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Unity projects growth with new CEO and strategic initiatives By Investing.com


In the recent First Quarter 2024 Earnings Call, Unity Technologies, under the interim leadership of Jim Whitehurst, discussed the company’s performance and future outlook, including the transition to new CEO Matt Bromberg. The company reported strategic revenue growth and improved profitability in Q1, with expectations of further improvement in the latter half of the year due to enhanced performance and data usage.

Unity’s focus on customer relationships and the rollout of new offerings, such as playable ads and a product called CroStats, aims to bolster its gaming segment. The company is also implementing a runtime fee to support its growth segment and is optimistic about improved customer sentiment and collaboration.

Key Takeaways

  • Jim Whitehurst, the Interim CEO, expressed confidence in Unity’s plan for the year, highlighting the new CEO appointment and improved customer relations.
  • CFO Luis Visoso reported Q1 strategic revenue growth and improved profitability, with plans to drive further revenue growth focusing on subscriptions and monetization solutions.
  • Unity expects sequential improvement in the second half of the year due to performance and data usage enhancements.
  • Six or seven out of nine major initiatives have shown positive initial results, with the rest expected to take longer to roll out.
  • The transition from Unity Plus to Unity Pro has been successful, with customers moving to higher-priced plans.
  • Unity’s partnership with Capgemini is anticipated to accelerate business growth.
  • New offerings like playable ads and CroStats are being rolled out to provide value and improve monetization for gaming customers.
  • The runtime fee implementation is seen as an opportunity for productive partnership discussions with customers.
  • Unity is investing in cloud consumption and data scientists to improve performance, and has been buying shares and reducing debt.
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Company Outlook

  • Unity is focused on driving customer success by delivering value and not prioritizing pricing discussions.
  • The Create segment is expected to outperform the Grow segment in Q2, but both segments are projected to show improvements.
  • The company is optimistic about future investor conferences and the ongoing dialogue with customers.

Bearish Highlights

  • Some initiatives are taking longer to roll out, which may delay their impact on revenue and growth.
  • The recent improvements made by Unity are not yet fully reflected in the current revenue.

Bullish Highlights

  • Unity’s strategic initiatives are showing positive initial results, which are expected to contribute to future growth.
  • The company’s focus on subscriptions and monetization solutions is aimed at driving revenue growth in the latter part of the year.
  • Positive customer sentiment and rational conversations about the runtime fee indicate potential for a productive partnership.

Misses

  • There were no specific financial misses mentioned in the earnings call summary.

Q&A highlights

  • Unity is optimistic about the conversations with customers regarding the runtime fee, indicating an understanding of its value.
  • The company reiterated its commitment to investing in data and analytics to drive growth and improve performance.

Unity Technologies (NYSE: U), with its strategic initiatives and leadership changes, is positioning itself for sustained growth and improved profitability in the competitive gaming industry. The company’s focus on customer value, product innovation, and data-driven decision-making are key factors in its optimistic outlook for the remainder of the year.

InvestingPro Insights

Unity Technologies (NYSE: U) has been navigating a challenging landscape, with their latest financial data and market performance reflecting a mix of opportunities and concerns. According to InvestingPro data, Unity’s Market Cap stands at $9.44 billion, indicating a significant presence in the gaming industry despite recent market pressures.

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The company’s Revenue Growth was impressive over the last twelve months as of Q4 2023, with an increase of 57.25%, showcasing their ability to expand their top-line figures. However, it’s worth noting that Unity’s P/E Ratio is currently negative at -11.30, reflecting the market’s concerns over its profitability in the near term.

InvestingPro Tips suggest that analysts are cautious about Unity’s immediate future, with 10 analysts having revised their earnings estimates downwards for the upcoming period, hinting at potential headwinds. Furthermore, analysts anticipate a sales decline in the current year, which could be a point of concern for investors looking for continued growth. On a positive note, Unity’s liquid assets exceed its short-term obligations, indicating the company has a buffer to manage its short-term liabilities.

Despite these mixed signals, Unity Technologies is expected to be profitable this year, according to some analysts. This could be a turning point for the company if it manages to translate strategic initiatives into bottom-line results. Investors should also be aware that Unity’s stock price has experienced significant volatility, and the price has fallen considerably over the last three months, which may present a buying opportunity for those who believe in the company’s long-term strategy.

