Thank you everyone for joining Unity's second quarter earnings call. I would 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, and expectations for future financial performance, 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 the press release we issued this morning. Actual results may differ, and we take no obligation to revise or update any forward-looking statements.
We will also be discussing non-GAAP financial measures today, and reconciliations between our GAAP and non-GAAP financial results and a discussion and 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 on the appendix to this call's slide deck. Now, on July thirteenth, we announced a definitive agreement to merge with ironSource, which we expect to close in the fourth quarter of this year. We also pre-announced that our second quarter results were slightly higher than the top end of our guidance and reduced our full year revenue guidance. Today, we will go deeper into our results and projections. Now, joining me today are our CEO, John Riccitiello, our CFO, Luis Visoso, Marc Whitten, our Create Solutions leader, and Ingrid Lestiyo of our Operate Solutions leader.
With that, let me turn the call over to John.
Thank you, Richard. Before we dive in, I want to address what everyone is aware of, the AppLovin proposal. I acknowledge we received the proposal, and I want you to know that we aren't going to make any comments at this time. I'd like to start this call by reminding us of Unity's North Star, and that is our belief that the world is a better place with more creators in it. It is this belief that has guided us over the years and continues to guide our decisions across the company. Through years of innovation, investments, and hard work by everyone at Unity has become the world's leading platform for real-time, 3D content creation designed to enable creator success.
Ultimately, this led to Unity having two main lines of business, Create, to help creators make real-time, 3D content, and Operate, where we help these creators find operational and business success with their content. The second quarter of 2022 came in consistent with our last update, but well below the standard we have set for ourselves for growth and value creation. We can and will do better. Revenue of $297 million is up 9% year-over-year and slightly above guidance of $290 million-$295 million. We are encouraged by the sustained growth in Create as we strengthen our relationships with customers. While we are also pleased with the progress we are making in Operate, our underperformance in monetization remains disappointing.
We have several product and engineering efforts in place to get our monetization business back on a stable footing. We have fixed the data challenges that we discussed last quarter and are launching new features. We are seeing improvements in our products with lead indicators such as Audience Pinpointer accuracy showing our innovations are effective. Despite the progress, we lowered Unity's full year revenue guidance to $1.3 billion-$1.35 billion as revenue uptick is slower than modeled. We attribute this to a combination of recent negative macroeconomic factors and the complexity of accurately forecasting the timing of a change in revenue trajectory of the monetization business. Now, let me start with Create. Create delivered another strong quarter with revenue of $121 million, up 66% year-over-year.
We are building a large Create business fueled by innovation and market tailwinds as the world transitions from linear and 2D to real-time 3D, which is more engaging and interactive experience. Our games business continues to strengthen as we improve tools and features which are used by creators to launch amazing and successful games. We are seeing acceleration in our business outside of games with big wins across industries and geographies. We're adding new customers and expanding our business with existing customers that are building their business on our digital twin capabilities. Our focus on creators and solving their toughest challenges has enabled us to more than double our Create business from $55 million in the second quarter of 2020 to $121 million in the second quarter of 2022.
We're approaching $ half a billion yearly run rate and growing at a healthy pace, and I believe that we are just getting started. We are encouraged by the performance in the games business. The second quarter of 2022 was our biggest games quarter ever. Our strong performance included record adoption of our 2021 long-term stable or LTS version and the 2022 tech stream and expansion of data-oriented tech stack or DOTS capability. Unity is much more than games now, as our growing success outside of games attests. Our business outside of games represented 25% of our total Create business for the full year of 2021, and 33% for the fourth quarter of 2021. At the end of the second quarter of 2022, our business outside of games represented 40% of our total Create business.
Remember, this mix expansion is within the context of having our best revenue quarter ever for our gaming business. I want to acknowledge the amazing games made by creators on Unity and the inspiration that it is to us. Their dedication and commitment to the craft of game development pushes us to constantly innovate and evolve our products. Unity's aim is to provide creators with the complete set of tools they need to be successful. With that, let me hand it over to Marc to bring some of this to life.
Thanks, John. The investments that we make in our platform and tools are reflected in the wins that we have achieved quarter- over- quarter. Our customers are leveraging the advancements in Unity's platform to realize the vision for their games. Unity 2021 LTS comes with signi-icant additions and improvements for visual scripting, editor extensibility, scene view overlays for artist-driven tools, and asset ingestion. It also adds editor support for Apple Silicon and target platform support for ChromeOS, Android app bundles, as well as expanding our adaptive performance support so that you can launch quicker and manage mobile device resources for better performance. It supports new functionality for 2D and 3D workflows, as well as new feature functionality for our rendering pipelines across both our Universal Render Pipeline and our High Definition Render Pipeline.
We developed these new capabilities first in our tech stream releases, and after we received sufficient input and validation from our community of creators, we land those capabilities as the next long-term stable release. This year's Unity 2022 tech stream focuses on significant improvements in several major systems, including refining our user input framework and a focus on developer and artist productivity through features like better spline tooling, better material variant productivity, and significant performance improvements, as well as connectivity with other creation tools. What's most important to us is seeing creator success in bringing their experiences to life. We continue to see a large share of games released across all gaming platforms made with Unity, and these run the gamut from the largest game publishers in the world to indie developers releasing their very first games to massive success.
