Unity Software Inc. Q1 FY2025 earnings call

• The transformation of Unity gained momentum in Q1, with strength in both Grow and Create segments. - Unity Ad network migration to Unity Vector was fully completed ahead of schedule, providing 15%-20% lift in iOS installs and in-app purchases. - Unity 6 has over 4.4 million downloads, 43% of active users have moved to it, and 80% of users intend to upgrade. - Launched Unity 6.1 with new production testing methodology and support for multiple platforms. - Growth in Unity platform beyond games into industry verticals with new customers like Philips, Siemens, etc.

In the first quarter, Grow segment revenue was $285 million, down 4% year-over-year, with revenue upside due to the acceleration of Unity Vector rollout. Create segment revenue was $150 million, down 8% year-over-year, driven by the transition away from low-margin Professional Services business, with high-margin Subscription business now representing nearly 80% of Create revenue.

• Second quarter total revenues expected to be $415 million to $425 million and adjusted EBITDA $70 million to $75 million. - Grow expected steady sequential revenues from Vector but offset by declines in select legacy ad products; Create expected slight sequential decline due to nonstrategic revenues runoff.

• Macro economic factors could impact the business. - Competition in the advertising space. - Challenges in fully transitioning and optimizing legacy ad models.

Q: Can you hear me?

A: Yes, go ahead, Matt. Matt, we can hear you.

Q: On the Vector rollout, are you seeing customers respond to the lift by increasing spend and shifting spend from legacy ad products?

A: The advertising business is competitive. Performance of Vector is positive, driving return for advertisers, and customers are beginning to spend more with us as Vector provides better results.

Q: On subscription side, is growth driven by higher pricing or subscriber growth?

A: Won't see impacts of recent significant price increases until back half of year; growth is from core business and older pricing increases.

Q: Trajectory of improvements to Vector model for back half of year?

A: Vector continues to pace ahead of expectations, iterative improvement with small daily changes, models learning and adapting, expecting step changes over time.

Q: Macro economic impact on business?

A: Not seen noticeable impact yet; gaming relatively insulated, free-to-play mobile games resilient, advertisers spend based on ROAS not sentiment.

Q: Timing and sequencing of Vector transition, R&D resourcing, organization structure?

A: Increased investment in machine learning, reorganized go-to-market teams, focused on long-term growth with Vector, investing in Vector business despite internal product movement.

Q: Mile markers for Vector rest of year, margin efficiency?

A: Vector is in early innings, milestones ahead, focusing on platform advantages; margin expansion with 80%+ gross margins, prioritizing resource for growth while watching bottom line.

Q: Sequential decline in Create, DB&E across businesses?

A: Sequential decline due to nonstrategic revenues runoff; DB&E driven by ARPU improvements in Create and spend in Grow, Grow's scale driving more upside potential.

Q: Scalability of ad spend on Vector, pacing in 2Q?

A: Vector is in early stages, seeing strong early returns but work ahead; 2Q saw 15% sequential growth, trend continues with strength in July and August.

Q: Strategic importance of mediation, partnerships with Tencent, etc.?

A: Unity uniquely positioned with first-party relationships; partnerships are about optimizing returns over time, process of enhancement with customers.