Unity Software (NYSE: U)
Q4 2023 Earnings Call
Feb 26, 2024, 5:00 p.m. ET
Contents:
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Prepared Remarks
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Questions and Answers
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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 start, I would like to note that today’s discussion accommodates 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 may discover more details about these risks and uncertainties inside the Risk Elements 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’ll discuss non-GAAP financial measures. These non-GAAP financial measures are together with, and never another choice to, or superior to, measures of economic performance prepared in accordance with GAAP. A full reconciliation of GAAP to non-GAAP is obtainable in our shareholder letter and on the sec.gov website. Great.
What we’ll do now could be comparable like what we have now done in previous quarters. We get quite just a few inbound questions throughout the quarter, and we’ll start with two key questions. The first to Jim, after which the second to Luis. So, the first query is to Jim. After five months here, are you able to provide your tackle Unity and type of provide us also an update on the CEO search?
Jim Whitehurst — Interim Chief Executive Officer
Sure. Yeah, I’m unable to think about it has been almost five months. I actually must say, I’m far more excited now with reference to the chance in front of us than I was once after I joined. You realize, we’re obviously inside the midst of a reset, but let me spend perhaps only a minute talking about why I’m so optimistic, after which I’ll come back to the CEO search afterwards.
So, first off, I feel we’re making the acceptable interventions to position us to win for our customers, not only today, but for the long term. And let me just quickly hit three of those. So, first off, we have now substantially focused our portfolio on products where we’re confident that we have now now unique value for our customers and subsequently have permission to win. And we’re hearing great feedback. From our games customers, they’re seeing the primary goal in our product roadmaps and our intended attentiveness to their needs. And so, hearing great feedback there.
Same on the industry side where not only from what we have now been doing in the last few months, but particularly, 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 got also instituted a much leaner cost structure that offers us a healthy profile. After which, from there, we’re capable of scale in a profitable way. And third, we’re inside the strategy of improving our growth performance, specifically our user acquisition through higher use of data and stronger models.
And I’m very confident you will notice accelerating growth in our grow business going forward. The second reason I’m optimistic is that, while 2023 was obviously a difficult 12 months for us, we saw some key proof points around the durability of our franchise. You realize, so first off, even inside the aftermath of the pricing change, our core subscription business, excluding China, grew 18% in Q4. Put it simply, we’re essential to the games industry. After which, with industry, it was actually our fastest-growing segment, and I feel we have now just gotten began and we have now now meaningful growth potential there.
And the partnership with Capgemini should even further speed up growth there. And eventually, 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 12 months. And the last word 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 inside the back half of this 12 months.
To the second a component of the query, you understand, I haven’t got a superb long update. The board continues to conduct an intensive process to make sure we hire the right leader to jot down the next chapter of Unity’s story. And I’m very committed to supporting the board and the board’s decision.
Unknown speaker
Thanks. Luis, this question is for you: Are you capable of provide additional perspective on the company’s direction following the reset?
Luis Visoso — Senior Vice President, Chief Financial Officer
Hey, Daniel. Thanks. Yeah, absolutely. We actually feel more than happy with what we have now achieved.
We’ve got achieved moderately lots in a temporary time period. And we consider that, as Jim just said, that this intervention has positioned Unity for achievement going forward. If you look back at the highest of last 12 months, we began a two-phase company reset that we expect will enable us to sustainably win with each customers and shareholders. The good news is that phase 1 is frequently behind us. You realize, this primary phase was all about resetting our portfolio, resetting our cost structure so that we’re capable of refocus on our core businesses, the engine, and the cloud monetization, while narrowing our investments on latest businesses.
And in consequence, we’re specializing in businesses where we consider we’re capable of sustainably create value for purchasers and — and generate a return for — for the company. The unfortunate consequence of this primary — first — first phase is that we would have liked 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 unquestionably the second phase of the reset. That’s about reigniting revenue growth with healthy financials. And the good news is that that starts this 12 months. We expect revenue growth to hurry up inside the second half of 2024 and maintain attractive levels of revenue growth thereafter while maintaining and lengthening our profitability.