We believe that players should be able to find and play games on any platform. Unity enables developers to build their game for any destination platform from the first mile to the last. Our partnerships with platform and hardware creators enable games to be deployed across mobile, console, PC, AR, VR, and web. For starters, millions of mobile game developers around the world are using Unity to build the next generation of successful games. Today, Unity powers more than 70% of the top mobile games. Our engine is optimized to create highly performant games that work across a huge variety of devices and specs and have the tools to make it easier to deploy games and manage their ongoing life cycle. There are great examples here across the board.
Kabam launched Disney Mirrorverse to much fanfare in mobile in June, and Subway Surfers by SYBO celebrated their tenth anniversary in May 2022, topping 3 billion downloads, demonstrating the longevity of mobile games developed on Unity. Second Dinner also launched Marvel Snap into several global markets, another success that was made with Unity. Beyond mobile, Unity continues to perform superbly on other platforms. Nearly half of Steam games for PC were made with Unity in 2021, and those games continue to break through to the Steam charts, where this quarter, 13 of the top 20 in games in May alone were made with Unity. We've seen fantastic new experiences here, like V Rising from Stunlock, where the performance from DOTS enables Stunlock to scale up the world size and the number of players. It was a key factor for them in their choice of Unity.
Neon White, developed by Angel Matrix and published by Annapurna Interactive, is another excellent example of how a small development team can punch above their weight using Unity. From these newest of game studios to some of the longest-standing, we saw great new console games, including Little Noah by Cygames and The Centennial Case from Square Enix. Unity also enables creators to take their content to long-established and newly emerging growing platforms, such as VR and AR. In VR on Oculus Quest, Unity games made up 80% of the most popular games in July and 72% of the top-selling games. These are very small sets of data points on the scale and scope of gaming with Unity.
Wherever you find a platform or device with usage around the world, from the largest scale mobile platforms, PCs, and consoles to the latest in VR devices, you're gonna find an active and committed community of creators, and they're gonna be using Unity to create compelling games to entertain those users. Now, I wanna turn to our create business outside of games, which includes media and entertainment, e-commerce, industrial and manufacturing, architecture and engineering, construction, and many other industries. I wanna share some customer highlights. I'm gonna start with Obayashi, one of the top three construction companies in Japan. In the second quarter, we expanded our relationship with them to help them develop a digital platform to drive major efficiencies in their construction process. Specifically, their internal users will use real-time 3D as a foundational tool for the design and construction work.
Obayashi chose Unity because they see our solution as the most extensible and scalable solution available. Also in the second quarter, we signed our single largest digital twin agreement to date. This is a deal with CACI, one of the U.S. government's leading IT service partners. Through this relationship, Unity will help the government define human machine interfaces or HMI for the aerospace applications and beyond. These applications demand an interactive, robust user experience very much like games. Now, the ultimate goal of this program is to create a reference architecture based on Unity that all U.S. government agencies use for system design and HMI development. Also during the second quarter, we signed our first agency customer, eg+. eg+ is a world-class content and creative production company based out of Long Beach, California.
In addition to providing eg+ worldwide with the technology required for their internal development teams to create real-time 3D content, we're gonna be working with them on many projects, such as designing the next generation real-time 3D product configurators for a leading auto manufacturer. We continue to strengthen our partnership with Mercedes-Benz. This quarter, we announced that from 2024 forward, all Mercedes-Benz cars will be equipped with an HMI made with Unity. With this agreement, Unity is now an integral partner of one of the world's leading and most storied automotive OEMs. Together, Mercedes-Benz and Unity are taking next-generation user interaction, such as maps, avatars, and AI concierges and in-car entertainment to a new level by implementing on a real-time 3D engine.
We are proud to have found a new partner in Mercedes-Benz to equip their vehicles with our visual fidelity and performance, including our years of experience in mobile gaming. These are great examples of the power of real-time 3D to help companies drive innovation, efficiency, and engagement across their business in new ways. From building more efficiently and safely to operating complex physical machines, to helping customers discover new products and services, to our relationship with something as personal as your car. The growth of digital twin technologies in these industries and many more is large and it's accelerating, and we're continuing to invest in functionality and partnerships to ensure that we can meet our customers' needs and capture value in this space.
This includes investing in product innovation like neural radiance fields or NeRF rendering for visualizing zero touch-up object captures to make it possible for everyone to build their own digital twins and advanced synthetic data creation so that future algorithms and machines can be trained more effectively and efficiently. It also means working with the world's best partners to broaden our cloud strategy and thereby our ability to service even more customers. We have a long-standing relationship with Google Cloud and have seen incredible results through our customers. In addition, yesterday, we expanded our cloud capabilities by announcing a strategic partnership with Microsoft. This partnership brings the Azure Cloud to the community of Unity developers around the world to power real-time 3D experiences across industries. We are working together to make it easier for game developers to reach their players across Windows and Xbox through improved tools and more.
