12 month payback and it's the second half of the year, but im going to investment spend for the long term because the market's rewarding now.
The market doesn't seem to be rewarded and not quite the same way. They did when the next year as the return of issuers the spend and so the aggregate commitments have come down on ROE as commitments.
Versus where they were and Thats reflected itself as we mentioned the comments on ECP apps, I mean, basically ECP EMS are driven by competition for.
An opportunity to say its a pretty straight.
Pressure driven math.
So we've got this near term challenge and I don't know how long its going to last.
<unk> centre met.
Spooked and Spencer coming under pressure, we expect the fourth quarter to be flat.
We haven't assumed in our own forecast ECP and recovery.
ECM is rising and Thanksgiving timeframe to Christmas.
It's almost as consistent as the Sun comes up in the morning.
But there's a number of reasons why we're cautious right now given the sentiment of what we're hearing from customers. So on balance if you look at the unity portfolio against this we've got more data we have strengthened mediation, we think we're picking up a bit of share.
We think that there is a temporary lull I don't know how long that last Q.
Q4, and mounted in Q1, I wouldn't bet on that.
But sometime in 2023, we expect some level of recovery right now one of the things I think that Luis and I are trying to do that I think is very smart is model arc expenses on no recovery. So when we do see a recovery.
We should see even better revenue and exceptional bottom line performance.
Got it that's Super helpful. And then maybe one more if I could.
As you talked about how some of the ongoing complexity across the customer base here, obviously dealing with with macro data live services.
How are these companies thinking about positioning unity of that business enabler to address those challenges and headwinds.
How should we think about the puts and takes there from a macro perspective.
Their view as well as the increased reliance and maybe what some of that self service capability and functionality you guys have called out can.
Can mean for incremental cross selling adoption. Thanks.
Hello, how are you thinking more about non game customers our game customers with your question.
Within both ready to ease of platform adoption may.
More so from the self service channel, Okay. So I mean, the big shift.
On the gaming side.
Is getting to self serve on matchmaking and setting up multiplayer gaming.
That is a really hard thing to do for a developer.
I can remember when games went.
On the PC and console side, the multiplayer and single player campaigns or deemphasize.
A lot of companies in the games industry back then it was the sort of the late nineties.
We're not a business that was just too complex and if they couldn't pull it off.
They had their lunch aided by their competition because what was happening.
We were saying 200, 300, 400% increase engagement against games that had ongoing content and multiplayer pvp experiences.
That is not lost on mobile players today, so the people competing in the mobile marketplace largely.
Single player games are synchronous single player games, where you kind of play against the score produced kind of the player.
It gets better engagement that is straight up single player game, but it's not as much engagement as a multiplayer game.
And consider engagement is.
As essentially a proxy for revenue and so more engagement more revenue.
So we've really hit something big I think with <unk> by making the service. These products self serve as recently as six months ago, even with a lot of our support it was a multi month process. It just wasn't something most people could get to now it's not quite push a button, but it is a simple process and I think.
Anybody that is trying to serve their customer well give the customer the experience they want and reap the benefits of delivering what that customer wants in terms of their own business is going to move onto this platform I expect multiplayer gaming it would be a bigger story often years to come and I remember it takes six to nine to 12 months.
To get to shifting our emphasis from single player to multi player, but it's now starting to happen.
Outside of gaming I interact with a lot of customers face to face and auto companies and fashion companies.
And architecture engineering construction et cetera.
And what was what was really sort of the truth.
Three four and five years ago.
It was experimental there were setting something up because.
They were curious.
They felt like it might be the future, but in a fair amount of time, what you would see.
They start on one project with pivot two or three different ways as experimental projects two in larger organizations.
Increasingly we are seeing.
Our focus on the same things that are getting repeated over and over again or areas, where customers are aggregating with really strong desire almost a fomo sense that if they don't get there we're going to get paid by their customers. So within the fashion industry and high end fasteners for example, plus digital trials.
With the <unk>.
Cities and airports, it's a straight up digital twin manufacturing large buildings.
With architecture with visualization.
And so these are big compute projects, which is one of the reasons, we like our digital twin platform.
We built the platform because it falls a real need it does for these users what multi player.
Self serve does for the game developers gives them what they need and what they want without an alphabet soup in a lot of confusion. It is plug it in it works now.
We're in the process of close testing that with a handful of customers, but I believe that they'll actually be the lion's share of our revenue in years to come because frankly, there is a lot more business.
<unk>.
Compute and transport of data uniquely married to the unity tools for rendering and animation and lighting than there is in the tools adjust pay by the <unk> to make it. So we're excited about that part of our business. So.
Obviously gaming is at a different stage than the digital twin marketplace, but the digital freight marketplace is moving pretty quick and Theres literally.
Our name brand company and our board boardroom.
I sit on and literally every day I come into the office and up tripping across.
The kinds of people that you would think of us owning some of the world's most important brands and companies.
Steven jewelry around.
There you go.
Oh here, we go sorry Boris.
Alright.
So for the almost the entirety of this call.
We've been talking about the ads from the game sector, but there is a wider group of advertisers community can be talking to so.
