Unity Software Inc. Q4 FY2024 Earnings Call

Welcome to the Unity Software fourth quarter 2024 earnings call. My name is Daniel Amir, VP and Head of Investor Relations. Our earnings press release and investor spreadsheet is now available on our website at investors.unity.com. Today I’m joined by Matt Bromberg, our CEO, and by Jarrod Yahes, our CFO. 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. 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. Finally, during today’s meeting, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A full reconciliation of GAAP to non-GAAP is available in our press release and on the SEC.gov website. Before we begin, please note that starting this quarter, we have made available on our Investor Relations section of our website a new investor-friendly spreadsheet that includes our quarterly and annual SEC financials, associated non-GAAP bridges, KPIs, as well as new disclosures with incremental details around revenue breakdown that we hope will be helpful. There will be more to come as we endeavor to further help investors understand the Unity investment story. With that, I will pass the call to Matt.

Thanks Daniel, and good morning everyone. On behalf of all the good people of Unity, I’d like to thank each of you very, very much for joining us today. On our prior calls, we’ve talked about the principles powering the transformation of Unity, how we’re building a culture of execution and discipline, re-establishing trust with our customers and the community, and accelerating the pace of product innovation and quality. Although it’s still early, we can clearly see how these principles are fundamentally changing the company and our optimism is increasing with each passing day. Unity’s results in the fourth quarter reflect real progress, meaningfully exceeding our guidance for both revenues and adjusted EBITDA. Revenue on our strategic portfolio grew at its fastest rate in four quarters and adjusted EBITDA beat the top end of our guidance by 26%. It’s good for the company to get back to competing effectively and we’re proud of the team for delivering financial results in Q4 that demonstrate solid execution. But to be clear, it’s not our aspiration merely to compete, we’re here to spark rapid, sustained long-term growth, so I’d like to take a few minutes this morning to detail precisely how we’re going about that. Let’s start with our advertising business. Q4 results in our Grow segment exceeded our expectations and were the best we’ve seen in the last year, driven by strong holiday demand and improved ROI for our customers. But although the results exceeded our expectations, they are clearly not enough to satisfy our ambitions. We firmly believe that we have the assets and the capabilities to grow much faster, and so today we’re excited to officially announce the migration of the Unity ad network to our new AI platform, which we’re calling Unity Vector. The migration begins towards the end of Q1 with this first phase of work slated to be complete by the end of Q2 2025. Ongoing efforts to expand the scale and our quality of our offering will of course continue thereafter. Vector is designed to leverage data from across the Unity ecosystem, integrating self-learning artificial intelligence models that will provide deeper insights, optimize performance and deliver better results for customers. Vector enhances targeting precision and increases audience scale through a sharper analysis of richer data sets, and it’s also able to adapt in real time, helping customers navigate an increasingly competitive mobile marketing landscape. Although our enthusiasm around this planned transition is very high, we do want to highlight the iterative nature of the work and to caution some patience around the time we’ll need to mature the product as it begins to operate at scale. Unity Vector is a significant undertaking and we won’t see the benefits immediately. The caution in our Q1 guide reflects some prudence with respect to this. With that as context, we remain confident that the introduction of Vector will establish Unity as a fundamentally stronger competitor in the years ahead. I