I'm also super excited about our breakthrough partnership with Capgemini. We will jointly define and execute sector-specific solutions and professional services to deliver tailored platforms for our customers. This new global partnership will focus on sectors and use cases where digital customer employee experience will benefit most, from consumer goods and retail to telecommunication, energy and utilities, and much more. Now, real-time 3D has one challenge that we must continue to work to address, and that is the enormous need for 3D content. 3D content creation is complex and it's expensive, with large file sizes and complicated rendering techniques required in order to deliver results that are tuned to a specific device and platform. It requires specific expertise and a variety of highly trained and technical artists in order to be successful.
That's why our democratization mission includes the needs to provide powerful artist tools that make artists significantly more effective and productive, and that make it possible for more people to create in 3D. This is necessary given the long-term growth of real-time 3D, and it's also a significant opportunity for TAM expansion for Unity by serving the needs of these creators. This is why we acquired Wētā last year, and we're on track and making strong progress to deliver these extraordinary tools that power some of the world's most amazing content into the hands of creators in both VFX and real-time fields. Today, we have more than 20 million cloud-based render hours on Avatar 2 and other productions, and this quarter, we completed our full mirror environment for the Wētā tool chain, a first ever outside of Wellington, New Zealand.
Our Wētā Digital team is also defining and evolving the Universal Scene Description or USD standard so that we can represent procedural content such as hair and fur grooms, vegetation, and much more, and also things like physical camera, lighting and materials, and deliver it consistently across Unity, Wētā Digital, and other artist tools. Our ultimate goal is to evolve the USD schema standards for industry at large. Now, to bring Wētā's tools to real time, here's an example where we've implemented a first version of clustered hair simulation into Unity as a novel GPU tile-based software restoration with analytic anti-aliasing and improved advanced physically based hair lighting model for film quality hair strand rendering in real time. That's a mouthful.
What this really means is that we can efficiently render millions of individual hair strands, all moving independently and uniquely without artifacts, while accurately preserving the hair highlights and the beautiful way that light shines through soft hair. In short, we can make it look and feel real. Let's take a look at an example. All right, this is what happens when you connect these powerful art tools with Unity, no longer the domain of VFX and film. This is the lion, and it's running in real time on a PlayStation 5 through Unity's High Definition Render Pipeline. The lion features advanced machine learning and procedural art tools, including character deformation from Ziva, procedural vegetation and terrain from SpeedTree, and more. It's the powerful capabilities through Wētā's Wig tooling which bring these characters to life.
We told you that our goal was to drive up creative productivity and capability, and I wanna focus on this quote by one of our artists working with our Wētā Digital Wig tool and how much it speeds up the time to awesome. "Wig's a different way of working. It's actually the fastest groom tool that I've ever used. A high-quality hero groom that would take me several months to do for production in another grooming package is much faster to do in Wig in a mere couple of weeks with higher fidelity, and mini grooms go from weeks to one or a few days at far better quality levels and artistic controls throughout.
Even when you have to react to detailed art direction and feedback notes, like adjusting a specific strand from a reference shot, it's easy to author in Wig. Sarah Hanson, Tech Artist, Ziva, Unity Technologies. I'm very excited to share that we expect this work to be in preview with customers this year and for our first suite of tools to be released early next year, well ahead of our initial M&A integration schedule. With that, let me turn the call back to John.
Marc, the Lion demo is absolutely groundbreaking. In my 25 years in gaming and entertainment, I have had to grade graphics many times. Your team has set a new bar. Before the Lion, I had always compared what I was seeing to the best I'd seen before in a game or in a film. This is the first time my comparison is to the real world. Congrats to your team for an amazing achievement. Let's now cover the progress in Operate. We have fixed the data challenges and have strengthened our products with new features. We've also put in place monitoring mechanisms that allow us to more closely track our performance so that we can react faster when something goes wrong. As a result of our work, we are seeing leading indicators such as Audience Pinpointer consistency and accuracy improve, showing that our interventions are effective.
We continue to innovate. We will continue to launch customer meaningful features in the back half of the year that aim to improve our customers' return on ad spend. As mentioned at the beginning of the call, the revenue uptick is slower than modeled due to a combination of recent negative macroeconomic factors and the complexity of accurately forecasting the timing of the change in revenue trajectory of the monetization business. Operate's revenue of $159 million is down 13% year-over-year. This compares to $113 million in revenue in the second quarter of 2020 and $183 million in the second quarter of 2021, when we grew 63% year-over-year. Let me turn it over to Ingrid to give you a more detailed status update.
Thanks, John. Last quarter, in addition to external factors such as the competitive landscape, we identified two separate yet interrelated issues that impacted our monetization business. One, a data quality issue, and the other, our Audience Pinpointer product's accuracy. Starting with the data quality issue, this one is behind us. We have removed the bad data that was inadvertently ingested from interacting with any of our models. Furthermore, we have fortified our monitoring capabilities and observability for our machine learning models to mitigate these rare types of events should they occur again in the future. In this process, we also improved our data incident response time to address issues more comprehensively and promptly. We have added significant investment in our Audience Pinpointer product, innovating on our models and customer experience to address our past scaling challenges.