To gain further insights and access additional InvestingPro Tips, visit https://www.investing.com/pro/U. There are more tips available that could help investors make informed decisions about Unity Technologies. And for those interested in a yearly or biyearly Pro and Pro+ subscription, use the coupon code PRONEWS24 to get an additional 10% off.

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Full transcript – Unity Software Inc (U) Q1 2024:

Daniel Amir: Welcome to Unity’s First Quarter 2024 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 four 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 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 shareholder letter and on the sec.gov website. Great. So what we’ll do now is similar like what we have done in previous quarters. We get a number of inbound questions during the quarter, and we will start with kind of two key questions here. The first is to Jim, and then the next is to Luis. So the first question to Jim is, with the recent announcement of the new CEO and your new role as Chairman of the Board, how do you see Unity going forward?

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Jim Whitehurst: Well, let me start off just saying I am thrilled to have Matt Bromberg joining us as Unity’s CEO. He starts next Wednesday. We conducted a super thorough search and really am thrilled with him. He has a great combination; he is super strategic; he really has a sense of the industry, what are the trends? What are the subtleties? What are the disruptions happening? So I think he’ll be a great strategic steward of the business. But in addition, he is a down in the weeds operational leader who I think can continue to drive improvements in our execution. And finally, he knows the business extremely well, both the development kind of game development side as well as the monetization side. So I think he will be a great leader for the company going forward. Secondly, I’m not going anywhere. I’m remaining as Executive Chairman. And what I’m really excited about working on is the industry side of the business. I am obviously in an area where I’ve spent a lot of time and I continue to be super excited about the opportunity we have there. I’m probably biased, but I still think that’s a bigger opportunity in the long run in the gaming business. And I’m looking forward to partnering with Matt to help, however, I can and ensure the success and growth of that business. In terms of how I see the business today, I guess let me address that in the short-term and the long-term. I’d say in the short-term, I am even more confident in our ability to deliver the plan this year. The reason I say that several fold is things have unfolded. First off, we are seeing customers who were a bit ruffled at the end of last year, feeling much more confident with us. We’ve gone from what and why of runtime fee to I think a recognition that the industry wants to make sure that we invest in the runtime. And so it’s a matter of how and let’s kind of work through that. So we’re having super productive conversations with our large customers. We had a phenomenal GDC, really, really great engagement across the board. So also it makes me feel good about our relationships with developers and where those are moving. On Unity 6, obviously that doesn’t release until later this year, but if we look at the leading metrics, both the downloads and usage, but importantly, our measures around quality and our timelines, it’s the highest quality release at this stage that we’ve ever had. And the timelines have pulled in. We’re not necessarily saying we’re going to pull the release date in yet, but the timelines are coming in. That’s generally a really, really good sign of good execution. And finally, we talked a lot about interventions we’re doing on the data and analytics side on the monetization business. Obviously, those have not manifested in the numbers yet. We’ve done a lot of the work. We’re starting to get the results of the testing. It looks very encouraging. Those will roll out through the quarter and you’ll start to see that in Q3. So you put all that together, I’m highly confident in our plan for the remainder of the year. We obviously were confident last quarter, but all of the indicators over the last three months make me even more confident in our ability to deliver. In the long run, again, I continue to be super optimistic about the business. We are essential to gaming. There are a number of trends in gaming where I think our position can help our customers be even more successful, which makes us essential and we’ll continue to obsess over our customer success and I feel really great about that piece of the business. And frankly, on the industry side, as I said, it is still a relatively nascent opportunity for us, but the more I’m out talking to customers, the more opportunity I see there. So overall, both the short-term, I feel much more confident in, and the long-term I remain super excited about.

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Daniel Amir: Great. Thank you, Jim. So the second question is to Luis. What is your overall take on Q1 and what are the plans to accelerate revenue growth here in the second half of the year?