also want you to know how proud we are that we’ve been able to move Unity Vector into production at this velocity and to thank everyone involved. It speaks to a significant enhancement in our operating capabilities as well as to the passion and dedication of the team. This same appetite for rapid change, increased growth, and delivering more product value is also very much present in our Create business, so let’s turn there now. Customers have responded immediately to the cancellation of the Runtime Fee in the launch of Unity 6, and we’re now closing new deals and booking renewals at a rapid pace. This was reflected in the 15% year-over-year increase in subscription revenues that we experienced in Q4. Unity 6 is being sampled at a higher volume than our other recent releases, and nearly 38% of our active users have already upgraded. Additionally, Unity 6 has already been downloaded 2.8 million times since launch. In 2024, Unity maintained its position as the top game engine in the world with more successful games being built in Unity across more platforms than any other engine. Of note, about 70% of the top 1,000 mobile games worldwide were made with Unity, including the top three grossing mobile games, and 30% of the top 1,000 PC games on Steam are made with Unity as well. As new kinds of devices are introduced, Unity continues to show strength and flexibility in its platform. For example, we are leading the way in mixed reality and spatial computing. Batman: Arkham Shadow, a made with Unity title, launched exclusively on Metaquest 3 in October and won the Best AR/VR game at the 2024 Game Awards. In fact, seven out of the top 10 AR games in 2024 were made with Unity. In Q4, we also announced a significant co-development partnership with Google that provides day one support of the new Android XR platform. This collaboration reinforces Unity’s position as the leading real-time 3D development platform and highlights the growing investment in XR from major industry players. As XR grows, Unity will grow with it, and this growth will not just be limited to gaming. Beyond gaming, Unity adoption continues to accelerate across important markets like automotive and retail, where our cross-platform 3D visualization tools are very much in demand. We had a stellar quarter in our industry segment with revenue growth of 50%, making it once again our fastest-growing subscription business. We also recently announced several significant new customers, including Toyota who selected Unity to power all its next generation human-machine interface, enhancing the in-dash driving experience for all its customers; and RTX company, Raytheon, who is using Unity to create 3D simulations for facilities planning and factory labs. In conclusion, I’d like to thank all of our teams for their relentless effort as we continue to transform Unity and earn our customers’ trust each day. Together, we’re shaping the future of interactive content creation, building a new platform that will enable the next generation of developers to innovate and move from prototype to profitability faster and more efficiently than ever before. Unity is the only company we know of that can deliver value to developers of games and interactive experiences across the entire life cycle, from prototyping to live service operation right through user acquisition and monetization. That capability and its connection to the 3 billion monthly downloads of applications created with Unity positions us well to become the global platform of choice for creators of interactive content. As the quality and the integration across our product portfolio continue to improve, AI continues to advance and true platform advantages begin to manifest, we’re confident we’ll be able to deliver significantly more value to customers and in the process transform our business. Thanks again for your time and attention this morning. I’d like now to extend a warm welcome to Jarrod Yahes, our new CFO. Jarrod’s an outstanding addition to our leadership team and we’re all really looking forward to working closely with him. I’ll turn it over to Jarrod now for an overview of our financial performance.