As a result, we have seen performance and accuracy improvements at scale, particularly in our contextual product that is most meaningful for our customers impacted by privacy changes. We are seeing our progress reflected in customer success. Trailmix, for example, is a studio responsible for the creation of the hit title Love and Pies, winner of the Best Casual Game at the TIGA Games Industry Awards. The studio collaborated with Unity from early stages all the way up to global release to refine their targeting, test creatives, and scale up their user acquisition efforts. Using Audience Pinpointer, the team was able to test the target audience and accelerate their growth journey after global release, achieving strong engagement metrics, showing 60% retention by day one, as well as retaining players an impressive 20% by day thirty. We remain confident in the long-term outlook for monetization in games.
In fact, we are not shying away from making bold moves during this time. We seized an opportunity and announced our intention to merge with ironSource to leapfrog our roadmap and accelerate value creation for our customers, Unity, and our shareholders, which John will touch upon in a moment. Let me close with an update on Unity Gaming Services or UGS. UGS is a suite of tools and services built to simplify every developer's ability to create, host, and manage their games in the cloud in a single dashboard experience. Today, more and more games are multiplayer social experiences that are connected in the cloud. We designed UGS to be modular, to let creators select the best tools for their use case, whether the game was built with Unity, Unreal, or any other game engine.
With UGS, we provide a platform that hosts many of the world's most popular games with Multiplay, enable proven and robust voice and chat with Vivox, while simultaneously measuring their game performance and engaging their players with Unity Analytics, all within one UGS platform. UGS supports creators with a consumption pricing model, so they can work the way they want and only pay for what they use. That's a powerful business proposition, and we plan to take more of our platform in that direction in coming years. Today, we are simplifying these services so small and large developers alike can launch experiences at the scale of their choice.
Self-serve functionality allows developers to access and explore our products on their own, increasing our market reach. A few weeks ago, we published a case study with Axlebolt for Standoff 2, a first-person shooter with millions of players, illustrating how they self-serve integrated voice chat from Vivox 4 years after their mobile games launched to supercharge their in-game community and gain a 63% increase in day 90 player retention. In this quarter, we are excited to launch Multiplay game server hosting and matchmaker self-serve functionality to bring battle-tested AAA multiplayer services to developers of all sizes. Multiplayer games are amazingly fun, but highly complex to develop and often require large teams and investment. Since our beta in October last year and becoming generally available in June, the signs are promising for UGS.
We have seen more than 50,000 game developers signed up with 2,300 new customers added since our GA launch in June. While it is early days, we are optimistic that UGS will become a meaningful part of Unity's technology offering. We look forward to sharing more customer success and performance metrics from across the UGS platform next quarter. With that, let me turn the call back to John.
Thanks, Ingrid. As I said at the top of the call, the AppLovin proposal was received, and we will not comment at this time. A few weeks ago, we announced Unity and ironSource intend to join forces and will combine creation and growth into a single platform to increase creator success. Today, I want to spend a few minutes framing the key messages and how we together will help creators find success consistency based on science and not just intuition and luck. As a reminder, the key messages shared when we announced the intent to merge with ironSource are, first, we intend to accelerate our path to becoming a leading end-to-end platform, combining creation and growth in a way that creates great value for our customers. Game companies and companies in industries beyond gaming will be able to produce better content and enjoy superior user acquisition.
Greater customer success. We expect this will propel their business and ours. Second, we expect to capture synergies from combining our platforms, driving greater customer success and enabling the new Unity to deliver a billion-dollar adjusted EBITDA run rate by the end of 2024. Third, our combined company is expected to reflect a roughly 50/50 revenue mix between our creation and growth technologies and services. Our intent is to unite the work of creating content and engaging users in one iterative process where data flows from the growth platform into the creation process and makes the game better. It will start with a piece of content, perhaps a single level for a mobile game.
That level will be married with sophisticated tools for user acquisition and creative testing to enable a creator and their growth experts to understand and learn from very early indications of user engagement, monetization, and the cost to acquire a user, and where relevant, the LTV of that user. This is what game developers have done for years with A/B testing and learning from soft launches, but we can make it easier, smarter, and more effective. Based on this learning, creators will iterate, change aspects of the content, the advertising, and user acquisition strategies, driving more financial success. As most experiences in the future will be live experiences, meaning the content will change over time, this process will continue.
Our customers' creation and growth teams will be in a continuous process of learning and improvement, where greater data scale will make the feedback look more powerful for all games created with Unity. In net, together, Unity and ironSource strive to bring unprecedented value to our customers. We aim to provide what every customer needs, whether that customer is a mobile game, a console or PC game, and whether that developer seeks to monetize or simply create for their own and their friends' enjoyment. With that, let me turn the call to Luis to go through the numbers.