Luis Visoso: Hey, thank you, Daniel. I believe that we accomplished a lot in Q1. Now, you think about it, we delivered in line with expectations with strategic revenue of 2%, creating particular growth, strategic revenue, 17%, with our core subscriptions of 13%. And we’re making very good progress expanding profitability. EBITDA was up $50 million year-over-year. And if you look at our like-for-like net income improvement, it is close to $100 million year-over-year. So great progress on profitability, as we continue to drive revenue growth. And very importantly, these results were achieved while successfully completing a very large and complex cost and portfolio reset that will position us much stronger going forward. As Jim mentioned, customer engagement with the engine and retention rates are healthy. Industry continues to be our fastest growing business. And we continue making progress with AI tools, particularly news incentives. So I would say a very good quarter. Now, looking ahead, which is kind of your second part of your question, overall, the plan is unchanged from our conversations last quarter. With a portfolio and cost interventions behind us, we’re now focused on the engine, the cloud, our monetization business, where we believe that we can sustainably create value for our customers and generate a good return for our shareholders. In Create, we expect the second half to continue to come from growth in subscriptions in both games and industries. And in Grow, we expect the second half acceleration to be driven by improvements in performance in our monetization solutions, and better usage of data to train our models and deliver that return on ad spend for our customers. And very importantly, we continue to make progress on something we talked last quarter, which is to integrate Create and Grow to better serve our game customers more holistically, which is something that Unity can uniquely do better than anybody else. So in summary, I would say that we believe that we’re very well positioned and our focus now is to execute to our full potential. Now before we go to other questions, I would like to remind you that our revenue guide is for our strategic portfolio only. And we’re doing this to help investors really focus on the business that we’re driving while we exit the non-strategic business. So you will see our guide is for strategic revenue. When we report actuals, we’re obviously giving you both numbers, the numbers for our strategic portfolio as well as our non-strategic portfolio. On Adjusted EBITDA though, we’re guiding for the total company. This is to avoid allocation issues and as we know, the non-strategic portfolio adjusted EBITDA is not meaningful, which is one of the reasons we’re exiting those businesses. So hopefully that is clear and we can go back to the questions.

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Daniel Amir: Great. Thanks Luis. So with that, why don’t we open up to questions here. If you’re interested in asking a question, please click on the raise hand at the bottom of your screen. And at this point, we’ll allow you obviously to unmute the microphone. So we’ll take here a couple seconds here for people to raise their hand.

A – Daniel Amir: Okay. So the first question, Andrew Boone from JMP Securities.

Andrew Boone: I wanted to go back in terms of the growth drivers that you just talked about for the second half of the acceleration. I think for Grow, you talked about monetization of solutions and then better usage of data. Can you just unpack that a little bit more in terms of what we should actually expect and from the product perspective, what exactly are you guys doing to be able to drive that growth? Thank you so much.

Luis Visoso: You want to take that, Jim? Or —

Jim Whitehurst: Well, I mean, I can start and you can kind of break that out. So it’s not like you said more on the Grow side of the portfolio. So as we said before, we were operating with, frankly, two different data science departments. So we weren’t fully kind of integrated in what we were doing. This year, as part of kind of completing the iron source merger, we’ve kind of brought those organizations together, whether it’s data engineering or data science. There was, frankly, a lot of data we just weren’t fully using. We are now training our models using substantially more data. We also, by combining forces, were able to kind of roll out incremental analytics against those things. And there are multiple. There’s one for iOS. There’s one for Android. There’s one around different sets of kind of behavior in these various data sets, data we’re getting from MMPs. And so each one of these, you kind of continue to tweak models and test and compare and run A-B tests, et cetera, et cetera. And then as you see those results and you kind of tweak and you kind of get where you see material uplift, you then do the full training on all your data and you start to roll those things out. So that’s what we’re doing. Obviously, some of those things are competitive. So I don’t want to go into the very, very specifics, but we have, with Luis, about eight or nine kind of, I’d say, major kind of things that we contemplated at the beginning of the year. Literally, I think all of them look pretty good. I think six or seven of them, we actually now have some initial results that look super positive. The others just take longer. And so we will be rolling those out more at scale through the rest of this quarter, and it will bleed into July as well, which is why we see the back half of the year, which we’ve projected kind of sequential improvement in the back half of the year there.

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Luis Visoso: Totally. And maybe just to add, when we talk about more data, as we said last quarter, there are two components of more data. The first piece is just using more data that we already have. There is nothing we need to do. We just need to consume it. We need to train our models, and that’s what we’re doing. And the other piece is to get more data, which we think we can based on our total portfolio so that we can actually improve and create a competitive advantage. So those are two components of the data. And we’re, as Jim said, we’re working very hard to improve our models. There are very clear interventions that are coming in. We’re testing. Tests are looking encouraging, and therefore that gives us confidence that we’ll see the improvements in the back half.

Daniel Amir: Thank you. The next question, Jason Bazinet from Citi.