Thanks Matt. I am convinced of Unity’s extraordinary potential based on our truly global scale and unique end-to-end customer value proposition. Unity’s focus is on our business in terms of how we’re allocating capital and delivering returns for shareholders. We plan to focus R&D towards the highest impact initiatives in order to accelerate revenue growth with a joint goal of capitalizing on the largest and fastest-growing market opportunities while fulfilling the promise we made to customers and developers who use Unity every day. We intend to complement revenue growth with ongoing margin expansion and drive operating efficiencies over time, and we’re committed to driving growth of adjusted EBITDA and free cash flow in order to maximize return for shareholders. Lastly, we expect to be prudent stewards of shareholder capital. We have a robust balance sheet with excess cash and solid free cash flow. Our near-term expected uses of capital will be to focus on organic innovation at the company and gradually de-lever to ensure a conservative balance sheet. Turning to the fourth quarter, I am pleased to report that Unity meaningfully exceeded our guidance for both revenue and adjusted EBITDA. Revenue from our strategic portfolio was $442 million, up 4% year-over-year or $15 million above the high end of our guidance. Both businesses outperformed solidly. Create solutions revenue from our strategic portfolio was $139 million, up 9% year-over-year and up 6% sequentially. The year-over-year increase was driven by another quarter of strong 15% growth in subscriptions revenue combined with accelerated growth in industry revenue of 50%. Investors should note that the strong fourth quarter growth in subscription revenues does not reflect the positive impact from the recently announced price increases. Those price increases will roll in ratably from our pro and enterprise customer tiers over the course of 2025 and 2026. Grow solutions revenue from our strategic portfolio was $303 million, up 2% year-over-year and up 2% sequentially. This is the best quarter we’ve seen in the past year and the solid results were driven by better execution combined with seasonal demand. Supporting the strong revenue results, Unity experienced sequential improvements in terms of both dollar-based net expansion, which improved by 2% to 96%, and customers over $100,000 which improved to 1,254 customers. During the fourth quarter, revenue from our non-strategic portfolio was $15 million, down 92% year-over-year as a result of our portfolio reset. We expect that in 2025, this revenue will be approximately $30 million for the full year and remain stable thereafter. With the hard work of winding down the non-strategic portfolio now behind us, going forward we will report and guide to total revenues and provide total revenues for each of Create and Grow, simplifying our disclosures for investors. Turning from revenue to non-GAAP profitability, adjusted EBITDA for the quarter was $106 million, representing 23% margins. Adjusted EBITDA exceeded the top end of our guidance by 26%, and for the full year Unity delivered adjusted EBITDA of $390 million at 21% margins. Adjusted EBITDA benefited from improving gross margins and operating leverage in the platform, combined with solid cost management across expense lines. Adjusted gross margins improved from 82% in 2023 to 83% in 2024, while adjusted G&A, sales and marketing, and R&D expenses were down by a combined $235 million in 2024. There is still untapped operating leverage in the platform and we are poised to improve profitability as we grow. Unity had exceptional free cash flow in the fourth quarter and for the full year. Free cash flow was $106 million in the fourth quarter, up 74% from $61 million in the prior year. Free cash flow for the full year was $286 million, up 60% from the prior year. Cash at the end of the quarter was $1.5 billion and debt was $2.2 billion. With significant free cash flow generation in the past year, we took the opportunity to de-lever, repurchasing $415 million of debt while maintaining a robust cash balance. Based on our free cash flow profile and the excess cash on our balance sheet, Unity has a clear opportunity to gradually de-lever over the next several years. Going forward as we focus on per-share returns, we’ll also aim to reduce shareholder dilution from stock-based compensation. Share count dilution from stock-based compensation has gone from just under 3% in 2023 to just under 2% in 2024, and we believe it has the potential to come down further. Stock-based compensation expense is also expected to fall by 30% in 2025 with the lapping of M&A-related vestings and a sharper focus on minimizing dilution. With that, I’d now like to turn to guidance for the first quarter. We’re expecting total Q1 revenues of $405 million to $415 million and adjusted EBITDA of $60 million to $65 million. Revenue guidance takes into account our expectation for reduced revenues from our existing ad models in the first quarter and the gradual nature of our transition to Unity Vector. Our revenue guidance also takes into consideration seasonal demand and additional working days in the fourth quarter as compared to the first quarter. Our adjusted EBITDA guidance factors in our expectations around first quarter revenue as well as normal increases in payroll-related expenses and incremental cloud costs associated with ongoing investments in Unity Vector. One final note - while we have typically provided annual guidance during our fourth quarter call, we’ll be transitioning to quarterly guidance in 2025 given the rapid change and transformation taking place in our ad business. With that, I’d like to thank you for joining us on Unity’s first quarter 2025 conference, and let me turn the call over to Daniel so that we can take your questions.