Thank you, John. In the second quarter of 2022, we delivered revenue of $297 million, up 9% year-over-year and at the high end of our guidance range. Create performed strongly, with revenue of $121 million, up 66% from a year ago. As expected, Operate was impacted by the issues discussed last quarter. Revenue of $159 million declined 13% year-over-year. Strategic Partnerships and Other delivered $18 million in revenue, down 2% from a year earlier. As we have seen over the years, the Strategic Partnerships and Other business quarterly results are impacted by the timing of key platform arrangements. At the end of the second quarter, we had 1,085 customers with trailing twelve months revenue above $100,000.
This compares to 888 customers at the end of the second quarter of 2021, an increase of 22% year-over-year. The slower rate of growth in our customer count above $100,000 is driven by Operate. Our twelve-month trailing net dollar expansion rate came in at 121%, down from 142% last year. The drop in our net dollar expansion rate is driven by Operate. Our second quarter non-GAAP gross margin was 74.1%, down from 81% a year ago. The year-over-year gross margin decline is mainly due to lower mix from monetization, which has a higher gross margin than the average, as well as the impact of Wētā's engineers supporting the business are charged to cost of goods sold.
The non-GAAP operating expenses in the second quarter increased 19% as compared to the second quarter of 2021. On a year-over-year basis, R&D, sales and marketing, and G&A expenses grew 26%, 18%, and 4% respectively. All three line items saw favorable expense trends due to slower hiring, lower professional fees, and favorable exchange rates. We closed the quarter with 6,246 employees. Non-GAAP loss from operations for the second quarter was -$44 million, or -14.9% of revenue. This compares to guidance of -$62 million to -$64 million. We beat guidance as we're making strong progress against the $100 million cost savings program that we announced last quarter. Cash flow from operations was -$43 million.
We had 296, sorry, 298 million outstanding and 360 million fully diluted shares at the end of the second quarter. Moving on to guidance. For the full year, we're providing guidance of $1.3 billion-$1.35 billion as mentioned when we announced the intention to merge with ironSource. This is a reduction from the $1.35 billion-$1.425 billion shared during our last earnings call. The full year guidance reduction is driven by recent negative macroeconomic factors and the complexity of accurately forecasting the timing of the changes in trajectory of the monetization business. We believe that the $50 million range in our full year guidance is appropriate given the uncertainties in the ads market.
We continue to invest to strengthen our products with additional features that we expect will get our third and fourth quarters to stronger footing. For the third quarter, we expect revenue between $315 million-$335 million, which implies fourth quarter revenue of $368 million-$398 million. At the midpoint of these numbers, we expect the third quarter to grow 14% year-over-year, and the fourth quarter to accelerate to 21% year-over-year, as we expect strong performance in Create throughout the year and improving performance in Operate. We continue to be committed to achieving non-GAAP breakeven profitability in the fourth quarter of this year, despite the lower revenue expectations.
As mentioned, we're making strong progress against the $100 million cost savings program that we announced last quarter, while preserving the most critical investments in innovation that will drive our growth. For Q3, we're forecasting a non-GAAP operating loss of $35 million-$50 million. For the full year 2022, we expect a non-GAAP operating loss between $95 million and $115 million. The higher losses for the full year reflect a more gradual recovery ramp in Operate, partially offset by additional cost savings. We expect 301 million primary shares and 375 million fully diluted shares by the end of the third quarter, and 376 million fully diluted shares by the end of the year, excluding the issuance in connection with our pending ironSource deal and any related stock repurchases.
We continue to believe that there is a very large opportunity in front of us and that we are very well positioned to capture it. Our Create business is performing strongly, and we expect sustainable growth going forward, fueled by our innovation and market tailwinds. We continue to innovate on our Operate business by delivering products that enable our customers' success by delivering performance and resiliency at scale. We're confident that the ironSource merger will make us stronger as we offer our customers an end-to-end platform that will benefit creators and shareholders. Finally, as you may have seen, we're also working to accelerate innovation and growth in a key market, China. Recently, we entered into an agreement with some of our leading partners in China to form a new joint venture that we're calling Unity China.
To form this venture, Unity will contribute all of its operation in China other than Unity Ads. The business deliver approximately $50 million in revenue in 2021. We created the venture with investments from a number of leading technology companies, including Alibaba, China Mobile, G-bits, miHoYo, OPPO, PCI Technology Group, and Douyin Group at the post-money valuation for Unity China of $1 billion. Unity will retain majority ownership and control over Unity China, which will operate solely within the Greater China region and governed by a board consisting of Unity executives and major investors. As such, we will continue to consolidate the China financials. The transaction is subject to customary closing conditions, which we expect to complete within the next few weeks. With that, let me turn the call over to Richard for the Q&A section. Thank you.
Great. Thank you very much. As before, we will have you promoted to a panelist and you can ask some questions here. Kenneth and Eric, if you can promote the team to panelists, that'll be great. There we go. First one with a digital hand is Stephen Ju at Credit Suisse.
