Unity Software (U) Q4 2023 Earnings Call Transcript


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Unity Software (NYSE: U)
Q4 2023 Earnings Call
Feb 26, 2024, 5:00 p.m. ET

Contents:

  • Prepared Remarks

  • Questions and Answers

  • Call Participants

Prepared Remarks:

Unknown speaker

Welcome to Unity’s fourth-quarter 2023 and year-end earnings call. My name is Daniel Amir, VP and head of investor relations. After the closing of the market today, we issued our shareholder letter. That material is now available on our website at investors.unity.com.

Today, I’m joined by Jim Whitehurst, our interim CEO; and by Luis Visoso, our CFO. But before we begin, I want to note that today’s discussion contains forward-looking statements including statements about goals, business outlook, industry trends, market opportunities, expectations for future financial performance, and similar items, all of which are subject to risks, uncertainties, and assumptions. And you can find more information about these risks and uncertainties in the Risk Factors section of our filing at sec.gov. Actual results may differ, and we take no obligation to revise or update any forward-looking statements.

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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 shareholder letter and on the sec.gov website. Great.

What we’ll do now is similar like what we’ve done in previous quarters. We get a number of inbound questions during the quarter, and we will start with two key questions. The first to Jim, and then the second one to Luis. So, the first question is to Jim. After five months here, can you give your take on Unity and kind of provide us also an update on the CEO search?

Jim WhitehurstInterim Chief Executive Officer

Sure. Yeah, I can’t believe it’s been almost five months. I have to say, I’m even more excited now about the opportunity in front of us than I was when I joined. You know, we’re obviously in the midst of a reset, but let me spend maybe just a minute talking about why I’m so optimistic, and then I’ll come back to the CEO search afterwards.

So, first off, I believe we’re making the right interventions to position us to win for our customers, not just today, but for the long term. And let me just quickly hit three of those. So, first off, we’ve substantially focused our portfolio on products where we’re confident that we have unique value for our customers and therefore have permission to win. And we’re hearing great feedback. From our games customers, they’re seeing the focus in our product roadmaps and our intended attentiveness to their needs. And so, hearing great feedback there.

Same on the industry side where not just from what we’ve been doing in the last few months, but in particular, our focus on repeatable software and the partnership we announced with Capgemini. It has, I’ve heard from several customers, really positive view of that direction around focus. We’ve also instituted a much leaner cost structure that provides us a healthy profile. And then, from there, we can scale in a profitable way. And third, we’re in the process of improving our growth performance, specifically our user acquisition through better use of data and stronger models.

And I’m very confident you’ll see accelerating growth in our grow business going forward. The second reason I’m optimistic is that, while 2023 was obviously a challenging year for us, we saw some key proof points around the durability of our franchise. You know, so first off, even in the aftermath of the pricing change, our core subscription business, excluding China, grew 18% in Q4. Put it simply, we are essential to the games industry. And then, with industry, it was actually our fastest-growing segment, and I believe we’ve just gotten started and we have meaningful growth potential there.

And the partnership with Capgemini should even further accelerate growth there. And finally, our engagement with our editor continues to be super super strong. We saw that at Unite in November, and we plan to exceed our customer expectations with our next releases of the editor through the course of this year. And the final reason I’m optimistic is that, obviously, the reset work continues through Q1. It obscures our — our financial progress, but we expect to see strong financials in the back half of this year.

To the second part of the question, you know, I don’t have a super long update. The board continues to conduct a thorough process to make sure we hire the best leader to write the next chapter of Unity’s story. And I’m very committed to supporting the board and the board’s decision.

Unknown speaker

Thank you. Luis, this question is for you: Can you provide additional perspective on the company’s direction following the reset?

Luis VisosoSenior Vice President, Chief Financial Officer

Hey, Daniel. Thank you. Yeah, absolutely. We actually feel very proud of what we’ve accomplished.