Unknown speaker
Thanks. So, now we go type of to the second part here for Q&A. So, just for housekeeping, if anybody desires to ask a problem, it’s good to boost — hit the raise-the-hand button on the underside of your screen. So, we’ll take a pair seconds here for people to now putting questions.
OK. So, the first query comes from Jason Bazinet from Citi.
Jason Bazinet — Citi — Analyst
Thanks lots. I was once just wondering when you could possibly unpack a bit just form of the recast 2023 numbers after the portfolio review. I feel the revenues came down 450 million, nevertheless the EBITDA came down 174. After which, I attempted to read the text to know if among the many things that you simply just divested were EBITDA loss-making.
And it said they were, but then in among the many footnotes, there was no real number in there. So, are you able to simply talk just slightly bit with reference to the recast 2023 base and other people adjustments?
Luis Visoso — Senior Vice President, Chief Financial Officer
Yeah, we understand it’s — it’s difficult to follow all these numbers. So, we put a table on our shareholder letter. I feel the very very first thing is clearly we had this one-time gain from Weta FX, right? We — we show that as $99 million in — in revenue, as an example. So, you see that inside the table, which had a $102 million profit in EBITDA.
So, you might have to take that into account because that may be a one-time gain. The second thing is, the portfolio changes that you simply just alluded to, that $283 million in 2023, most of that’s in grow. A small portion, to be precise, 15 million is inside grow, which is the Luna business. So, you might have to take that into account. That operated at a at a serious loss, which is why we’re exiting these businesses, because we couldn’t create a return for us while providing value to our customers. We didn’t quantify that for you since it isn’t audited, but — nevertheless it’s a very significant number that we’re eliminating.
And third, you might have these customer credits that we explained inside the shareholder letter and which we mentioned inside the 10-Q last quarter, which was $72 million in revenue and $72 million in EBITDA. So, whenever you really take a have a look at the comparable base for ’23, it’s best to start out with $1.7 billion in revenue and $274 million in EBITDA. And that’s what we’re we’re constructing from. Does that answer your query?
Jason Bazinet — Citi — Analyst
Thanks. Yep. Thanks.
Unknown speaker
Thanks. Next query is Dylan Becker from William Blair.
Dylan Becker — William Blair and Company — Analyst
Yep. Thanks, guys. Two if I could squeeze them. Perhaps, first, combination for — for Jim and Luis here.
You’re type of nearing the highest of the strategic review. I ponder the best way you’re keen about, to perhaps the earlier point, Luis, on — on eliminating some loss-generating businesses but as well as type of catching up investment as we take into accounts type of doubling down across the core. Type of what’s the the acceptable way of keen about type of the trade-off of the two and the best way that layers into type of the expansion and margin outlook inside the business over time?
Jim Whitehurst — Interim Chief Executive Officer
Yeah. Well, I’ll just start quickly on. Look, the core of this, and we try and be consistent all along internally as we have now been going through the reset, is that that is all focused on getting a portfolio where we consider we’re capable of win after which ensuring that we’re appropriately resourcing, you understand, that portfolio to win. And so, you understand, I was once 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 understand, we consider there’s an incredible amount of growth in the company.
So, Luis goes to talk just slightly more with reference to the specifics.
Luis Visoso — Senior Vice President, Chief Financial Officer
So, I totally agree, Jim. You realize, Dylan, the approach to provide it some thought is we fully funded the priorities that we had in mind, and persons are funded to the acceptable levels. And other people who we just didn’t think we — we could generate a return for us or for our customer, we totally defund it. You realize, being half pregnant whenever you wish just doesn’t make sense.
So, that’s the reason we feel confident about our ability to reaccelerate growth because we’re funding those things that truly matter.
Dylan Becker — William Blair and Company — Analyst
OK. Great. Super helpful there. After which, perhaps one just —
Jim Whitehurst — Interim Chief Executive Officer
I’d just like to say on that, Dylan, just — what I mean, as we type of exit the years, we get — I feel we’re — generally, have our mind, this must be a Rule of 40 company and be that way for — for quite a while, if that provides you a way of type of roughly where we see ourselves.