Jason Bazinet: I just had a question on the share count. Maybe I have my notes wrong, but did the share count guidance for the full year increase a bit? And if so, do you mind just unpacking the drivers of that? Thanks.

Luis Visoso: Yes. Jason, it did go up a few million. It’s just driven by all the changes, all the restructuring we’re doing. Nothing significant. I think it went up less than 1%, 0.5% or something like that. So that’s the increase you see there.

Jason Bazinet: So I thought, maybe my numbers are wrong. I thought it went up like 3%, 492 versus 476 or something. Maybe I have the wrong notes.

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Luis Visoso: Yes. I’ll come back to you, Jason. I think it was a small increase driven by all the restructuring we’re doing on the year, but that’s really the change. Nothing else.

Daniel Amir: Great. Thank you, Jason. So the next question is Michael Funk.

Michael Funk: Jim, you mentioned interventions on the modernization side and not in the numbers yet, but can you give us more clarity, maybe some quantification on what you’re seeing initial testing and expectations for return on ad spend relative to the industry standard today? AppLovin (NASDAQ:) commented last night, they believe they have a insurmountable advantage on the modernization side. And so, I would love to hear your thoughts of what you’re seeing with the initial testing and where you are or believe you are return the ad spend and where you believe that you can go and close that gap.

Jim Whitehurst: Well, I’ll give you two observations and then Luis, if you want to kind of add in here. So first off, some of these tests, as we’ve then kind of talked to partners, they have been extremely positive and we’ve actually had some people moving some more to level play with the results of some of the things we’re doing. And these are large max customers. And so that leads us to believe that the interventions actually close much of the gap versus AppLovin. These things are kind of relative share. So a lot of share moving back our way, are we equal to them or not in ROAS? It’s hard to exactly say on these, but the customer feedback has been actually extremely positive. And we are seeing share shift and we think when we roll these out, we will continue to see that. The other thing I would say just broadly is, look, nothing against AppLovin. I think they’re doing an amazing job. They’re executing on all cylinders. I think one of the benefits as we look at ourselves right now, and we hear this over and over and over again, no one wants to have one partner, right? That scares people. You don’t want to be reliant on one partner, especially given the ability, if you have a lot of share, to just increase your margin, i.e. what you pay a publisher versus what you charge. And so people want competition there. And so we’ve had a number of customers just say, we’re being patient. We’re expecting you to catch up. We’re here for you. You got to deliver, but we’re here for you. So it’s not a situation where, a company can run away with this and everybody’s excited, but people are wanting us to close gaps and win. So there’s a lot of patience there. And as we’re working through these, again, where we’ve worked with a couple of partners specifically on these things, we’ve seen really good results against those things. So, whether we close the gap to 100% or to 70% or 80%, it’s really hard to say just as we’re kind of running through, because you don’t actually see the ROAS numbers across, but what we’re seeing is very positive trajectory, which will impact spend with these various advertisers. So that much I can say, it’s hard to compare benchmark to benchmark.

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Michael Funk: Thank you for that color, Jim. And by the way, very nice speaking with you last few quarters and good luck to you in the new role.

Daniel Amir: Thank you. So the next question, let’s open the mic for Clark Lampen at BTIG.

Clark Lampen: Hey, thanks for taking the questions. Jim, I wanted to start with the plus to sort of pro transition that’s underway. Anything that you could tell us around early signal with customers sort of moving up to more expensive pro plans? Have you seen that sort of happening the way that you expected? And then, Luis, a bit of a micro question on 2Q, but understanding that you guys don’t guide at the segment level, I was curious if you could give us some directional commentary around both sort of create and grow. Should we expect both segments to be up as one sort of up and one is flat? Just curious if there is any one bucket that’s going to be driving more of 2Q than the other. Thank you.

Jim Whitehurst: And on the plus to pro, Luis, if you want to add some commentary, I honestly couldn’t tell you versus our expectations of where that stands. I think we’re pleased with it, but I’m not sure how that plays out versus Luis, what you would.

Luis Visoso: Yes. No, we’re very happy with how customers are migrating. Particularly, we’re seeing some of our customers migrate all the way to enterprise, which is obviously better for us, better for our customers. So we’re seeing a good migration of customers up and that comes on top of the price increase we took about 18 months ago. So we’re seeing all of that come flow through the bottom-line. I think to your second question, I really want to be careful and not to guide in between the two businesses. I do expect Create to do better than Grow on the quarter and also on the year. So Create should be growing faster as you would expect, but Grow will be sequentially improving, particularly in the second half as we fix some of these gaps that we have.

