Unity Software Inc.

Well, thank you, everyone, and welcome to this call to discuss our third quarter earnings results and the acquisition of certain assets of Weta Digital. So with me today are John Riccatello, President and Chief Executive Officer and Executive Chairman, Luis Visoso, Senior Vice President and Chief Financial Officer, and a new participant to our calls, Mark Witten, Senior Vice President of Create Solutions. So as you've seen from the press releases, we have a lot of good news today. And we will go through our updates and then straight into Q&A after that. But before we start, I'll run through our safe harbor statement. So I'd like to remind participants that during this conference call, we will be making 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. Now, you can find more information about these risks and uncertainties in the risk factors section in our filings at sec.gov. And we remind everyone that our actual results may differ, and we undertake no obligation to revise or update any forward-looking statements. And we will also be discussing non-GAAP financial measures today, reconciliations between our GAAP and non-GAAP financial results, and a discussion of the limitations of our non-GAAP financial measures can be found in our earnings press release, which was issued earlier today, and is available on our website under the Investor Relations tab. Now, with that, let me turn the call over to John.

So thanks, Richard, and thank you all for joining us. We are really happy with our third quarter results, and we have great news to share. We reported another strong quarter with results well above our expectations. We delivered 43% revenue growth as revenue hit a record $286 million in the quarter. We continue to invest to drive future growth, resulting in a non-GAAP operating margin of a negative 4%, flat to the same quarter last year. Since we went public in September last year, our revenue growth has averaged 45%. We're encouraged by the execution loss across all of our business lines and geographies. And as you'll hear later from Louise, we are raising our revenue guidance again this quarter. We have even more exciting news. We've entered into a definitive agreement to acquire Weta Digital. Specifically, its award-winning engineering talent, artist pipeline, tools, and technologies. Weta Digital will become part of Unity Create Solutions, led by Mark Witten, and will focus on bringing dozens of artist tools inside of Weta to a much broader world of VFX artists across many companies, to the gaming industry, and to users across many industries. The Academy Award-winning VFX teams of Weta Digital will continue as a standalone entity called Weta FX and is expected to become Unity's largest customer in the media and entertainment space. We are thrilled to democratize Weta's industry-leading tools and bring the genius of Peter Jackson and Weta's amazing engineering talent to life for artists everywhere. By combining the power of Unity and Weta Digital, the tools and technologies that built characters and scenes from the world's most iconic films, such as Avatar, Lord of the Rings, and Wonder Woman, we will be able to enable an entirely new generation of creators to build, transform, and distribute stunning real-time 3D content. Now, until now, Weta's tools were used exclusively in-house at Weta VFX. We plan to take these tools to artists and creators across the film industry, the gaming industry, from indies to AAA games and to other industries such as automotive, architecture, and e-commerce. We plan to offer a cloud-based version of Weta for the millions of consumers who generate content every day on social and gaming platforms and on the web, or to use the current vernacular, the metaverse. In addition, what has built thousands of digital assets, such as fully formed characters, skins, trees, houses, automobiles, fire trucks, many things. We plan to offer these objects as a content library where creators can import these digital assets into our editor and apply physics, volumetric lighting, and sound to them. In summary, we plan to do what we do best, create and develop amazing technology and tools, make them easy to use and available to a wide spectrum of users, from technical experts to consumer hobbyists. And you've heard me say this many times before, we believe the world is a better place with more creators in it. Now Luis and Mark will provide additional details. Here I'll provide a summary highlight picture. We expect the purchase price of $1.625 billion to be immediately accretive, and we will be even more so as we bring these tools to new customers. Our acquisition of Weta is expected to open new markets and accelerate our product movement for artists by years. Based on internal models, we estimate that this transaction expands our total addressable market by over $10 billion, while meaningfully increasing the percentage of the addressable market that Unity can service. I would like to welcome everyone at Weta Digital on behalf of everyone at Unity. I believe you'll feel at home at Unity. I also want to thank the Weta VFX team for the partnership to get this deal done. We at Unity will be honored to have Weta FX, Peter Jackson, Prem Akaraju, Joe Letere, and the entire organization as a key customer. We love your work. I look forward to many years of strong partnership. And with that, let me turn the call over to Luis.