We’ve accomplished a lot in a short period of time. And we believe that, as Jim just said, that this intervention has positioned Unity for success going forward. If you look back at the end of last year, we started a two-phase company reset that we expect will enable us to sustainably win with both customers and shareholders. The good news is that phase 1 is mostly behind us. You know, this first phase was all about resetting our portfolio, resetting our cost structure so that we can refocus on our core businesses, the engine, and the cloud monetization, while narrowing our investments on new businesses.

And as a result, we’re focusing on businesses where we believe we can sustainably create value for customers and — and generate a return for — for the company. The unfortunate consequence of this first — first — first phase is that we had to let go of about 25% of our colleagues. That’s super hard. These employees made many many contributions to Unity and help customers achieve their goals. We thank them for all their work and are really sad to see them go.

Now, what’s exciting is actually the second phase of the reset. This is about reigniting revenue growth with healthy financials. And the good news is that that starts this year. We expect revenue growth to accelerate in the second half of 2024 and maintain attractive levels of revenue growth thereafter while maintaining and extending our profitability.

Unknown speaker

Thank you. So, now we go kind of to the second part here for Q&A. So, just for housekeeping, if anybody wants to ask a question, you need to raise — hit the raise-the-hand button on the bottom of your screen. So, we will take a couple seconds here for people to now putting questions.

OK. So, the first question comes from Jason Bazinet from Citi.

Jason BazinetCiti — Analyst

Thanks so much. I was just wondering if you could unpack a bit just sort of the recast 2023 numbers after the portfolio review. I think the revenues came down 450 million, but the EBITDA came down 174. And then, I tried to read the text to understand if some of the things that you divested were EBITDA loss-making.

And it said they were, but then in some of the footnotes, there was no real number in there. So, can you just talk a little bit about the recast 2023 base and those adjustments?

Luis VisosoSenior Vice President, Chief Financial Officer

Yeah, we know it’s — it’s not easy to follow all these numbers. So, we put a table on our shareholder letter. I think the first thing is obviously we had this one-time gain from Weta FX, right? We — we show that as $99 million in — in revenue, for example. So, you see that in the table, which had a $102 million benefit in EBITDA.

So, you have to take that into account because that’s a one-time gain. The second thing is, the portfolio changes that you alluded to, that $283 million in 2023, most of that is in grow. A small portion, to be precise, 15 million is within grow, which is the Luna business. So, you have to take that into account. That operated at a at a significant loss, which is why we’re exiting these businesses, because we could not create a return for us while providing value to our customers. We did not quantify that for you because it’s not audited, but — but it’s a very significant number that we’re getting rid of.

And third, you have these customer credits that we explained in the shareholder letter and which we mentioned in the 10-Q last quarter, which was $72 million in revenue and $72 million in EBITDA. So, if you really look at the comparable base for ’23, you should start with $1.7 billion in revenue and $274 million in EBITDA. And that’s what we’re we’re building from. Does that answer your question?

Jason BazinetCiti — Analyst

Thank you. Yep. Thank you.

Unknown speaker

Thank you. Next question is Dylan Becker from William Blair.

Dylan BeckerWilliam Blair and Company — Analyst

Yep. Thanks, guys. Two if I could squeeze them. Maybe, first, combination for — for Jim and Luis here.

You’re kind of nearing the end of the strategic review. I wonder how you’re thinking about, to maybe the earlier point, Luis, on — on getting rid of some loss-generating businesses but also kind of catching up investment as we think about kind of doubling down around the core. Kind of what’s the the right way of thinking about kind of the trade-off of the two and how that layers into kind of the growth and margin outlook in the business over time?

Jim WhitehurstInterim Chief Executive Officer

Yeah. Well, I’ll just start quickly on. Look, the core of this, and we try to be consistent all along internally as we’ve been going through the reset, is this is all focused on getting a portfolio where we believe we can win and then making sure that we are appropriately resourcing, you know, that portfolio to win. And so, you know, I was clear internally that this exercise wasn’t about optimizing 2024 EBITDA; it was about getting us lean and efficient and fully resourcing the areas we expect to win because, ultimately, you know, we believe there is a tremendous amount of growth in the company.