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Daniel Amir: Thanks. Our next question comes from Parker Lane at Stifel.

Parker Lane: Perfect. Jim, how significant or material has the Capgemini partnership been in delivering successful projects around industries? I know this is something that you guys really wanted to emphasize with a third party. So is that shortening the time for people to deploy industries products, improving the scope of those projects? What is that looking like?

Jim Whitehurst: Well, we closed April 30. So in the last nine days, I mean, honestly, we haven’t had a chance to see a lot there. What I will say is having kind of lived this movie before, I think if you look, most enterprise or I’m talking about enterprise software, but infrastructure companies accelerate their business when they have partners who take that infrastructure and deliver bespoke solutions for customers. I don’t think it’ll be any different for us. We offer an extraordinary solution to visualize real time, your kind of interactive 3D, whether that’s creation through viewing. The use cases, there are a few standardized ones, taking all your PLM tools and having a common viewer. That’s more of a true product thing. But the vast majority of this will be kind of custom applications that are delivered by SIs. So I have high confidence in it. I think we’re excited about it. But literally, we just closed April 30. And so, again, beyond high confidence, nothing’s changed in the last nine days enough to kind of give you an indication on deal sizes or links and those things. But we continue to be optimistic.

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Daniel Amir: Thank you. So next question, Josh Tilton from Wolfe.

Josh Tilton: I just want to, I kind of want to follow up on a question I think that was kind of asked a few different ways in the beginning, but just very directly. And what I’m just trying to understand is, is your confidence around the second half acceleration grow coming strictly from the improvements that you’re making and your expectation for these improvements to help improve growth? Or is it because you’ve made these improvements and you’re already seeing it somehow change customer behaviors today? And if it’s the latter, can you just help us out, give us a sense, give us a flavor, just an example of how these improvements are already changing customer behaviors to use these products?

Luis Visoso: Yes. I mean, at the end of the day, they’re not yet showing open revenue, right? Otherwise, you would be seeing it in Q1. And what we’re telling you is that it’s not going to happen until the back end of the second half of the year. So our AP testing is encouraging. We continue to show particularly, we’re improving the sophistication of our complex machine learning models and infrastructure and using more data, as I mentioned just before. So we’re seeing those benefits, but they’re just not yet at a scale, what is showing up in our revenue.

Jim Whitehurst: Yes. I’m trying to give you just an example. Yes. And it’s a lot of little things. So we did some work on the performance of our Playables ads, made a tremendous improvement. And so we have a couple of customers in particular who are really excited to see that and are working with us to want to kind of scale this out much more broadly. And so it’s those things where they’re small, but they’re real on real data, live experiments that we’ve done or figured things, kind of trials that we’ve done that have shown real material results. And we have no reason to think that that won’t continue when we roll these things out at scale. So like Playable ads would be one. I want to be a little cagey because we don’t want to talk about details of the various areas where we’re working relative to competitors. But it’s areas like that where it is real things, real tests run for multiple weeks where you see the results. And the reason I was just run a test and say, oh, let me throw it out there is, you run a test and you tweak because you want to get it as optimized as possible before you roll it out at full scale. But what we’re seeing in several areas like Playables has been extremely positive. And so we expect as we roll these out, we’ll see material positive results from them.

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Daniel Amir: So next question, Matthew Cost from Morgan Stanley.

Matthew Cost: Hi, everybody. Thanks for taking the question. So I guess you’re obviously having a lot of conversations with customers right now. I think you stated that kind of at the beginning of the script. One thing that Unity as an institution has talked about historically is, how your customers are paying you less than 1% as a take rate of their revenue. And mathematically, given how much value you provide, they should be able to pay more. I imagine you’re probably in those conversations with advertisers right now, kind of testing and going back and forth about what they are willing to pay you kind of along the lines of what you’re saying. They understand that it’s important for Unity as a product to invest for the good of the industry. So I guess, how should we in the financial market think about what your customers are willing to pay you? How are you dimensioning that in the conversations that you’re having with them right now? And how should we think about it? Thank you.