Dylan Becker — William Blair and Company — Analyst
Absolutely. Yeah. OK. OK.
Appreciate the color there, Jim. Perhaps you mentioned among the many platform investments, too, and Unity 6 upselling. I suppose, how should we expect with reference to the pricing and maybe conversion, the best way you’re type of incentivizing latest features inside that platform as well? It’s probably more of a 2025 type of type of story. But what — how that type of fuels the commentary around type of accelerating momentum throughout the back half of this 12 months as well and type of thoughts on Unity 6? Thanks.
Jim Whitehurst — Interim Chief Executive Officer
Well. So — so, I’ll start. And, you understand, frankly, we’re resourcing each Unity 6 and Unity 7. You realize, because — well, we are able to’t go too far inside the — the small print of that.
Please come to GDC and you’ll hear moderately lots more details. So, we do think that we’re heavily funding our roadmap — roadmaps against our core type of product offering. And we’ll talk more about that here in just a few weeks at GDC. In relation to, you understand, how we’re keen about type of pricing against that, you’re right, it’s mainly a 2025 type of story.
So, it really doesn’t affect the numbers that you simply just see this 12 months. What I’ll say is we expect there’s a great deal of organic growth on this portfolio. So, we’re not heavily reliant on just, you understand, type of raising price. I do think there’s more value we provide in our offering.
But after we take a have a look at our position inside the games industry, after we discuss long-term growth, that has more to do with our current product suite and type of future offerings. We’re capable of have greater than pricing leverage that we have now probably not type of laid that out for 2025 and beyond in a way that might give you a — you understand, quantify the entity stretch.
Luis Visoso — Senior Vice President, Chief Financial Officer
Yeah. Dylan, perhaps just two points to strengthen among the many 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 after we take a have a look at engagements or latest projects being began, so the engagement with the editor continues to be very very healthy. So, we’re very keen about that. And clearly, there’s great interest in all our AI tools from our customers. So, they’re — they’re — the music is now available. So, they’re using it.
And — and we were joyful with the progress we’re making, Dylan.
Dylan Becker — William Blair and Company — Analyst
Great. Thanks each.
Unknown speaker
All right. So, our next query is Brian Fitzgerald from Wells Fargo.
Brian Fitzgerald — Wells Fargo Securities — Analyst
Thanks, guys. Inside the shareholder letter and maybe as a follow-on to Dylan’s query, you — you unpacked growth acceleration inside the second half of the 12 months. Are you capable of parse that out just slightly bit? Is that just primarily from runtime fees? Is it the discharge of Unity 6? Or is there something else feeding into that perhaps the — the expansion of industries comparable to you talked about? Thanks.
Luis Visoso — Senior Vice President, Chief Financial Officer
Yeah, really, these runtime fees doesn’t have an impact inside the second half or nothing meaningful. So, the rationale why we’re keen about and warranted that we’ll see some acceleration is admittedly the back-end innovation that we’re bringing across all our product lines. You realize, Jim talked just slightly bit about among the many 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 speed up. And — and it’s really that, no, it’s the innovation across each businesses, each in games and across industries where we expect to hurry up growth.
Jim Whitehurst — Interim Chief Executive Officer
Yeah. The one thing I’d say — I’d add is, you understand, we’re within the midst of a reset. And so, we were pretty conservative in the first half of the 12 months because, obviously, you understand, after we’re especially coping with people, right, that — that gets to be very distracting. And so, we’re pretty conservative in the first half of the 12 months.
But we just type of take a have a look at type of the market, you understand, and where we expect as we go forward, is one other excuse you’re seeing that’s each we have now now confidence inside the back half, nevertheless it’s also whenever you take a have a look at first half to back half, there’s also an assumption around just slightly bit more distraction immediately that we’re going to get behind us here as we finalize the reset.
Brian Fitzgerald — Wells Fargo Securities — Analyst
And it looks like there’s there’s growth inside the grow side of the business as well. Each time you — at any time when you talked just slightly bit about what’s happening sequentially and it being down, was that just type of developer discontent with — with type of how the real-time — runtime fees were rolled out and — and or is it more to what you’re talking about, we’ll develop on the tool sets and — and make the grow side of the business more data-informed, more competitive?