So, Luis is going to talk a little more about the specifics.

Luis VisosoSenior Vice President, Chief Financial Officer

So, I totally agree, Jim. You know, Dylan, the way to think about it is we fully funded the priorities that we had in mind, and those are funded to the right levels. And those that we just didn’t think we — we could generate a return for us or for our customer, we totally defund it. You know, being half pregnant if you wish just doesn’t make sense.

So, that’s why we feel confident about our ability to reaccelerate growth because we’re funding those things that really matter.

Dylan BeckerWilliam Blair and Company — Analyst

OK. Great. Super helpful there. And then, maybe one just —

Jim WhitehurstInterim Chief Executive Officer

I would just like to say on that, Dylan, just — what I mean, as we kind of exit the years, we get — I think we’re — in general, have our mind, this should be a Rule of 40 company and be that way for — for quite a while, if that gives you a sense of kind of roughly where we see ourselves.

Dylan BeckerWilliam Blair and Company — Analyst

Absolutely. Yeah. OK. OK.

Appreciate the color there, Jim. Maybe you mentioned some of the platform investments, too, and Unity 6 upselling. I guess, how should we think about the pricing and maybe conversion, how you’re kind of incentivizing new features within that platform as well? It’s probably more of a 2025 kind of type of story. But what — how that kind of fuels the commentary around kind of accelerating momentum throughout the back half of this year as well and kind of thoughts on Unity 6? Thanks.

Jim WhitehurstInterim Chief Executive Officer

Well. So — so, I’ll start. And, you know, frankly, we are resourcing both Unity 6 and Unity 7. You know, because — well, we won’t go too far in the — the details of that.

Please come to GDC and you’ll hear a lot more details. So, we do think that we are heavily funding our roadmap — roadmaps against our core kind of product offering. And we’ll talk more about that here in a couple of weeks at GDC. In terms of, you know, how we’re thinking about kind of pricing against that, you’re right, it’s mainly a 2025 kind of story.

So, it really doesn’t affect the numbers that you see this year. What I will say is we think there is a lot of organic growth in this portfolio. So, we’re not heavily reliant on just, you know, kind of raising price. I do think there’s more value we provide in our offering.

But when we look at our position in the games industry, when we talk about long-term growth, that has more to do with our current product suite and kind of future offerings. We can have more than pricing leverage that we haven’t really kind of laid that out for 2025 and beyond in a way that could give you a — you know, quantify the entity stretch.

Luis VisosoSenior Vice President, Chief Financial Officer

Yeah. Dylan, maybe just two points to reinforce some of the things Jim is saying. You saw that our core business, excluding — our core subscription business, so that’s the added — or excluding China is growing 18%. So, very healthy levels of growth.

And when we look at engagements or new projects being started, so the engagement with the editor continues to be very very healthy. So, we’re very excited about that. And obviously, there is great interest in all our AI tools from our customers. So, they are — they are — the music is now available. So, they are using it.

And — and we were happy with the progress we’re making, Dylan.

Dylan BeckerWilliam Blair and Company — Analyst

Great. Thank you both.

Unknown speaker

All right. So, our next question is Brian Fitzgerald from Wells Fargo.

Brian FitzgeraldWells Fargo Securities — Analyst

Thanks, guys. In the shareholder letter and maybe as a follow-on to Dylan’s question, you — you unpacked growth acceleration in the second half of the year. Can you parse that out a little bit? Is that just primarily from runtime fees? Is it the release of Unity 6? Or is there something else feeding into that maybe the — the growth of industries like you talked about? Thanks.