Thank you, John. Definitely an amazing quarter. I will start with our earnings results and then share additional perspective on the Weta acquisition. The unity team delivered another strong quarter in which we exceeded guidance and sweet expectations. Here are some of the key financial highlights for the quarter. Total revenue of $286 million increased by 43% as compared to the third quarter of 2020. Operate delivered another very strong quarter with 54% year over year growth. Create accelerated in the third quarter and delivered 34% year over year growth. We delivered another strong non-GAAP gross margin of 81% up from 79% last year. We generated a non-GAAP operating loss of $12 million compared to $8.4 million the prior year. Free cash flow was $34 million for the quarter, bringing our year-to-date free cash flow to negative $100 million, which includes approximately $50 million in charges from a lease dispute, which we reported last quarter. We continue to expect to break even on a free cash flow basis within fiscal 2023. We're encouraged by the strong continued customer success this quarter. Our dollar-based net expansion rate for the quarter was 142%, and customers generating more than $100,000 annually expanded from $739 a year ago to $973. Here are some of the key highlights for the quarter. Operates performance was very strong across monetization and multiplayer services, which includes hosting, service, voice, and community tools. This quarter, Unity Ads supported partners like Warner Brothers Games, Jam City, and Miniclip, and games such as Crazy Labs Super Stylist and Dream Games Royal Match, where we deliver outstanding results at scale while navigating the challenges from iOS 14. And in multiplayer, we supported the launch of some exciting new games, such as Team17 Worms Rumble and Amazon's Game Studios New World. In addition, we announced some important additions to make our operating platform even more compelling. We launched Unity Game Services, or UGS, this quarter, with some more than 5,000 sign-ups in the first 10 days. This is a new platform experience for developers that unifies Unity's existing operating solutions for games and introduces new tools and services that are designed to simplify developers' ability to launch cross-platform multiplayer games. We also launched Unity Mediation, which includes waterfall and bidding within Unity ads. These mediation offerings are designed to help developers build additional strong revenue streams by easily optimizing demand for their best performing ad formats and network partners within the same editor and interface they build and manage their games experience. create deliver 34% revenue growth for the quarter as we accelerated from the prior quarter. Our games business continues to perform strongly with growth across geographies and customers as we build, as we continue to add seats We won several deals in the industry machinery space. A good example is a deal we closed with a manufacturer of commercial grade farming equipment, where our more immersive and interactive real-time 3D capabilities enabled us to win their product configurator business. And there is much more to come. We're working on several digital twin projects that range from large objects, think cities and buildings, to small objects, think shoes, watches, and other consumer goods. We'll keep you posted as we make progress. And finally, we officially announced that we're going live with Metacast. This is Unity's first real-time 3D sports platform for creating and delivering interactive content directly to the consumer, launched in partnership with the UFC, the leading mixed martial arts organization. Together, Unity and UFC will collaborate on research and development of potential applications for Unity Metacast within UFC. We are encouraged by this partnership and long-term potential. We do not expect meaningful revenue in the short term from this partnership. Now onto guidance. We're entering the fourth quarter with very good momentum. We're guiding revenue of 285 to $290 million, which represents 29 to 32% year-on-year growth. For the full year, we're again raising our guidance this time to 1.08 to 1.085 billion or 40% year-over-year growth. This represents an increase of $25 million on the high side of the range from our previous guide. We expect non-GAAP operating loss from operations of 20 to 25 million for Q4 and 59 to 64 million for the full year. We're forecasting 329 million fully diluted shares. I will turn the call to Mark, waiting to go into the web acquisition in more detail. Mark runs Create Solutions at Unity. As you know, Create Solutions includes the Unity engine and editor, the tools and services we use to deliver digital twins for other industries, and our worldwide sales and professional services. Create is also our home for artist tools, including ArtEngine, Pixis, and SpeedTrees, now foundationally anchored by Weta Digital. Mark joined us nearly a year ago from Amazon, where he oversaw product execution and the delivery of entertainment to over 100 million active users on Fire TV, Fire Tablet, Kindle, Luna, and Amazon App Store. Prior to that, Mark was one of the creators of Xbox and Xbox Live, ultimately serving as the chief product officer for Xbox and leading Xbox Live for many years. Mark, over to you. All right.