Okay. Thanks. John and Marc, you know, if you're AWS, you knowing exactly who you're calling at any given company. For Unity, it was not always clear to us who you're placing that call into on a Create side. You know, as you talk about how Create's non-gaming revenue is now accounting for 40%, how has that selling motion, and particularly, you know, to those companies outside the game industry, evolved over time? Thanks.
Marc, I'll take the top of that, and I'll let you build on it with some examples if that works.
Great.
Stephen, a couple thoughts here. One, we've gone through a pattern over the last few years where we were originally doing things that were, you know, they didn't know who we were, they didn't know how to use real-time 3D, and the deals were very, very small. Now what we're seeing is a continued inbound from the top of the funnel, and we got a good go-to-market strategy. Marc will talk about that. We're seeing second and third deals with the same customers, so we got a land and expand going. We're also writing, you know, larger deals as we continue to progress because people are understanding what they can get with real-time 3D from Unity. The reason we're seeing the gain as a percentage of our business, more customers, larger customers, land and expand.
Does Marc wanna build on that some?
Yeah. Thanks, John. The other part there is certainly over the last several years we've been building unique solutions that are helpful for all sorts of different industries as they look at how they can take advantage of real-time 3D. You can see that in tools like Forma, which is used for a lot of product configurators in auto and other spaces, Reflect, and VisualLive, which are used around architecture, engineering and construction to other tools that we have like Pixyz, which is about how do we manage large amounts of 3D data, which is extraordinarily common problem in that space. As we've understood the needs of these customers, we've also built the parts that work in conjunction with the core Unity engine and editor to make it easier for them to work.
Then the last part that I'll just sort of add on top of what John said is this is a real place where our accelerated solutions team has been incredibly powerful, because these many times we have companies coming to us just getting started in their journey of transformation around real-time 3D. Together, through our professional services organization, we can build something together, help them learn, and that often leads to repeat business both in kind of continuing ARR and in future professional services support. It's one of the big reasons we went after other partnerships like Capgemini because we see more and more opportunities to enable a broad ecosystem of channel partners to help in similar ways.
Just one last point on this. You know, if you go back a couple years when we were prepping for our roadshow around the IPO, I think a number of investors kind of looked at me when I said that we expected it would be, you know, 3-5 years where our, we would catch up with our games business, but games would continue to grow strongly. It's actually happened exactly like that. Frankly, it just, there's so many more industries out there for whom real-time 3D is the answer. What they're doing is they're creating essentially digital twins, real-time digital twins, where they're using them to simulate the future and understand the present in a way that makes their businesses stronger, their customer relations more robust and more engaged.
They're winning and they're coming onto the platform in a bigger way than they were a year ago or a quarter ago. We feel great about the trend line.
Thank you.
Great. Kash Rangan at Goldman Sachs, please.
Hey, guys. Thank you so much. I don't know if you can see me now, if that matters. First of all, thanks for all the detail, John and crew, and the tremendous progress on the create side. On the operate, I am gonna probably butcher the question since I'm not an expert in mobile gaming and advertising. John, you talked about how you have a good handle on data. Data versus macro versus competitive impact, I mean, how much better informed is the company on all these three potential contributors to the issues that cause a shortfall? Going forward, what are the guardrails that you have in place to ensure that you won't have this issue. I know you mentioned a little bit about them.
If you wouldn't mind elaborating on that'll be great as well. Thank you once again for all the detail you shared with us today.
Again, I'll wrap this and ask Ingrid to join. By the way, Kash, thanks for the 11-part question. I'll try to keep it to a reasonable
3 part.
First off, on macro, on the operate side, the majority of our business, the vast majority of our business on operate is within gaming. As I've said a few times before, the only thing that is in larger number than games is pundits talking about the game industry and the recession and all the rest of it. I just start by saying this, the game industry remains a very robust industry, and it's a growth industry. You can look back at the last five or six recessions. I've looked back all the way to the eighties in a prior life, and over almost any three-year time period, you see double-digit growth, you know, typically averaging out in the teens or better.
Yeah, there's short-term headwinds that occur from time to time, and in the present period, we're sort of dealing with, you know, extremely high engagement when people stayed home for COVID. Together now that we're looking into a little bit of a headwind, which is driven by macroeconomic factors. You've seen that reported out by a number of game companies where a little bit less revenue, some, you know, bringing down some forecasts. We understand there's a near-term headwind in the game industry relative to that mid-teens growth or better that we've seen for so many years. We expect that we'll persevere through that, and this is a long-term growth space. We feel very, very good about that.
Now, in terms of the issues around our own platform, at a very high level, I can tell you what one of the things Ingrid did, and I'm really proud of the work that she and her team have pulled together here. They pulled together eight task teams that literally worked seven-day weeks on everything from resiliency and redundancy to the data side, to the engineering issues we wanted to focus on, to the new products and features. It has been a magnificent effort on their part, and what they've been able to show me is really strong KPIs around some things that are pre-revenue, but you need accuracy around Pinpointer for the revenue to ultimately grow.