Luis VisosoSenior Vice President, Chief Financial Officer

Yeah, really, these runtime fees does not have an impact in the second half or nothing meaningful. So, the reason why we are excited about and confident that we’ll see some acceleration is really the back-end innovation that we are bringing across all our product lines. You know, Jim talked a little bit about some of the innovation we’re bringing on growth to make our products more competitive, data performance, return on ad spending. So, we’re making a ton of interventions then there so that our business can accelerate. And — and it’s really that, no, it’s the innovation across both businesses, both in games and across industries where we expect to accelerate growth.

Jim WhitehurstInterim Chief Executive Officer

Yeah. The only thing I would say — I would add is, you know, we’re in the middle of a reset. And so, we were pretty conservative in the first half of the year because, obviously, you know, when we are especially dealing with people, right, that — that gets to be very distracting. And so, we’re pretty conservative in the first half of the year.

But we just kind of look at kind of the market, you know, and where we expect as we go forward, is another reason you’re seeing that is both we have confidence in the back half, but it’s also if you look at first half to back half, there’s also an assumption around a little bit more distraction right now that we will get behind us here as we finalize the reset.

Brian FitzgeraldWells Fargo Securities — Analyst

And it sounds like there’s there’s growth in the grow side of the business as well. When you — when you talked a little bit about what’s happening sequentially and it being down, was that just kind of developer discontent with — with kind of how the real-time — runtime fees were rolled out and — and or is it more to what you’re talking about, we’re going to develop on the tool sets and — and make the grow side of the business more data-informed, more competitive?

Luis VisosoSenior Vice President, Chief Financial Officer

Yeah, we — we didn’t really see as much of an impact. There was an impact, as you mentioned, but it was not very meaningful in Q4. We are not guiding by segment going into 2024, but — but yes, you’re right, we’re expecting an — an improvement in both businesses throughout the year for the reasons that Jim mentioned.

Brian FitzgeraldWells Fargo Securities — Analyst

Appreciate it. Thanks.

Jim WhitehurstInterim Chief Executive Officer

Yes. Just a little bit more on that. Just, you know, to be blunt, you know, last year, we were doing a lot of kind of integration with ironSource and Unity. And frankly, when that happens, you become maybe a little less focused on, you know, driving feature velocity.

And so, I do think that level of extra — of distraction kind of put us a bit behind. That’s now behind us. We have the teams integrated, and we have a plan that I think we’re very confident in, closes any competitive gaps that we have. So — and that’s somewhat reflected in the growth numbers in the back half of the year.

Brian FitzgeraldWells Fargo Securities — Analyst

Excellent. Thanks, guys.

Unknown speaker

Great. Next question is Tim Nollen from Macquarie.

Tim NollenMacquarie Group — Analyst

Great. Thanks. Actually, perfect segue into my question from the last bit there, which is about the ironSource integration. Could you just talk a little bit more about, I guess, what was not an immediate integration when the — when the — when the acquisition was made? Now, it sounds like you feel like you have completed the acquisition.

I’ve noticed some fairly big-name departures from ironSource. If there’s anything you could talk about that. And then, could you just clarify about the 72 million in credits? Just is this something that was done to roll people onto the level-play platform back in the day? And then, why is that being unwound now?

Jim WhitehurstInterim Chief Executive Officer

Well, let me maybe start on the work stuff. Well, you know, I mean, naturally, when two companies come together, first off, you need to make sure that you’re retaining the right people, you have a continuity of business, and then over time, you bring the pieces together. And so, we were working on that through the course of last year. And that kind of culminated ultimately without, say, kind of a full integration, you know, at the end of the year, as we kind of came into January, is part of our overall restructuring. So, we’re a little bit more of a functional organization.

So, for the first time, we have one owner of commercial for kind of a CRO for the ads business across both Unity and ironSource. And we have one leader of product and technology across both. So, you know, we frankly had two data science teams until January. We now have one.

We had two different kind of data engineering teams. We now have one. And so, you know, naturally, just how you think about sequence in acquisitions, you know, kind of takes a period of time. And so, we are there now. And we feel like these single teams and singular focus will serve us well.

