Unity Software Inc. Q2 FY2025 earnings call

• Vector-led performance in the Unity Ad Network drove 15% sequential revenue growth in Q2, with momentum continuing into Q3. Stabilization outside the Unity Ad Network is expected, and the Unity Ad Network's share of Grow revenue is anticipated to increase.
• Launch of Unity 6.2 with the developer data framework, giving developers control over data collection, sharing, and use. In Create, there was double-digit subscription growth, and momentum around Unity 6 adoption.
• Major partnerships with Tencent, Scopely, and Nintendo were announced, enhancing business in gaming and other industries. Growth continued in non-gaming sectors like automotive and healthcare.

Grow segment: Second quarter revenue was $287 million, down 4% year-over-year but up 1% sequentially. Vector-led performance in the Unity Ad Network sparked 15% sequential revenue growth in Q2, and now comprises approximately half of total Grow revenue. Create segment: Revenue was $154 million, up 2% both year-over-year and sequentially. It saw double-digit subscription growth, with Unity 6 registering more than 6.6 million downloads, up 50% from the previous quarter.

Third quarter total revenues expected to be $440 million to $450 million and adjusted EBITDA $90 million to $95 million. In Grow, mid-single-digit sequential revenue growth is expected driven by Unity Ad Network, with non-Unity Ads portion stabilizing. In Create, slight sequential decline from Q2 due to a large customer win in Q2, but strategic Create revenue expected up on year-over-year basis.

Q: Is there a potential to expand the strength on the Unity Ad side to other Grow products?

A: Unity Vector is highly modular, and there's nothing preventing using it to improve other ad products.

Q: On the $12 million perpetual deal in Create, what's the background?

A: It's a small component of a large contract, with upfront revenue recognition and majority being SaaS-based subscription revenue not recurring in Q3.

Q: On Grow guidance, break down mid-single-digit growth and data potential in ad products?

A: Mid-single-digit growth implies double-digit growth in Unity Ad Network with non-Unity Ads stabilizing. Developer data framework gives control to customers over data sharing.

Q: Thoughts on scalability of ad spend on Vector?

A: Just rolled out, seeing lifts but work ahead, with every advertiser wanting infinite scale at return requirements and ongoing optimization with customers.

Q: Trajectory of Vector's benefit in Unity Ad Network?

A: 15% sequential growth in Q2, strength continued in July and August, with mid-single-digit sequential growth expected in Grow for Q3