Jim Whitehurst: I’ll start on that. Look, I’ve been frankly trying to stay away from those conversations. To talk about a fixed pie and the fact we’re not getting our fair share in a fixed pie is a really lousy conversation to have because that means you’re talking to your customer about kind of giving some of their pie to you. I think the better and broader way to think about it, and Luis alluded to it before, we’re not talking about create and grow internally and we’re not talking about with our customers. We’re talking about what can we do and what is a very difficult market for our gaming customers. How can we help drive their success by what we can bring to bear? Whether that’s about how to build games that are more immersive, so better games, how to build games faster, how to build games with lower development costs, how to accelerate the ability to monetize against those games. And when you have conversations around that, where you start talking about how do we improve your success, how we get paid becomes a little bit less kind of important kind of in that. And I think it’s an area where because we cut across development through monetization, we have a unique ability to talk to them. So Matt, I know I’m not directly answering your question because we’re not asking it that way, but I’m very confident about how positive the conversations have turned in the last few months. I think, partly, bluntly just runtime fee having sunk in and kind of gotten behind this, but I think part of it is people seeing us talking in a much more productive and proactive way, not saying, oh, we’re only getting 1% and we deserve more. But hey, how do we make this industry more profitable? And in doing so, yes, we’ll find a way to get a little bit of that.

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Matthew Cost: Great. Thank you.

Jim Whitehurst: And that helps overall, but I really do feel like the conversations are so much more positive than they were kind of coming in with that attitude.

Matthew Cost: No, no, that makes perfect sense. And then, I guess in terms of those conversations with customers, I think one thing that you’ve mentioned over the course of the past quarter is the idea of maybe more data sharing with customers as a means of providing inputs for the grow business. I guess, how are those conversations going? Are you seeing any uptake or even any early testing with that right now?

Jim Whitehurst: We actually have a product launching called [CroStats] [ph] this summer. And so frankly, we want to kind of get that solidified before we actually start having some of those conversations. So I personally haven’t had a lot of those conversations because we didn’t want to make it too theoretical. So I don’t know, Luis, have you had any of those? You have any color there? No.

Luis Visoso: I agree with what you’re saying.

Jim Whitehurst: But our belief just in our broad conversations is, again, when you start talking about how do we make you more profitable across the portfolio, obviously doing a better job of identifying users that are going to be profitable as a part of that. And so I think of it less as somehow giving data to Unity as much as how do we work together to, whether it’s improved ad spend or improved monetization. Data is a part of that. But I think of it as more how we’re helping them use that data for their benefit. And I think when you kind of articulate it that way, it makes sense to people.

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Daniel Amir: Thank you, Matt. Next question, Martin Yang from Oppenheimer.

Martin Yang: My first question is regarding runtime fee and its implementation. Do you still intend to use that fee to help the growth segment in any way? In the past, I think using runtime fee to offset some of the advertising expenses was part of the plan. Do you still have similar designs by the time you launch a runtime fee later?

Jim Whitehurst: Yes. That’s still part of the plan. I don’t look at it that way. I look at it as more, we need to make the runtime sustainable and that requires a revenue source. And whether that revenue source is, I’ll call it direct, kind of pay us based on usage or indirect, use our monetization, our ad stack, and therefore we get some degree of monetization on that. I don’t really care, right? But I think the key is to first be able to continue to invest and build the runtime to be extraordinary and long live, et cetera, et cetera. We need a revenue stream. And again, whether it’s direct or indirect, I don’t think we care as much. So I don’t think as much as a subsidization, as much as choose the way you want to, help ensure that we make the runtime sustainable for all our customers.

Martin Yang: Got it. Thanks.

Jim Whitehurst: Yes, I guess in the sense that if you’re using level play, yes, you don’t have a runtime fee.

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Martin Yang: Makes sense. Next question is on [CroStats] [ph]. Can you maybe give us more information on that? Is that going to be a product that sits in Create or Grow or something entirely different?

Jim Whitehurst: Well, it is in Create because it is, I would call it more of a service than a product that we offer to help our customers better understand how users are engaging with their games. And so, it’s anywhere from crash data all the way through to kind of various measures around engagement. And of course, that data is also can be valuable on the ad side as well. So it’s, I guess you could argue it’s a product feature that can be enabled, but it’s not like a separate line item or it’s not something we’re charging for. It’s kind of a benefit to customers, if they’re willing to, kind of engage with us to see that data to help also help them better monetize their games.

Luis Visoso: I think this is a great example where we’re no longer thinking about Create and Grow, but we’re thinking about the game customer, right? And how do we create more value to them and more value for us by thinking about these customers more holistically?