You know, as part of that, naturally, you know, the founders who ran kind of ironSource were kind of ready to step back and create room for, you know, people within ironSource to — to come in and take roles. And so, as part of that whole integration, I think they decided it was time to step back. I still talk to many of those leaders every week. They’re heavily engaged and care about the success, obviously, of their baby, in ironSource, but more broadly for Unity as we go forward.

Luis VisosoSenior Vice President, Chief Financial Officer

Yeah. To the second part of your question, Tim, so we’ve — we’ve communicated this, you know, for some time now, there were some incentives that ironSource provided to their customers before the merger, right? And — and some of those integration fees were returned to us, and we recorded those as revenue throughout the year. So, what we wanted to make sure is that you all had all transparency in what those amounts were. So, we — we included that in the table on — on where we show our revenue by quarter for growth. So, most of the difference between that and our reported number is the integration fees that were returned.

The only difference is $15 million from Luna which basically spreads, consistent throughout the year. So, you — you can assume $3 million to $4 million per — per quarter, but everything else is related to the integration fees that were returned to to Unity. So, we’re just giving you that exact number so you have it. It’s in the base.

Tim NollenMacquarie Group — Analyst

OK. Great. All very helpful. Thank you.

Unknown speaker

Thanks. So, next question is from Michael Funk at Bank of America.

Michael FunkBank of America Merrill Lynch — Analyst

Yeah. Thank you for the questions. So, a couple if I could. Looking at the revenue and the margin guidance for the year, I think you said 25%-plus EBITDA margin exiting fourth quarter.

I mean, it seems like trajectory that could be predicted throughout the year would imply a higher margin by fourth quarter. So, just curious if that is maybe the headcount reduction benefit going away in the second half or reinvesting back into the business. So, that’s the first question, is the — on the EBITDA margin.

Luis VisosoSenior Vice President, Chief Financial Officer

Yeah. Hey, Mike — Michael, we are — we’re being prudent in our guide, as Jim mentioned. We also want to make sure that we’re properly investing back, as you know, back to one of the first questions during the meeting. So, we were hitting the right balance.

We want to be a Rule of 40 company, and we think we can be close to that toward the end of the year. So, that’s what we’re trying to achieve. And we — we clearly see a path to get there. But we’re driving — as you’ve seen, we’re driving our margins and cost efficiencies hard but never at the expense of growth.

Michael FunkBank of America Merrill Lynch — Analyst

OK, so — so, the comment was hopefully a Rule of 40 company by the end of the year, is that correct?

Luis VisosoSenior Vice President, Chief Financial Officer

Yeah, that would be our target.

Michael FunkBank of America Merrill Lynch — Analyst

OK. And then, the last one, if I could, on the competitive environment, you mentioned in the shareholder letter competitive intensity impacting the business. Can you expand on that comment, please?

Luis VisosoSenior Vice President, Chief Financial Officer

Yeah. I mean, on the grow side, we’re just seeing a more intense competitive environment, right? And you’ve all seen some of our competitors’ report numbers. Some of them have been better than ours. So, it’s just been a more intense, you know, and — and some of the innovation they brought to the market has been strong.

And as Jim said, we were busy doing integration work. And now, we have very great — we know what our gaps are, and we have aggressive plans to close those in the very short period of time. So, we’re working toward, so that’s why we referred to in the note.

Michael FunkBank of America Merrill Lynch — Analyst

Great. Thank you so much.

Luis VisosoSenior Vice President, Chief Financial Officer

Sure.

Unknown speaker

Great. So, next question is from Chris Kuntarich at UBS.

Chris KuntarichUBS — Analyst

Great. Thanks for taking the question. Maybe the first one on the multiplayer business. You guys talked about shifting the service to orchestration and managed solutions.

Can you just unpack this a bit, and then maybe just how we should be thinking about this margin profile going forward?

Luis VisosoSenior Vice President, Chief Financial Officer

Yeah. If you think about our multiplayer business, really we’ve had two things. One is kind of think about the hardware component of that, and that is that’s just not our strength. That’s not a business where we can generate a good return, and that’s not a business where we have the scale to offer competitive prices to our customers.