Thank you, and with that, we will open it up to questions. If you’re interested in asking questions, please click on the Raise Hand button at the bottom of your screen. At that point, we’ll allow you to un-mute the microphone. We’ll take a couple seconds here. All right, so the first question is from Matt Cost at Morgan Stanley.

Hey guys, can you hear me?

Yes, we can.

Awesome, all right. Good morning. Thank you for taking the question. I guess I just want to start with the guide, just to make sure we can break down the pieces here. I think it’s a step down of, like, $40 million to $50 million quarter-on-quarter. How much of that is reduction in the strategic revenue, which I think was $15 million in 4Q, how much of that is driven by step-downs in the legacy ad products in Grow, and is there any offset in there from the new ad model stepping in? Then I have one follow-up. Thank you.

Hey Matt, thanks very much for your question. I’ll let Jarrod take most of this question, but I just want to reiterate where we opened, which is at the end of the day, most of this is just driven by some prudence about precisely the timing of the revenue lift we’re going to get through this transition. It’s a big product roll-out and one that takes time to take root as we operate the models at scale, and that’s really the principal driver. But I’ll leave it to Jarrod to go into a little bit more detail.

Yes Matt, just a couple comments. Number one, I think we gave some disclosures around our non-strategic revenue for the quarter, being $15 million for the fourth quarter. We’d expect that to roll forward. The majority of the prudence and the conservatism is really around the transformation that’s taking place in the ad business. As you would have seen in the fourth quarter, you’ve seen great, strong growth in Create and the growth in our subscription business - we feel good about that. Our existing models performed well in the fourth quarter. We’re proactively deciding to make a shift. We think this is a necessary shift where we can be more competitive and ultimately accelerate the revenue growth of the company.

Great, thank you. Then on the Create side, the 15% growth in subscription, and I think you called out no impact from the price increases that were announced in September, what are the drivers of that subscription growth? Are you seeing some step-up in seats? Is there some other pricing tailwind? What are the moving pieces to have 15% without those September price increases kicking in yet?

Yes, Matt, you'll recall that we previously implemented a round of price increases that are now having an impact. The other significant factor is the renewed engagement we've experienced with our customers. It's not solely due to the recent price changes taking effect, but rather because we were somewhat stagnant before. As you remember, the anticipated price increases were associated with upgrades to Unity 6, which led to a pause in our discussions. There were many ongoing conversations about new deals and expanding relationships, and the renewed connection with our customers has primarily resulted in increased deal velocity, putting us in a much stronger position.

Okay, thank you so much.

Thank you Matt. The next question is Gili Naftalovich from Goldman Sachs.

Hey everyone, thanks for taking the questions. I had two, one a little bit more on the quarter and then one that’s a little bit more on the competitive landscape. If I may, on the first, you mentioned 38% of Unity users have moved to Unity 6 already, or are part of the migration. I believe that’s pacing well against your prior model update, so I’m curious to know how that’s tracking versus your initial expectations and maybe how that may affect your pricing may be a more material contributor to growth in calendar ’25.

Absolutely. Hi Gili, nice to hear from you. Yes indeed, it is tracking really well, and we do think it’s tracking more positively than prior new releases we’ve had, so we’re really, really encouraged about it. You’ll recall that when we launched Unity 6, again in addition to what we thought was more customer-friendly pricing, we also really helped our customers understand that we want to focus on core values that are really, really important to them - stability, performance, and ease of upgrade, and we want to really lean into those values while also, of course, pushing the binary forward and adding additional features, but really, really making sure that we’re delivering on the core. I think that message has really landed in a positive fashion for our customers, and again, keep in mind that our big live service customers could be operating on Unity 6 for many, many years, so making this transition in the right way and leaning into some core values that are going to make it easier and better for customers to use Unity than ever before is just really important, and we’re seeing a lot of really positive velocity from it.

Understood, thank you. A bit on that thread, the second question I had was a bit more on the competitive landscape. We’ve heard Microsoft launch its video gaming development offering today, and Open AI has suggested that AI tools, like Sora, can be used for game creation in the future. While appreciating these are seemingly a lot more console and web-based today, it’d be good to get more color around your initiatives on how you’re taking this on and making sure that Unity is in the forefront of innovation and market leadership with Unity 6, and maybe future releases beyond that.

Yes, absolutely. It’s a great question. Here’s the most important thing to remember and understand about Unity - we are a platform, and our greatest strength has always been our extensibility, so we’re going to be the assembly point for building interactive experiences and deep systems around 3D assets. Those 3D assets can be created outside our tool, can be created inside our tool. As long as we can ingest those assets and then begin to build experiences and systems around them, we’re going to be in really great shape. I have no doubt, and we’re all really excited by the advances in generative AI that we’re seeing across the world right now, but building a major live service game that’s played by millions of players is not just about creating assets, it’s creating deep online systems, optimization systems that engage players over the long term, and it’s our position to want to be the platform that creates all those systems and to ingest any and all assets as we go. I hope that makes sense.

Yes, thank you.

Great. The next question is from David Mak from Arete.

Hi, thanks for taking my question. Just trying to get a sense of the fundamental rebuilt of Grow solutions and the timeline involved in that. You mentioned being a stronger competitor over the years ahead, but what is the expected timeline between where you are now and the new products hitting the market? It would also be great to hear what the key personnel are working on specifically. Thank you.