I'm gonna let her expand on that, but, you know, it's tough coming from a period where we had some misses, but it's great to see the team rebound, get on top of their game, and really start to execute, which is what I'm seeing from my vantage point. Ingrid, do you wanna add to that?
Yeah, thank you, John. On our part, you know, just to build on what John's said about the task forces, you know, we've added significant investment in Audience Pinpointer, and, you know, across the board. You know, one of the things just connecting your macro question to this is that, you know, constraint drives focus and the best innovation. During this time, we've become really disciplined in our resources. We've doubled down on those ads product and services that drive the most value to our customers and Unity. Without, you know, the luxury of excess spend, this is really an exercise to drive performance with less for our customers, such as finding more installs with fewer dollars, right? This means that we need to innovate and find new ways to increase the velocity of our model development, for example.
Pushing the boundaries of machine learning, digging into every part of our system for optimization opportunities and making sure that our systems are all resilient, you know, to anticipate further incidents that happens. We really expect all of these actions to provide resiliency, both in the systems as well as performance in the current challenging environment. You know, we expect to emerge. Our goal is to emerge on the other side with our product stronger than ever that enables us to best capture the market opportunity at hand.
Great.
Now to take Kash, we're measuring a lot of things we didn't use to measure, and we built redundancy and resiliency around it. I see data sets that I wasn't seeing around data accuracy in a variety of things that give us an early warning for things that we would otherwise want to deal with. You know, no data-driven business is without errors. Now we're in a position to catch them fast and fix them as we go along and not suffer the kinds of challenges we had earlier in the year.
Great. Next is Clark Lampen at BTIG.
Hey, guys. Good evening. I had two, if I may. The first, I guess, like recognizing what you were talking about, John, with sort of the cross currents with macro and, you know, sort of visibility relative to, I think based upon the comments last quarter, you're in the second 90-day phase right now where you need to kind of rebuild data. I'm curious how you guys think about maybe potentially offering customers additional incentives to drive platform usage in, you know, what seems like maybe a difficult ad market. Then separately, as you know, the solutions and range of products is becoming larger and more compelling for your gaming customers.
I'm curious if you guys think you have flexibility or added flexibility now with the approach to sort of bundling products in a way that you could still sort of maximize dollar generation, but maybe push, you know, your take rates and monetization in a way, you know, competitively where the platform becomes more compelling. Thanks.
You know, one, I can't say that, you know, we would never do incentives, but that's generally, you know, a very short-term solution and doesn't really yield long-term returns. That's not high in our playbook, and it never will be high in our playbook. Again, it is part of the portfolio thing companies like ours do, but we're very cognizant of focusing on the long term, and I know this can be frustrating to investors at times, a little less focused on the quarter. The NPV is higher that way. That's important to us. The second thing is, we're in the very early innings of UGS, and UGS is a very powerful portfolio of tools and products and features that every customer needs as they go to market with their game or application.
You know, one of the things that, you know, I learned when I got into mobile, this now goes back 20 years, but you build this thing, and then suddenly there's like 50 SDKs you need to implement, and it covers a gamut of things, and there's a bunch of services you need to invest in. I think we've all watched, you know, game companies go, you know, online for the first time or mobile for the first time and just fall flat around the ecosystem and SDK, you know, soup of all the things that they need to bring on board. Ingrid's team brought really sharp focus to that and took all of these services and built a system. But basically you set it up once, and it works across all this portfolio of services. It's a huge advantage.
It's one, you know, it's one source of truth. Now, this isn't completely plumbed at every level, but we've seen, you know, good uptick and take on this one. Our customers like it, getting good reports back, and I think it's actually a huge opportunity for us in the years to come because we're really the only company out there in a position to do what we've done. Of course, they start with us and create, you know, 74% of the time, but it's a good starting point. When you take, you know, whether it's matchmaking or hosting, advertising or analytics, voice and the other systems that we pull together, it's a really strong offering.
Thank you.
Great. I think we have, yep, Matthew Cost at Morgan Stanley.
Hi, everyone. Thanks for taking the questions. On Operate, just to zoom in a little bit here. If the data quality and Audience Pinpointer issues hadn't occurred earlier in the year, would Operate revenue have been, you know, at the $160 million level you reported this quarter just because of macro? If not, how much work is left to do there in terms of improving the tools and scaling spend? Then secondly, on the China JV, I think Greater China was about 15% of your revenue last year, so already a decent-sized business. What will the JV allow you to do that you can't do today? Thanks.
Ingrid, do you wanna take that on the Operate question? Or I can pick up in the beginning if that would be helpful.
Yeah, I think in terms of the specific numbers, you know, look, it's a combination of all of those things. It's hard to you know kind of divide up, like, what components is attributed to macro versus Audience Pinpointer and data issues. Absolutely, I think that, you know, obviously, the data issues and Audience Pinpointer at the beginning of the year impacted our performance. Now, you know, we're at a place where the data incidents are fixed and behind us, and our audience-
Mm-hmm
Pinpointer product is strengthened day by day. Right now we're seeing kind of a slower uptick in advertiser spend just because, you know, they are more judicious due to the macroeconomic factors. That's what we're seeing right now.