So, it’s exactly what we’re not trying to do. Having said that, what we can — what we offer a unique value is in the orchestration layer of that, a hosting of their — of the game multiplayer — for the multiplayer games. So, we’re going to continue to be in that business. That’s a software business, that’s a profitable business. That’s something that we uniquely can provide to our customers.

And we’re getting out of the hardware business because, as I just said, we’re just not — that’s not unique for — for Unity to provide value to our customers.

Chris KuntarichUBS — Analyst

Got it. Maybe just one follow-up on China. I know you had talked about growth ex-China within the engine but just curious. We’ve heard it across the space that the Chinese gaming ad spend has been a source of outperformance.

Can you just talk a bit about how this performed in 4Q for you and just kind of the opportunity for Unity on a go-forward basis? Thanks.

Luis VisosoSenior Vice President, Chief Financial Officer

Yeah. So, you have to think about China in different ways, right? Their create business is mostly — you know, our customers in China, do — you know, developing games in China. That business has been tough. As we know, there are some restrictions in the Chinese market.

And that continues to impact our growth in — in create, specifically. On grow, our growth in China, which reflects two things. Again, it reflects business in China but also Chinese-based customers doing business outside of China, that has been performing well just like any other region. So, we’ve been — we’ve been seeing good growth there.

Chris KuntarichUBS — Analyst

Got it. Thank you.

Unknown speaker

Great. Next question is Andrew Boone from JMP Securities.

Andrew BooneJMP Securities — Analyst

Great. Thanks so much for taking my questions. Can you talk about the slimming down of the portfolio and whether that changes the trajectory at all for non-gaming your industries business? And then, for my second, how do we think about professional services following the Capgemini partnership? Is there any change in strategy, or anything else we should note there? Thanks so much.

Jim WhitehurstInterim Chief Executive Officer

Yeah, well, maybe I’ll start there. So, like, look, obviously, revenue goes down because professional services is a lot of dollars. So, you know, but we that’s why we kind of showed the reset in the numbers. Our strategy — I come from an enterprise background.

I have been blown away at how much interest there is and, frankly, how much patience there has been, you know, from our customers, you know, kind of with us to get this right because, you know, frankly, there is no other solution that’s anywhere near as compelling as what we can offer. And that goes from, you know, visualization. So, how do you connect with in-customers with a richer view of product to, you know, configuration through distribution, you know, all the way back to, obviously, the design things. There’s a whole education and training component with AR/VR. But one of the things you can realize is, I talked through all of these things, visualization is a component of a solution.

You know, whether that is a — you know, a way that you’re interacting with your customers in a richer way or whether that is, you know, building education content, right? So, as you will often see with infrastructure software companies, you know, you’re very much partner-led in how you go to market because building those solutions is not our forte. And so, you know, we’ve made a decision to be a software company and double down our roadmaps on delivering excellent software and working with partners like Capgemini who can take that software and build solutions, and that — that’s their business. So, I feel highly confident that by focusing on software and building partnerships with people who, frankly, have more scale and expertise on delivering in-solutions, we will substantially accelerate that business. We — I am super excited about it. Obviously, higher-margin profile because it’s a software business. But again, if you look at infrastructure software companies, if you think about visualization, and what we do as a component of infrastructure, virtually all software companies that do that are heavily partner-led.

And so, what you’re seeing as a strategy for us to move in that direction, we’ll get much better distribution. I think we’ll get much better outcomes by working with, you know, people like Capgemini who are experts in delivering, you know, solutions. And we’ll just get a lot more scale. Capgemini can bring a lot more people to this than we certainly can in professional services. So, we are — I am absolutely convinced, the company is absolutely convinced, that — that — we call it industries, but selling into non-gaming enterprise customers is a tremendous opportunity for us going forward.