Hi David, it's great to hear from you. As we've discussed previously, over the last two quarters, we have been focusing on developing the Unity Vector system, and I believe we mentioned last quarter that we started testing it with live data. Our testing has progressed quickly, and we are happy with the results, so we're planning to fully migrate to our new system by the end of this quarter, with the initial phase expected to be completed by the end of Q2. It's important to recognize that this is an ongoing iterative process. We will continuously build, scale, and improve the system’s velocity and quality, so this is just the beginning. The system is designed to enhance three main aspects, and we expect to feel the impact of real-time adaptive self-learning models most significantly in these areas. Firstly, we aim to achieve better conversion rates, allowing us to predict which new games players will prefer more accurately. Secondly, it’s also crucial for us to match valuable players with the right games, and finally, we want to improve our bidding capabilities in competitive auctions for those players. These are the three key elements we've been focusing on, and we are optimistic that over time, they will greatly enhance the return on investment we provide to our customers.

Thanks very much. Just a quick follow-up, if I may. You mentioned improving conversions. Am I right in thinking that user acquisition tools and demand-side platform revenue is a relatively small part of Grow solutions today, and so if you do launch an effective product, this is effectively a new business for you and it would be more impactful to Grow solutions, as opposed to just a slightly higher growth rate over the years ahead? Thank you.

Hey David, no - I wouldn’t put it that way. We have a substantial user acquisition business today, but it’s one that hasn’t been as competitive as it needs to be. The way I think about this is that it’s a good business today, but we hope and expect that over time, it will become a great business.

Thanks again.

Thank you David. Next question is from Parker Lane from Stifel.

Hi guys, can you hear me okay?

Yes.

Great. Looking at some of those deals in the industries business - Toyota, Raytheon during the quarter, and the overall growth rate, it seems like a lot of things are going well there. Wonder if you could talk about pipeline development and what you see for that business into 2025, and how competitive are some of these large enterprise deals on the industries business today?

Thank you for the question, Parker. We are very excited about the growth we're experiencing in our industry business and the continued growth we anticipate in Q4, and we expect this trend to persist. It's our fastest growing subscription business, with a year-over-year increase of 50%, which is very encouraging. Significant deals with major players are always competitive, and we do face competition in the market. However, we believe we offer a unique service, especially in 3D visualization and interactive experiences, which is starting to yield positive results for us. We are concentrating our efforts on the automotive, retail, and manufacturing sectors. We have recognized the advantages of focusing on both our product offerings and our go-to-market strategies, and we believe that we provide value that is not easily matched by others. Additionally, our business has mainly been driven by demand rather than sales pushes. Our tools are popular across various industries, leading to groups of developers adopting our tools independently, with us later learning about their use and fostering relationships from there. We aim to enhance this approach with a more proactive go-to-market strategy. We are making significant efforts to expand our partnerships with resellers and large system integrators, which will enable us to efficiently close larger deals. We see no reason why this should not happen, so we are feeling very optimistic about the prospects ahead.

Got it. One quick circle back to Vector - it’s a significant undertaking, it will be an iterative process through the years. Just wondering how much of the R&D groundwork has already been laid here versus some incremental investments that we’re going to be seeing manifest in the model throughout 2025.

Yes, the vast majority of the R&D groundwork has been laid, to your point, so the investment you’ll see going forward will likely mostly be in the cloud area, where we’re continuing to train models as they expand; but even that should become more efficient over time and is something that’s done more efficiently with our new models than was done with our old model, so we’re feeling pretty good about how it will play out through our P&L over time.

Understood, thanks again.

Thanks Parker. Next question is Tom Champion from Piper Sandler.

Hey, good morning everyone. Matt, you’ve been very candid about competitive challenges in Grow, so just curious how Vector addresses some of the issues with the ML stack deficiencies and data infrastructure. Then secondly, how should we think about the ironSource network in the context of the transition to Vector? Thank you.