Is there a way to characterize what percentage of your AD dollars is coming from say the non gaming companies.
You may need to do to onboard say, the large CPG or other performance oriented advertisers to be called large customers on your platform. Thanks.
Yeah.
Stephen that's a really great question and it's still a small minority of our business is non performance based advertising Youre speaking to brand advertising and one of the major priorities for us as we look forward to the combined resources of two companies is to get behind in a more fulsome way.
For brand advertising in the context of gaming.
<unk>.
We typically track just within unity, well north of $3 billion of I use a month. There is no larger audience that can be realized through paid media and.
And we know these are very engaged consumers so.
We talk about brand advertising, they're definitely in there they are coming in through various DSP.
But I think for this sector, we need to do more work on.
<unk>.
The types of AD units that I think will attract that audience and because it's been so strong.
On performance ads for game companies.
And are they win the CPM contest they won the bid because they install is so valuable.
And it's not that people haven't tried but I think that's true across the board in gaming is it been game centric, but I see a lot of opportunity outside of that we're working on innovation on that front, but think of it as single digits.
Thank you.
Great.
Matt cost are you are you on.
Yeah.
It doesn't seem logical.
Let me go back.
<unk> is off okay any other follow up questions.
Gal Vega Gamma Linda Heiko.
Can you hear me, yes got you. Thanks.
Just wanted to follow up on the digital twin.
What is the timeline in coming out of the alpha to beta test potentially I'd like figuring out what the different industries looks like which industries to be first when you.
For real due to Jay and then maybe just from a monetization perspective, how are you thinking about digital twin and the ability to.
To monetize that in light of all the business models you have today.
So on the last call. We had we don't we don't update those statistics every quarter, we'd have like 40 reporting segments, but.
If we get now and then we will continue to update we pointed out that the digital twin side of our business across professional services and license revenue was 40% or so its obviously been growing really rapidly to get to that number at the time of the IPO.
Not that long ago, a little over a year almost two years ago.
We had 50% within five years, where.
We're moving ahead of that schedule.
And so the second point.
There is a process of the digital twin platform of first bringing it sort of private beta and then broader availability before there's general availability.
And so that will take place all of that will take place in 2023, probably I guess roughly the first half of next year.
Before that's fully complete.
I'll I'll update that on the next call. So everyone has it and then lastly can.
Tell you that it's a <unk>.
General purpose platform.
That's basically for doing compute and moving data.
The hard things that comment up and allowing people to interact with one another so it's not necessarily captive it to a specific industry, but I would give you back the same industry sector. As I said, we're seeing current traction and are likely to be the first user.
No.
Visualization stimulation around cities and such.
Fashion.
This is something that I think is going to need to do this because they're going to have to do.
Up some really complex really compositing to make those images work.
And architecture engineering and construction.
Manufacturing lines, that's where the supplies and those are the same verticals that we're seeing show up in our pipeline now.
Gotcha.
Great.
You had another question Gail.
I had another one if that's okay. Just on the core operates John you mentioned, you're back to yourselves to kind of go out there and win share again.
Yes.
How much of that is because of the tie out now with iron source I'm just thinking.
Machine is very very powerful versus how much is it just thinking about the core let's call. It your heritage operated business on its own even if you didn't have or in sort of going out there today and grabbing some of that share back.
Yeah.
Look I'm not sure I quite caught all that questions little garbled on my end, but.
Iron sources, a definite strengthening of our portfolio and it adds a great deal to us with a wonderful team led by Tomer.
Blending that with a great team from Ingrid puts us in a much better spot. So iron sources additive to us at literally every level not just on what you thought of as operator, just what you thought of.
Which we now call grow.
So has tools that can integrate deeply into the editor that can help us realize that vision, we've talked about from the first time, we announced the deal with iron stores, which is helping people build more performance games and applications. So.
It'll be it'll help them make a better product and if it helps them make a better product than the rest of our services will get much substantially increased uptake people.
People don't advertise products that people don't have that don't have high engagement as an example.
But they also don't rent multiplayer servers for products that will have higher engagement because they're not on a few number of user base there.
So there is a.
Obviously with self <unk>.
Interest in helping our customers be successful because when they are there use our services more.
And one question it will be even more difficult to answer going forward, because we plan on integrating the two businesses right and Thats, where we see a lot of value. So it's.
Just I guess that was my question right how much does the tie out kind of ability.
Ability to go into winter.
On a new we see a lot of value on getting together as we said so yes, a good point I'll give you. One example.
The data from level Playa supports both networks now.
The data from both network supports level play out.
And we're consolidating those teams.
It would it would be I know it sounds like I know people would love to see independent reporting, but it almost farcical to do that given the degree of integration and the benefit we see from the data integration is just one singular example.
What drove the number.
100, <unk>, we want to win in this market and that's when we tend to do.
Thank you thank.
Thank you Bill.
Well. Thank you all very much we really appreciate it.
We look forward to seeing you at either various conferences or over the coming in coming months and years, but we appreciate your interest and support thanks a lot. Thank you.
Thanks, Paul.