But again, we want to recognize we’re a software company and we’re going to build an efficient, effective kind of go to market in a way that that infrastructure is turned into solutions for our customers. And Capgemini is part of that. And again, talking to some of our customers, they’re really excited about it because I think they they know that we’re better at building, you know, interactive 3D software, not necessarily, you know, building their industry vertical solutions out of that.

Unknown speaker

Great. Thanks. So, next question is Matthew Cost from Morgan Stanley.

Luis VisosoSenior Vice President, Chief Financial Officer

Hey, Matt.

Matt CostMorgan Stanley — Analyst

Hi. Thanks — thanks for taking the question. Maybe I’ll just start by — by following up on — on industries. I think that you said in the opening paragraph of the shareholder letter that you think it can be a bigger business than — than gaming. So, I guess, you know, are there — are there specific use cases or, you know — or industry verticals that you’re seeing really strong uptake in that you feel you can have that level of confidence in it that it can get from, I think you said, 23% of the subscription business to — to the majority of it over time? And then, I have a follow-up.

Thank you.

Jim WhitehurstInterim Chief Executive Officer

Yeah, well, I will start and maybe I’ll just give you a little bit of color on a couple of the use cases. And I’m going to try to take names out of it because, honestly, I’m not sure who we actually have — have commitments to be able to use their names. So — and let me just do several real quick. So, one is there are a number of — of luxury retailers who don’t necessarily have all of their inventory in every single store that they have, but they want to have rich experiences so people can see, in detail, their products. And this goes from jewelry to clothing.

And so, we have multiple customers who are — who use our technology to be able to have an — iPads in the store where you can have immersive, real time, so you can spin around the product, you can zoom in, you can look at it closely. And, you know, according to these customers, there’s no other way to do it in a performant way on an iPad. I know that sounds simple, but again, to have a real-time engine that’s efficient enough that somebody can spin it around in real time, zoom in, it just — we are the best way to do that. So, there’s a whole series of — of I called luxury retailers who see that. Obviously, that can go beyond luxury retail.

We’re seeing on the industrial side customers saying, “Hey, we have 10 different different PLM system or CAD/CAM systems.” We want to have one visualization layer that can take data from all of those and make it available widely, whether it’s to in-customers or to engineers across the company. Now, again, if you have, AutoCAD and you have a $5,000 workstation, you can spin around interactive, real-time 3D. But when you want to be able to show that to people on a web browser or an iPad or a phone, we are the best solution to be able to do that. So, in all types of industry, whether that’s, you know, kind of automotive, aerospace, etc., there’s a lot of interest in us being the visualization solution in those markets. And finally, kind of education and training, especially with AR/VR.

I was talking to one large construction company that is using this. So, when a worker kind of gets on site, they can put a VR headset on and kind of have a sense of how something is supposed to — to look. But that can be used for — for training, especially like high-stakes training, like in a — in a nuclear power facility where you want to train people the AR/VR aspect to that. Pretty interesting.

I think with the launch of the Vision Pro, I know people talk about it a lot for some of the consumer use cases, but we’re excited to work with Apple on some of the industry’s use cases around it. So, those would be three examples. But again, to emphasize, the reason I’m so excited about it is it’s not like we’re a player in this; we’re about the only player who can do real-time, interactive, you know, 3D on lightweight devices like web browsers, iPads, and phones. And that’s why I think there’s so much interest from enterprises in us for those types of use cases. And obviously, we have more Digital Twins in the world in general, you know.

And whether it’s, you know, kind of products and supply chains are more kind of digitally connected, it just creates more and more opportunity for us.

Matt CostMorgan Stanley — Analyst

Great. Thank you. And then — and then, secondly, on the grow side, I think it’s been addressed a little bit already in the Q&A that there’s, you know, a pretty big disparity between a public competitor and how fast they’re growing their ad network versus what grow has been doing recently. But it strikes me that it’s actually a very big opportunity for — for grow to catch up.

