Unity Software Inc.

Great. Thank you very much. Welcome, everyone, to this call to discuss our fourth quarter earnings results. With me today is John Riccatello, President, Chief Executive Officer and Executive Chairman. Luis Visoso, Senior Vice President and Chief Financial Officer. And a new participant on our call today is Ingrid Lastillo, Senior Vice President, General Manager of our Operate business. This call will have a similar structure to past calls. John and Luis will provide a business overview. Then we'll answer kind of the three questions that we've received the most from investors and analysts. And then we will open up the call to panelists to open Q&A. And we plan to wrap the call up within an hour. uh now before we start i'll run through our safe harbor statement um as i as you know so we would like to say 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 you can find more information about these risks and uncertainties in the risk factors section of our filings at sec.gov. And we remind everyone that our actual results may differ, and we take no obligation to revise or update any forward-looking statements. Now, we will also be discussing non-GAAP financial measures today and 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. So now with that, let me turn the call over to John.

So thanks, Richard, and good afternoon, everyone. We delivered another really good quarter, October to December, to close out 21 with great momentum. For the quarter, revenue grew 43 percent year over year to $316 million, and our non-GAAP operating margin was minus 3.8 percent, expanding 530 basis points from a year earlier. underpinning our growth our healthy net dollar expansion rate of 140 percent and the addition of 259 customers each generating over a hundred thousand of revenue in the trailing 12 months reaching 1052 customers at that scale at the end of the year up from 793 a year before For the full year, revenue of $1.1 billion grew 44% from a year earlier, and non-GAAP operating margins were minus 4.6%, an improvement of 200 basis points from a year ago. With very healthy gross margins and our largest expense being R&D, ours is inherently a high net margin business. We're committed to continuing to improve operating margins as we continue to gain scale. These results have been and will continue to be driven by excellence and execution by the Unity team. We have built our business on a strong foundation based on very healthy customer metrics and structural economics. We entered 22 with momentum across both create and operate, which gives us confidence in our outlook. For the year, we expect to grow revenue to be between 1.485 billion and 1.505 billion, which represents growth between 34 and 36% from 2021. And we believe Unity is very well positioned in a fast-growing market, which we are expanding even further with internal innovation and strategic acquisitions. As we've said before, we expect to grow revenue above 30% for the long term and expect to expand operating margins sequentially, breaking even on a non-GAAP basis within 2023. With that, let me explain why I'm personally very optimistic about Unity's prospects. First, we participate in a massive market with significant tailwinds. At the time of our IPO, we estimated our total addressable market was $29 billion for create and operate. Our current best estimate is $45 billion. This expansion is driven by growth of markets in which we compete, plus the addition of new markets as we extend our offering to new users and new use cases. We believe that the transitions from 2D to 3D, from non-real time to real time, from non-interactive to interactive, creates a massive growth opportunity for many decades to come. This new world that is emerging is more immersive, more engaging, and opens opportunities for gaming, to e-commerce, automotive, architecture, media and entertainment, and many other sectors. So, point number one, big market, rapidly growing, great tailwinds. Second, Unity is a leader, is the leader in real time 3D, and we're very well positioned to capitalize on these trends. We have a strong and growing market share in all of our sectors and across multiple industries. During 2021, we expanded our market share in the fastest growing segments of the gaming market, mobile, AR, VR. Real-time 3D is growing, and within this large and fast-growing market, Unity is winning. Our non-gaming business is growing even faster as we add customers across multiple industries. We believe there is significant upside as we have embedded structural advantages. With Unity, creators develop once and deploy to many platforms, and unlike other companies, we don't compete with our customers. The Unity platform is designed to help creators through the entire lifecycle of a runtime application, from ideation to launch to monetization, hosting and ongoing analytics to drive growth. So point number two, we think our leadership position is strong and we're growing it and we continue to do that. Third, we're expanding our addressable market with innovation around new products and strategic acquisitions. For north of a decade, we've been innovating and adding capabilities through our own product development and via acquisition to help solve problems our customers share with us. We originally moved from a few platforms to over two dozen in specific response to customer needs. More recently, the addition of Parsec, Weta Digital and the Unity Gaving Services are great examples that address customer pain points and also increase our addressable market. Parsec empowers some of the world's most inspiring and creative companies to freely work and play from anywhere on any device on their own terms. With Weta Digital, Unity creates a pathway for any artist from any industry to create the most powerful tools. Unity Gaming Services unifies existing solutions and introduces new tools and services to simplify launching and operating cross-platform multiplayer games. These initiatives are expected to continue to expand our total addressable and serviceable markets and continue to increase the value of the Unity platform for our customers as we solve more and more of creators' most challenging problems. Now, this takes us to point number four. We believe that we have a unique platform that will endure the test of time. And as I've said earlier, the process of building our platform is at the very center of our strategic process, where we add value to our platform while increasing our total addressable market. We aim to offer significant and increasing value to creators and artists as we reduce their operational complexity and ease their on ramp. Building this platform requires time, focus and commitment. We have devoted tens of thousands of developer hours to deliver speed, scalability, stability and ease of use. We have built trusted relationships with all the major platforms to the point where they share with us their product roadmaps. These partnerships are critical differentiators in the market. In the coming years, we plan to solve more and more of these creators' challenges by offering new features and services. And this shows up and has shown up consistently in a very healthy dollar-based net retention rate. And lastly, across Unity, we have an amazing team of innovators. Unity is an innovation machine. Modernization is a great example. We entered this business in 2014 and have not stopped innovating ever since. We hire the best and brightest product leaders, engineers, data scientists, and focus on improving player experience. We operate with the developer's interest in mind and ensure our products contribute to their long-term success. As a result, we have consistently gained market share, including this last year when we executed with excellence in an IDFA challenge environment. This is one of many examples where Unity's innovation is making a significant difference for creators. Now I'm proud of what we've achieved so far at Unity, and I'm excited about the future that we can and will create. We are executing with excellence in a large and growing market that we are strategically expanding through internal innovation and acquisition. We have a defensible platform that adds significant value to our customers and keeps on getting better. Now, before we turn over the call to Louise, I want to share with you the magic of Ziva and Unity. This is our latest acquisition. I believe it's got huge potential. Let's show them what we want to share.

Hi, I'm a virtual human created by Ziva Dynamics. I'm powered by state-of-the-art biomechanical simulation and I'm running in real time in Unity. But enough about me. I have some even more amazing news to share with you today. I'm excited to announce that today Ziva, my creators, are now part of the Unity family. Unity and Ziva have a shared vision of making realistic, lifelike character creation accessible and scalable for all artists, regardless of skill level. And it's not just for virtual humans like me, but for any kind of creature, monster, or animal imaginable, realistic or stylised. Ziva's leadership in character simulation, deformation and machine learning, along with Unity's deep knowledge of real-time technology, makes this an effortless and powerful partnership. As we grow together, Unity and Ziva will continue serving the many innovative teams, creators and engines that use our technology. By acquiring Ziva, Unity will further democratise Ziva's best in-class tools to allow artists like you to create digital characters like me. We want to thank you for all of your support over the past seven years. Ziva has learned so much, and we couldn't have done any of it without your passion and dedication to incredible digital art. It's been a whirlwind journey, but I'm certain it's just the start.