Unity (Minutes): Vector has driven customers to increase advertising budgets.

Below is the $Unity Software(U.US) FY25 Q1 earnings call Minutes. For earnings analysis, please refer to《Unity: Can the Reversal Bubble Keep Expanding?》

I. Key Earnings Highlights

1. Overall Performance: Q1 results exceeded expectations, with all metrics surpassing guidance 上限. Revenue was $20 million higher than the guidance 上限， and adjusted EBITDA was $19 million above the 上限。

2. Business Segments:

a. Grow Segment: Revenue of $285 million, down 4% YoY but still ahead of expectations. Boosted by the accelerated launch of Unity Vector, which outperformed expectations in early stages, though revenue from some legacy ad products declined.

b. Create Segment: Revenue of $150 million, down 8% YoY due to the gradual exit from low-margin professional services. Post-transformation, high-margin subscription business now accounts for nearly 80% of revenue, with core subscription business maintaining double-digit YoY growth.

3. Financial Position:

a. Profitability: Adjusted EBITDA reached $84 million with a 19% margin, expanding 200 bps YoY, driven by operating leverage and cost management, particularly reductions in G&A and sales/marketing expenses (~$20 million YoY).

b. R&D Costs: Increased by $10 million over recent quarters due to heavy investment in Unity Vector, expected to normalize in H2.

c. Cash Flow & Earnings: Q1 free cash flow was $7 million (up $22 million YoY); adjusted EPS of $0.24, benefiting from reduced share dilution and stock-based compensation (down ~$45 million YoY).

d. Leverage: Ended quarter with $1.5 billion cash and $2.2 billion debt. Approved $690 million convertible notes issuance in February to refinance existing debt and extend maturities.

4. Q2 Guidance:

a. Overall: Total revenue of $415-$425 million; adjusted EBITDA of $70-$75 million.

b. Grow Segment: Expect sequential growth (driven by Unity Vector performance), though declines in legacy ad products may offset gains. Long-term Vector improvements will fuel growth.

c. Create Segment: Subscription growth continues, but non-strategic revenue declines may lead to slight sequential dip.

II. Earnings Call Details

2.1 Management Key Messages

1. Q1 Performance: Transformation progressed significantly through execution discipline, rebuilt client trust, and accelerated product innovation. Grow and Create segments drove results 5% above revenue guidance 上限 and 29% above EBITDA 上限。

2. Grow Segment Progress:

a. Migration to new AI platform Unity Vector completed ahead of schedule, with all iOS/Android traffic now on Vector—a major milestone for ad innovation.

b. Vector leverages Unity ecosystem data for deeper insights, performance optimization, and higher client ROI. On iOS, Vector drove 15%-20% higher app installs and in-app purchase value versus legacy models; Android trajectory mirrors iOS.

c. Future focus: Tight collaboration with clients to optimize user acquisition and ongoing AI investment. Though Q2 may not fully reflect Vector’s financial impact, confidence in Grow’s outlook remains high.

3. Create Segment Progress:

a. Unity 6 (most stable/high-performance version) surpassed 4.4 million downloads, with 43% active users migrated and >80% upgrade intent, driving double-digit subscription growth.

b. April’s Unity 6.1 introduced new production testing methods, expanded platform support (e.g., Nintendo Switch 2, Meta Quest at launch), and partnered with Nintendo for feedback.

4. Other Developments:

a. AR/VR: Unity aims to lead in AR/VR gaming, currently supporting most top apps.

b. Industry Recognition: Unity-powered games swept 9 categories at 2025 Independent Games Festival and won two BAFTAs.

c. Cross-Industry Expansion: Fastest-growing subscriptions are in non-gaming verticals (9 straight quarters of sequential/YoY growth), adding clients like Philips, Siemens, and Toshiba Elevator.

2.2 Q&A

Q: On Vector’s 15%-20% lift in installs/IAP—are clients increasing spend? Is budget shifting from legacy products, or is growth compensating for churn?

A: Performance-based ads have no fixed budgets—better returns drive higher spend. This isn’t winner-takes-all; we’re confident in overall growth.

Q: Is subscription growth from Unity 6’s higher pricing or subscriber gains?

A: Recent price hikes take effect in H2. Current growth stems from core expansion and prior pricing actions.

Q: How will Vector’s model evolve in H2?

A: Iterative daily improvements will compound. Current 15%-20% lifts already spur spend. We’re modernizing ads for long-term competition.

Q: Macro risks?

A: Minimal impact so far: (1) Gaming is recession-resilient; (2) Free-to-play dominates client portfolios; (3) ROI-focused advertisers avoid knee-jerk cuts.

Q: R&D/resourcing for Vector vs. legacy products?

A: Heavy ML investment—new hires, infrastructure, cloud costs (to stabilize in H2). Reorganized teams focus on external share gains, not internal product shifts.

Q: Vector’s 2025 milestones?

A: Early days post-migration. H2-2026 will exploit Unity’s platform advantages. Cloud costs will fall after legacy shutdown.

Q: Margin upside?

A: 19% EBITDA margin has room to expand with ad scale (>80% gross margins). Balancing growth investment with cost discipline.

Q: Why sequential dip in Create subscriptions?

A: $17M non-strategic revenue in Q1 (full-year $30M guidance unchanged). Decline reflects planned exits.

Q: Legacy product sunset timing?

A: Already completed—no parallel systems remain. H2 cloud cost relief expected.

Q: ironSource/Tapjoy pressure?

A: Resource shift to Vector impacts some products, but we aim for net share gains.

Q: Data flow improvements?

A: From H2, leveraging ecosystem insights for Create/Grow clients—a multiyear differentiator.

Q: Vector vs. ironSource synergy?

A: Both networks serve distinct needs. No zero-sum—we’ll optimize both.

Q: Gross margin impact from non-strategic exits?

A: Q2 margins stable.

Q: New DSP adoption timeline?

A: Early traction (ROAS lifts), but rollout and internal shifts mask near-term impact.

Q: Non-strategic revenue breakdown?

A: $17M in Q1 (~2% of revenue), tapering per $30M full-year plan.

Q: Subscription drivers?

A: 13% YoY growth from new non-gaming clients and phased price hikes. 80% subscription mix to expand.

Q: Vector’s revenue share in Grow?

A: Largest ad product by far. ML investments will eventually benefit entire segment.

Q: LevelPlay/mediation priority?

A: User acquisition is primary focus; mediation is secondary given Unity’s direct client ties.

Q: Vector vs. historical peaks?

A: Recently hit multiyear high in ad spend—trajectory is strong.

Q: Long-term Vector upside?

A: Early outperformance is just the start. Strategic opportunities abound.

Q: Advertiser evaluation cycles?

A: Varies by client type. Game developers prioritize long-term ROI, so changes are gradual.

Q: Spend retention amid macro?

A: Execution quality outweighs macro trends. Current lifts already drive spend increases.

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