Hey Tom, thanks for the question. Again, as we’ve talked about many times before, it was our view that in order to compete over the long term, we needed a fundamental change in our tech stack and how we’re approaching this business, and I think when we first began talking about it a couple of quarters ago, it was maybe a sense of who knows, is this a science project, is this going to take years, how long is it going to be, is it going to have massive impacts on margins? I think what’s really exciting about where we are now is that we’re starting to see this come into the real world for us, and we’re going to start seeing it have impacts. I’m really, really pleased and proud of the team for being in a position to do this build-out and make this major transition so quickly. To your point, we do expect it to put us in a better position competitively over time, but understanding that the work here is just beginning and that there is much of it still ahead of us. But having a new model that provides a more detailed and consistent understanding of the implicit preferences of gamers at the game level gives us a more granular view and a better prediction of what gamers will respond to. This is really important, and we do believe over time it’s going to create a lot of value. Our new models have fast input processing, they iterate more quickly and in a more timely way, they’re more accurate. We’ve incorporated more real-time features so that the model can dynamically reflect gamers’ preferences. These are all fundamental shifts that, again, lots of work to do, but put us in a position to be able to compete for the long term.

Thanks Tom. Next question is Andrew Boone from JMP Securities.

Thanks so much for taking my questions. I’ll stick with advertising. Matt, can you talk about the opportunity to better integrate data sources into the ad stack? How much does Vector incorporate in terms of just taking additional information that you guys have available as Unity versus what was the previous model? Then looking at some of your competitors, there’s been an expansion of the gaming advertising category into other verticals. Can you talk about that broader opportunity of what may ecommerce look like or other industries that may be available over time? Thanks so much.

Yes, absolutely. Thanks for the question. Listen - as we’ve said before, we believe the Unity platform has some unique value and that ultimately our deep understanding of player behavior globally is an asset that, through incorporation into our data models, is going to have a meaningful impact. Keep in mind that we have nearly 5 million DAU of players that interact with our Runtime globally, and historically we have not leveraged this connection, this first-party connection with players at all. That’s a connection that dwarfs the size of other networks in the world, and we were working really hard to change this and to build these capabilities in a privacy-safe manner where we’re getting opt-in permission wherever that’s necessary. All the fundamental work we’re doing is designed to create an environment where we can incorporate more and more of that data over time, so it’s very much part of our plans and part of the work that we’re doing. As it relates to ecommerce and other verticals, I’m really bullish on the opportunities that we have there. I think that what folks are waking up to is that the quality of the relationships that we and others have in this space and the scale of our audiences are going to be really valuable across other verticals and other ad types. That’s because gamers are basically everyone, and to the extent we’ve developed a really detailed understanding of consumer behavior and really good systems, that’s going to benefit us and the industry in lots of different ways. For us, we’re focused primarily in the near term here in the gaming vertical and in fundamentally improving the way we address our core customers, but we’re also really bullish over time that there is expansion there and excited that the market is waking up to that.

Thanks Andrew. Next question is Ross Sandler from Barclays.

Great. Can’t let Jarrod get off the hook here without asking a cost and margin question on his debut here. Jarrod, I guess the overall comments about improving margins in 2025 and beyond, you guys mentioned increased cloud costs for Vector model rebuild. Can you just put some numbers around that and maybe around your go-to-market once Vector is launched, and I guess broadly as we look out over the next couple of years, if Vector revenue does start picking up, should we see the kind of high incremental margins that we see broadly in the digital ad market starting to show up here? Thanks a lot.

I appreciate your persistence on my first call, Ross. Our company has performed well in improving margins and ensuring we have an appropriate cost structure for our current business conditions. Analyzing our EBITDA margins, we see a year-on-year increase of one percent. We have effectively reduced general and administrative costs while successfully increasing gross margins, which makes us feel confident about our achievements. These improvements occurred alongside necessary investments in Vector. In recent quarters, we’ve noticed a $10 million increase in costs related to goods sold, where many of our cloud expenses are accounted, as well as in R&D costs, illustrating our commitment to these investments. We are successfully expanding our margins while investing in Vector, which we believe is the right approach. Our business maintains an adjusted gross margin of over 80%, providing us with significant leverage in our operational model. As we continue our growth and see acceleration, expanding margins will become even more feasible. We expect to gain benefits from Vector in terms of both revenue growth and operating leverage, and we are optimistic about that. Our immediate focus is on making the necessary investments in Vector to return to a revenue growth pace we find satisfying. However, we believe we can balance this focus with margin expansion.

