Unity Software Inc.

Welcome to Unity's second quarter 2023 earnings call. After the close of the market today, we issued our shareholders letter. That material is now available on our investor website at investors.unity.com. Today I'm joined by John Riccatello, our CEO, President, and Chairman, and by Luis Vecelso, our CFO. But 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. Now you can find more information about these risks and uncertainties in the risk factors section of our filings at sec.gov. Actual results may differ and we take no obligation to revise or update any forward-looking statements. As in prior quarters, we will be providing both GAAP and non-GAAP financial measures. And unless otherwise noted, we will be speaking to the non-GAAP financial measures when describing our results. The shareholder letter and our filings on SEC.gov include full GAAP to non-GAAP reconciliations. Okay, thank you very much. So as we did last time, let's start off with two brief questions before we open up to regular Q&A. So for John, you know, you've seen a lot of trends and cycles over your career. What are you kind of most excited about when you think about where Unity is today and where we're heading?

Well, first off, I want to congratulate my colleagues on delivering strong execution in a great quarter, in our second fiscal quarter. Really appreciate it. Great work. Congratulations. Now, you know, when I look at Unity today, I really feel fantastic about the company and where it's heading. And there's a number of factors that make me feel great about Unity, both near term, but really importantly, long term for revenue growth and profit growth in a way that's super healthy. And I believe will deliver in huge ways for our customers and our shareholders. First, you've heard about Unity Poly Spatial. Now, it was great to be on stage with Apple at WWDC. Since then, we've seen substantial interest from our developers in the polyspatial platform. And I think it represents another reason for developers to look to Unity to be the go-to platform for all real-time 3D development. We cover the platform better than anyone, and we cover them spectacularly well with new platforms as they come out. And a great example of that is what Apple just announced just recently. The second is the Unity Cloud. We put that in market in a closed beta recently. Expect to go general availability later this year. This is a platform that connects all of our services to our product. If you want to think about this in a way, the go-to-market motion just collapsed from people getting in a plane, taking a cab or an Uber, knocking on a door. to a click inside the editor. We like that. It makes it easy. It makes it simple. We think it's going to drive increased adoption. And for us, this is substantial. It's going to lead to increases in consumption and radical revenue in addition to subscription. The artist seats and usage and all that goes with that. You've seen lots of announcements from us recently on Weta, Ziva, Speedtree. We expect that's going to continue and drive increased artists picking up, the number of artists picking up our platform. And again, net new revenue, net new SaaS revenue, net new consumption revenue. Digital twins acceleration. Now, this is really important. I hope you'll listen carefully. We're getting great traction in the market, and we're now focused on delivering repeatable solutions, high-margin solutions that deliver routable revenue streams and consumption revenue streams. We have made a decision to de-emphasize our growth on the professional services side, a lower-margin business, and we're really thrilled to be able to rely on partners like Capgemini and Booz. So This is a great move for Unity. It adds significantly over time to our bottom line, a little bit less professional services growth, but it's a good strategic trade for the margin and for the business on a strategy perspective for how we're going to build our position in the marketplace. one platform. This is the synergy story. This is why Unity Create and Unity Grow are together in a way that delivers better for our customers and better for our investors. Here, we're getting deep integration between advertising, mediation, publishing, UA tools inside the editor. We're working through some really important incremental synergy programs, and we'll be sharing more about that later in the year. But you should start thinking about with all this energy we're already getting, there's more to come. And there's an advantage in being the place where our customers build their products and monetize their product. And I couldn't be more excited about the two AI products that we announced some weeks ago. A huge amount of interest from our customers. We're there on the creation side and the operation side for applications with Muse and Centus. We'll be looking at a business model for these that is much like what Microsoft has announced with some of their AI products. And again, incremental revenue around SaaS and incremental revenue around consumption. And here, we have a particularly specific set of opportunities because People forget that Unity has a large number of free users. Well, these users are going to want to use AI because it will significantly expand their ability to build what they have in their mind's eye, to get it on the screen, to get in the hands of their customers. So we're super excited about that. So the handful of reasons, all product innovation driven, that'll put us in a great position for growth, both on top and bottom line.

Great. Thank you very much. Luis, we're at the halfway point in 2023, so it'd be kind of great to highlight how things have played out in those first six months as we kind of look forward to the rest of the year.