Luis Visoso — Senior Vice President, Chief Financial Officer
Yeah, we — we didn’t really see as much of an impact. There was an impact, as you mentioned, nevertheless it was not very meaningful in Q4. We aren’t guiding by segment going into 2024, but — but yes, you’re right, we’re expecting an — an improvement in each businesses all yr long for the reasons that Jim mentioned.
Brian Fitzgerald — Wells Fargo Securities — Analyst
Appreciate it. Thanks.
Jim Whitehurst — Interim Chief Executive Officer
Yes. Just just slightly bit more on that. Just, you understand, to be blunt, you understand, last 12 months, we were doing a great deal of type of integration with ironSource and Unity. And admittedly, when that happens, you grow to be perhaps just slightly less focused on, you understand, driving feature velocity.
And so, I do think that level of additional — of distraction type of put us a bit behind. That’s now behind us. We’ve got now the teams integrated, and we have now now a plan that I feel we’re very confident in, closes any competitive gaps that we have now now. So — and that’s somewhat reflected within the expansion numbers inside the back half of the 12 months.
Brian Fitzgerald — Wells Fargo Securities — Analyst
Excellent. Thanks, guys.
Unknown speaker
Great. Next query is Tim Nollen from Macquarie.
Tim Nollen — Macquarie Group — Analyst
Great. Thanks. Actually, perfect segue into my query from the last bit there, which is with reference to the ironSource integration. Could you just talk just slightly bit more about, I suppose, what was not a direct integration when the — when the — when the acquisition was made? Now, it looks like you’re feeling like you might have achieved the acquisition.
I’ve noticed some fairly big-name departures from ironSource. If there’s anything you might discuss that. After which, could you just clarify with reference to the 72 million in credits? Just is that this something that was done to roll people onto the level-play platform back inside the day? After which, why is that being unwound now?
Jim Whitehurst — Interim Chief Executive Officer
Well, let me perhaps start on the work stuff. Well, you understand, I mean, naturally, when two corporations come together, first off, it’s good to make sure that you simply just’re retaining the acceptable people, you might have a continuity of business, after which over time, you bring the pieces together. And so, we were working on that through the course of last 12 months. And that type of culminated ultimately without, say, type of a full integration, you understand, at the highest of the 12 months, as we type of came into January, is a component of our overall restructuring. So, we’re just slightly bit more of a functional organization.
So, for the first time, we have now now one owner of economic for type of a CRO for the ads business across each Unity and ironSource. And we have now now one leader of product and technology across each. So, you understand, 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 understand, naturally, just how you think about sequence in acquisitions, you understand, type of takes a time period. And so, we’re there now. And we feel like these single teams and singular focus will serve us well.
You realize, as a component of that, naturally, you understand, the founders who ran type of ironSource were type of capable of step back and create room for, you understand, people inside ironSource to — to can be found in and take roles. And so, as a component of that whole integration, I feel they decided it was time to step back. I still check with a number of those leaders every week. They’re heavily engaged and care with reference to the success, obviously, of their baby, in ironSource, but more broadly for Unity as we go forward.
Luis Visoso — Senior Vice President, Chief Financial Officer
Yeah. To the second a component of your query, Tim, so we have now — we have now communicated this, you understand, for some time now, there have been some incentives that ironSource provided to their customers before the merger, right? And — and just a few of those integration fees were returned to us, and we recorded those as revenue all yr long. So, what we desired to make sure is that you simply just all had all transparency in what those amounts were. So, we — we included that inside 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 mix fees that were returned.
The one difference is $15 million from Luna which principally spreads, consistent all yr long. So, you — you’ll give you the option to assume $3 million to $4 million per — per quarter, but every part else is alleged to the mix fees that were returned to to Unity. So, we’re just providing you with that exact number so you might have it. It’s in the underside.
Tim Nollen — Macquarie Group — Analyst
OK. Great. All very helpful. Thanks.
Unknown speaker
Thanks. So, next query is from Michael Funk at Bank of America.