So, I guess, are there specific investments or, you know, go-to-market strategies that you’re seeing have changed in the competitive landscape, maybe new technology that you’re specifically focused on to try to close that gap that you would call out?

Jim WhitehurstInterim Chief Executive Officer

Yeah. I mean I’ll start a little bit. So — so, the answer is simply yes. There’s a lot of incremental investment in technology, both in our data stack and our data manipulation capabilities.

There’s investments in our product suite to make sure that we are best getting the data that’s most helpful, to help our monetization customers, you know, kind of increase their — their effectiveness at data science. Those investments, I will say, those are incremental dollars investment. But as we looked at bringing the — the — or completing the merger of ironSource and Unity rather than dropping some of those synergies to the bottom line, we’ve told those teams to reinvest those synergies to be able to fund a much higher, faster feature velocity to both close gaps and — and take some leadership in those areas. You know, I agree with you, I think there’s a lot of opportunity there. You know, what I hear over and over from our customers is, “Hey, we want to have multiple ad networks.

That is good for us long term.” So, our customers really really really want to see us win in this space, and so — which also gives me confidence that there’s a real desire to see us, you know, continue to improve in the space and a desire to work with us as we go forward.

Matt CostMorgan Stanley — Analyst

Thank you so much.

Unknown speaker

Great. So, last question is Jonathan Kees from Daiwa.

Jonathan KeesDaiwa Capital Markets — Analyst

Hi. Can you hear me?

Unknown speaker

Yep. OK. Well.

Jonathan KeesDaiwa Capital Markets — Analyst

OK. Great. Thanks. Thanks for taking my questions.

I’ll keep mine simple. In the previous call, you talked about looking for the right KPIs and measuring going forward from that. Have — can you talk about in terms of what you’ve agreed to in terms of what you think would be better KPIs? Are we still looking at the, like, previous metrics like, you know, over 100K, how many hundred K — 100K customers, you know, the number of customers over 100K yearly revenues, a dollar-based net expansion rate, or those separate metrics that will still be given no matter what? Thanks.

Luis VisosoSenior Vice President, Chief Financial Officer

Yeah, I think there are — there are several. Go ahead, Jim. So, maybe you want to —

Jim WhitehurstInterim Chief Executive Officer

No no no no, go ahead.

Luis VisosoSenior Vice President, Chief Financial Officer

I think there are several metrics that are important, note that we’ve shared with you over time. I think that the percentage of — the percentage of our business going to industries is important, given the size of the opportunity that we’ve discussed and Jim — Jim has talked extensively. I think the number of customers and net expansion rate are good indications. Obviously, it’s a tricky number because it’s a total company. So, it’s not as indicative.

I think we’ve consistently also talked about the market share, how many — what percentage of the games of the top 1,000 games are made with Unity on both platforms is a good indicator of how engaged the community is. So, we’ll keep on providing those metrics, and we’ll — we’ll add some more as we continue to make progress across industries. So, that would be my view, Jonathan.

Jonathan KeesDaiwa Capital Markets — Analyst

Great.

Unknown speaker

Great. Thank you so much for everybody dialing into the call here. We’re looking forward to seeing some of you at kind of our upcoming conferences this quarter. Thank you and have a great day.

Duration: 0 minutes

Call participants:

Unknown speaker

Jim WhitehurstInterim Chief Executive Officer

Luis VisosoSenior Vice President, Chief Financial Officer

Jason BazinetCiti — Analyst

Dylan BeckerWilliam Blair and Company — Analyst

Brian FitzgeraldWells Fargo Securities — Analyst

Tim NollenMacquarie Group — Analyst

Michael FunkBank of America Merrill Lynch — Analyst

Chris KuntarichUBS — Analyst

Andrew BooneJMP Securities — Analyst

Matt CostMorgan Stanley — Analyst

Jonathan KeesDaiwa Capital Markets — Analyst

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Unity Software (U) Q4 2023 Earnings Call Transcript was originally published by The Motley Fool



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