Daniel Amir: Our next question is Gili Naftalovich from Goldman Sachs.

Gili Naftalovich: I have one for Jim and a follow-up for Luis, if I may. And this is really off of Luis with a comment that you just made. Are you guys seeing any different trends around customers that are using both Create and Grow? Or is it something that we should expect more in the second half on the back of the roll off of Unity 6 and your new monetization engine?

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Luis Visoso: Yes. I would say it’s really going to come together in the second half on how we create the synergies between the two. We’re not seeing a lot of that yet, but we think that we have unique assets where we can actually do that. And that’s something that only Unity can do. So we should expect that to come in the back half and to continue to increase the years thereafter.

Jim Whitehurst: Yes. And it’s not just around Unity 6. It’s just time, right? We literally just did history org and started acting this way in January. So we’re starting to engage. Again, I hear positive feedback, but engagement to behavior will take a bit of time. By the way, otherwise, got a slack from our marketing people. We actually feel very good about kind of ahead of plan on the migrations up to higher priced versions of Unity.

Gili Naftalovich: That’s great to hear.

Jim Whitehurst: Our staff is listening.

Gili Naftalovich: I mean, I guess on that line of thought too, as it pertains to EBITDA, Luis, you came in very strong this quarter. How do you evaluate investment opportunities and get comfortable with the allocation of capital in each one of the business initiatives and business line items that you have in the pipeline?

Luis Visoso: Yes. I mean, we’re being very choiceful on where we invest. And we’re particularly investing in things that make — this is going to resonate because it’s in line with everything we’re saying. So where are we investing? We’re investing in data. That’s one of the — I was expecting you guys to ask, why is our EBITDA kind of not improving significantly in Q2? And one of the reasons is because we’re investing in cloud consumption to drive that data that will help us on our growth side. So we see the benefit of the savings, the benefit of the restructuring on cost on the portfolio, and it flows through the bottom line. But then we’re investing particularly on two things, cloud consumption to drive more data and data scientists, because that’s an area where we need to continue to improve. And that just pays out very quickly. So that’s kind of where we’re going. On capital allocation, as you know, we’ve been buying shares. We also reduced our debt significantly at a good discount, by the way. We had a $61 million gain, as you saw. And we’ll continue to evaluate what we do based on whatever the market is going. So we’re constantly looking at that, Gili.

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Daniel Amir: The last question is from Bernie McTernan from Needham.

Bernie McTernan: Jim, can you just impact some of the comments you made about the runtime fee? Just thinking about why customer sentiment has improved so much? And then also on Grow, just any impact on, or any thoughts on macro impact on the business and how you expect it to progress throughout the year? Thank you.

Jim Whitehurst: Well, so a couple of things. I think, in the cold light of day, when you sit down with customers and you’re talking about kind of our existing contracts and what this really means and where those dollars get spent, I think people have realized, A, it’s not as dire as they thought it was, depending on the game and how it monetizes. It kind of varies around whether it’s a net purchase or ad or whatever. So I think people now are moving from worst case to a realistic view of what a runtime fee would be, because we can sit down and work that through with them. And then, it does create an opportunity. And I actually saw this a lot even as far back as Unity about, let us talk about the engineering effort that goes into the runtime. Forget about the engine, the runtime, and building the most performant runtime, keeping it performant, and continuing to drive value into that as we go forward. And people start to say, okay, I get it. A, I’m not like immediately saying, oh, it’s 2.5% of all of my revenue. It depends, right? And you kind of work through that. And then you kind of work through, but here’s the value and what we can drive with that. People kind of calm down and you start to have more rational conversations. I wish I could say it’s more than that, but I think some of it’s just from knee-jerk reaction about, oh, my God, it’s not a great time in the market. You want to charge me more, to, well, here’s what we’re doing. Here’s the relationship. Here’s the value you’re actually getting. And here’s what it looks like it’s really going to cost you. And the conversations kind of soften and they become much more productive for how we work together. I don’t know if it’s a lot more than that. It’s just, I think, a little bit of sobriety after a while and a combination of moving from kind of thinking the math in worst case to actually seeing what it’s likely to be.

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Daniel Amir: Great. Thanks a lot. So with that, we’re going to wrap up the call. Thank you for dialing in today. And we’re looking forward to meeting you during the quarter at various Investor Conference. Have a great day.

Luis Visoso: Thank you.

Jim Whitehurst: Thank you.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.




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