You're right, Matt, to recognize there's both in there. For clarity on our last full earnings call, you know, we talked a little bit about the macro, and we talked a lot about the self-inflicted aspect of this. That's just basically a philosophy of ours, is we would rather focus on the things we did wrong or right more so than the macro environment when it's working against us. You know, we didn't wanna give too much of a mixed message last time. We had things we needed to deal with, and we dealt with them. You know, on China, you know, first I wanna congratulate Luis and some members of his team and Jumbo in China. They've done incredible work here.
At a very high level, we think this sets us up for more sustained higher level growth for years to come than we otherwise would have. What we managed to do was take most of the leading technology companies in and around our space and made them partners. In doing so, they stand behind us on gaming, but they stand behind us in industries beyond gaming. It also allows us to take advantage of the opportunity to invest in a market where the engineering capabilities are really strong and build tooling that supports very specific use cases in China. Now, it may seem like everything is the same, but it's not the case.
Both in the Digital Twins arena and in the gaming industry, there are a number of things that operators in that part of the world do in terms of business practices and development practices that are different. By way of example, a lot more outsourcing. That involves a different way of interfacing with the product, more cloud-centric, more web issues. By doing this, I think we strengthen our business and set ourselves up for a path for more sustained higher level growth. Luis, you wanna add on that one at all?
Yeah. The only thing I would add, John, is that the 15%, Matt, that you quoted, that's the total China business as percent of our revenue. Not all the businesses are in scope. It's just the Create business, and that's 5%, so that's the $50 million I mentioned in my prepared remarks, Matt.
Great. Thank you.
Okay. I think probably our last question is. We'll get one more. Jason Bazinet at Citi, and then we'll try to fit one more in after that.
Thanks. I'll try and go fast. Just to clarify on the China JV, am I right that there's gonna be an inflow of about $1 billion of cash, and then we're gonna be modeling non-controlling interest on the income statement once this deal closes? Thanks.
Luis?
Yeah. We will still consolidate China. We're forming a joint venture, and we will get $220 million, and that will stay within the JV. There is no cash flow coming into-
Okay
the JV.
We remain the majority shareholder and control the board, and there's a number of operating relationship agreements put in place between our enterprise globally and the China operation.
Thank you.
It's also worth noting that the leadership team is led by an executive I've worked with. You know, he ran my last company for, you know, well over a decade I know exceptionally well and trust. Junbo Zhang is a very strong leader, ex-Microsoft, ex-EA, and now really almost a decade now at Unity. We feel really good about the team we have there.
All right. Our closer question is Dylan Becker at William Blair.
Yeah. Hey, guys. Thanks for squeezing me in here. Maybe one, since we didn't touch as much on it, love to get into the strategic SI partnerships, but maybe for Marc Whitten too, a little bit of incremental color on the partnership with Azure, with the release yesterday. Can you talk about kinda some of the expanded capabilities, what this can mean for creators and potentially enable and unlock that further kinda create and operate combination of tools for the masses? Thanks.
Sure.
All yours, Marc.
Sure. Very excited to deepen our relationship with Microsoft. Obviously, we're already very strong partners, especially on the Xbox side and with HoloLens. You know, when you go and you think about where real-time 3D is going, we talked about all these use cases around Digital Twins, and we talk about just the size of games and the amount of content. One thing that's clear is that 3D has a unique set of needs. Often, the file sizes are very large. You can be talking about trillions of points in a point cloud, billions of polygons and extraordinarily high needs for compute power, whether it's on the creator side when it's being created or on the side when it's actually being consumed.
We're excited to work with Azure in order to build out the set of services that we believe will most help our creators, whether it's in games or Digital Twins, or professional art. In the near term, I think some places where you'll see it first are areas like DevOps. We're doing a lot of work around cloud build, around source control. Again, it's a space that's very different when you're talking about 3D assets versus non-3D assets. Digital Twins, it's a place that we've already actually been working closely with Microsoft on the sell side and integrating with their Digital Twin platform as well as our services together as we build out more cloud services is a very powerful thing.
As you've heard us talk about in professional art with things like Wētā Digital, the ability to have access to cloud power is actually a critical component of how we think we can deliver these productivity increases for artists around the world. It's the start of a partnership. There's a lot of work to go to sort of be ready for those, but it will impact sort of soup to nuts the things that we're doing across Create.
Great. Well, thank you very much. We really appreciate all of your interest and questions. Good stuff. We look forward to connecting to all of you know, over the coming weeks, and either at conferences or on follow-up phone calls. You can always reach out to Stephen Palmtag or myself, and we'll try to help you out, kinda navigate this, these exciting waters. Thank you very much. John, if you wanna close it up, that'd be great.
Exciting times, everyone. Thanks for being there for us. We couldn't be more excited about the opportunity in front of us, and we're prosecuting on that front as best we can. Aggressive as always and excited. Thanks, all.
Thank you.
Thanks.
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