• Revenue: $442 million, up 4% year-over-year, $15 million above guidance.
• Create Solutions Revenue: $139 million, up 9% year-over-year, 6% sequentially.
• Growth Solutions Revenue: $303 million, up 2% year-over-year, 2% sequentially.
• Non-Strategic Portfolio Revenue: $15 million, down 92% year-over-year.
• Adjusted EBITDA: $106 million, 23% margins, exceeded guidance by 26%.
• Adjusted Gross Margins: Improved from 82% in 2023 to 83% in 2024.
• Free Cash Flow: $106 million in Q4, up 74% year-over-year; $286 million for the full year, up 60% year-over-year.
• Cash and Debt: $1.5 billion in cash, $2.2 billion in debt.
• Share Count Dilution: Reduced from just under 3% in 2023 to just under 2% in 2024.
• Q1 2025 Revenue Guidance: $405 million to $415 million.
• Q1 2025 Adjusted EBITDA Guidance: $60 million to $65 million.

• Warning! GuruFocus has detected 7 Warning Signs with U.

Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Unity Software Inc (NYSE:U) exceeded its guidance for both revenue and adjusted EBITDA in Q4 2024, with revenue from its strategic portfolio reaching $442 million, up 4% year-over-year.
• The company's Create Solutions revenue grew by 9% year-over-year, driven by a 15% increase in subscription revenues and a 50% growth in industry revenue.
• Unity 6 has been well-received, with 38% of active users upgrading and 2.8 million downloads since launch, contributing to the company's strong performance.
• Unity's advertising business exceeded expectations in Q4, driven by strong holiday demand and improved ROI for customers.
• The company announced a significant co-development partnership with Google for the new Android XR platform, reinforcing its position in the XR market.

Negative Points

• Unity Software Inc (NYSE:U) anticipates some disruption in its existing ad business due to the transition to the new AI platform, Unity Vector, which may impact Q1 2025 revenue.
• The company is cautious about the time needed to mature the Unity Vector product as it begins to operate at scale, reflecting prudence in its Q1 guidance.
• Revenue from Unity's non-strategic portfolio was down 92% year-over-year, indicating a significant decline in this segment.
• The transition to Unity Vector is a significant undertaking, and the benefits are not expected to be immediate, requiring patience from stakeholders.
• Unity's guidance for Q1 2025 reflects a step down in revenue compared to Q4 2024, partly due to seasonal demand and the transition to the new ad model.

Q & A Highlights

Q: Can you break down the expected revenue step-down in Q1, particularly regarding strategic revenue and legacy ad products? A: Matthew Bromberg, CEO, explained that the revenue guidance reflects prudence regarding the timing of revenue lift from the transition to Unity Vector. Jarrod Yahes, CFO, added that the majority of the conservatism is due to the transformation in the ad business, with existing models performing well in Q4.

Q: What are the drivers behind the 15% growth in subscription revenue, excluding the recent price increases? A: Matthew Bromberg, CEO, noted that the growth is driven by prior price increases and a reconnection with customers, leading to increased deal velocity. The new pricing increases tied to Unity 6 have not yet impacted the results.

Q: How is the migration to Unity 6 tracking, and what impact might it have on pricing and growth in 2025? A: Matthew Bromberg, CEO, stated that the migration to Unity 6 is tracking well, better than previous releases. The focus on core values like stability and performance has resonated positively with customers, which is expected to contribute to growth.

Q: What is the timeline for the fundamental rebuild of Grow Solutions, and what are the key areas of focus? A: Matthew Bromberg, CEO, mentioned that the migration to Unity Vector will begin at the end of Q1 and be completed by the end of Q2. The focus is on improving conversion, matching valuable players with the right games, and enhancing bidding in auctions.

Q: How does Unity plan to integrate data sources into the ad stack, and what opportunities exist in expanding beyond gaming? A: Matthew Bromberg, CEO, highlighted Unity's unique value in understanding player behavior globally. The integration of data into models is expected to have a meaningful impact. Unity is bullish on opportunities beyond gaming, leveraging its detailed understanding of consumer behavior.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.