Thanks Ross. Next question is Chris Kuntarich from UBS.

Great, thanks for taking the question. I just want to touch on Vector here for a second and really focus around 2Q and the migration that’s going to be unfolding here. How should we be thinking about this more tactically? Are certain advertisers going to be seeing this earlier in the quarter and it’s going to be rolled out more so on a regional basis, or should we be thinking about some of this functionality and your ability improving around conversion and matching the right user with the right game, and the efficiency of your bids within the auctions just improving through the quarter and all advertisers will be seeing this really at the start of 2Q? Thanks.

Thanks for the question, Chris. To clarify, the integration will first focus on iOS traffic before moving to Android traffic, which will occur in two stages. The initial phase emphasizes enhancing our conversion models to improve results. The second phase, which will develop over time, will focus on user value by matching our most valuable players with appropriate games, refining our bidding models, and assisting us in effectively participating in competitive player auctions. This is why we are approaching it gradually, resulting in growth over time.

Got it, thank you.

Thanks Chris. Next question is Michael Funk from Bank of America.

Yes, thank you for the questions, guys. First, a point of clarification on Vector and the timing of the rollout. You’re now saying migration end of 1Q. I think previously you said midyear - that was the first part. Then second, the first quarter guidance, how much of that incorporates disruption to the Grow business due to the migration versus, say, seasonality?

Yes, thanks for the question, Michael. The rollout has progressed faster than we expected, and the work has been very efficient. We are pleased to start the rollout about a quarter ahead of our initial timeline, though it's an iterative process, which you are correct to point out. Regarding the caution in our guidance for the first quarter, it does account for some disruption in our existing ad business as we make the transition.

Can you share a performance comparison, new versus old model, maybe genres, geos or devices, what you’re seeing?

Yes, that work is kind of ongoing and not something we’re talking about just yet; but at a high level, and this is brilliantly obvious, our goal is for the new models to outperform the old models over time.

Great, thank you again.

Thank you for the question. I want to clarify some of the queries and responses we've received about the Vector transition. Currently, we're witnessing a consolidation of several operating assets that were previously separate. If we consider ironSource, Unity ads, and others individually, they are now being combined into a single asset. There's an expectation that, as part of this transition, some customers may not completely migrate their budgets. I'm interested to know if this is accurate and if you've noticed any indications of either incomplete migration or any sort of hesitation on a like-for-like basis so far.

Thank you for the question. The work around Unity Vector primarily focuses on the Unity end network. We are excited and optimistic about the opportunities we have with the ironSource ad network and will continue to actively sell that network as well. Regarding the migration, we are consolidating several assets we have, including ironSource and others, into one central data source. We believe this will enhance all the products, but it does not mean we are combining those products into one.

Understood, understood. If I can just ask one more clarification around Create performance this quarter, I think Matt, at the top of the order, asked the question around what’s embedded here. Maybe to put a finer point on that, was there a plus to pro migration benefit in 4Q, and as we’re thinking about organic growth and the trajectory of the non-gaming editor business, any directional commentary you can give us for ’25 or the contribution for the former item? Thank you, guys.

Yes, it’s my pleasure, thank you. Yes, there was some impact of the plus to pro migration, to your point. There was definitely impact - it increased velocity in our business, which we were really, really excited about, as well as the impact, as I said, of just resetting our relationships with our customer base and spending more positive time with customers. We think all three of those trends will continue and that we’ll see in 2025, in addition to those three trends, the beginning of the rolling in of the major price increases around our subscription business, which you’ll see in addition over ’25 and ’26.

Understood, thank you again.

Thank you.

Thank you. With that, we’ll wrap up, so thank you for dialing in today. We look forward to seeing you at one of our upcoming investor conferences that we’re going to have this quarter. Have a great day.