Michael Funk — Bank of America Merrill Lynch — Analyst
Yeah. Thanks for the questions. So, a pair if I could. Taking a have a look at the revenue and the margin guidance for the 12 months, I feel you said 25%-plus EBITDA margin exiting fourth quarter.
I mean, it looks as if trajectory that would possibly be predicted all yr long would imply the subsequent margin by fourth quarter. So, just curious if that’s perhaps the headcount reduction profit going away inside the second half or reinvesting back into the business. So, that’s the first query, is the — on the EBITDA margin.
Luis Visoso — Senior Vice President, Chief Financial Officer
Yeah. Hey, Mike — Michael, we’re — we’re being prudent in our guide, as Jim mentioned. We also need to make sure that we’re properly investing back, as you understand, back to definitely considered one of the first questions throughout the meeting. So, we were hitting the acceptable balance.
We want to be a Rule of 40 company, and we expect we may very well be near that toward the highest of the 12 months. So, that’s what we’re trying to appreciate. And we — we clearly see a path to get there. But we’re driving — as you’ve got seen, we’re driving our margins and price efficiencies hard but never on the expense of growth.
Michael Funk — Bank of America Merrill Lynch — Analyst
OK, so — so, the comment was hopefully a Rule of 40 company by the highest of the 12 months, is that correct?
Luis Visoso — Senior Vice President, Chief Financial Officer
Yeah, that is perhaps our goal.
Michael Funk — Bank of America Merrill Lynch — Analyst
OK. After which, the last one, if I could, on the competitive environment, you mentioned inside the shareholder letter competitive intensity impacting the business. Are you capable of expand on that comment, please?
Luis Visoso — Senior Vice President, Chief Financial Officer
Yeah. I mean, on the grow side, we’re just seeing a more intense competitive environment, right? And you could have all seen just a few of our competitors’ report numbers. A couple of of them have been higher than ours. So, it’s just been a more intense, you understand, and — and among the many innovation they delivered to the market has been strong.
And as Jim said, we were busy doing integration work. And now, we have now now very great — everyone knows what our gaps are, and we have now now aggressive plans to shut those inside the very short time period. So, we’re working toward, so that’s why we referred to inside the note.
Michael Funk — Bank of America Merrill Lynch — Analyst
Great. Thanks lots.
Luis Visoso — Senior Vice President, Chief Financial Officer
Sure.
Unknown speaker
Great. So, next query is from Chris Kuntarich at UBS.
Chris Kuntarich — UBS — Analyst
Great. Thanks for taking the query. Perhaps the first one on the multiplayer business. You guys talked about shifting the service to orchestration and managed solutions.
Are you able to simply unpack this a bit, after which perhaps just how we should be keen about this margin profile going forward?
Luis Visoso — Senior Vice President, Chief Financial Officer
Yeah. If you take into accounts our multiplayer business, really we have now had two things. One is type of think with reference to the hardware component of that, and that’s that’s just not our strength. That isn’t a business where we’re capable of generate a superb return, and that isn’t a business where we have now now the dimensions to provide competitive prices to our customers.
So, it’s exactly what we’re not attempting to do. Having said that, what we’re capable of — what we offer a novel value is inside the orchestration layer of that, a hosting of their — of the game multiplayer — for the multiplayer games. So, we’ll proceed to be in that business. That may be a software business, that may be 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 isn’t unique for — for Unity to supply value to our customers.
Chris Kuntarich — UBS — Analyst
Got it. Perhaps just one follow-up on China. I do know you had talked about growth ex-China contained in the engine but just curious. We’ve got heard it across the space that the Chinese gaming ad spend has been a source of outperformance.
Are you able to simply talk a bit about how this performed in 4Q for you and just type of the prospect for Unity on a go-forward basis? Thanks.
Luis Visoso — Senior Vice President, Chief Financial Officer
Yeah. So, you might have to take into accounts China in other ways, right? Their create business is frequently — you understand, our customers in China, do — you understand, developing games in China. That business has been tough. As everyone knows, there are some restrictions inside the Chinese market.
And that continues to affect our growth in — in create, specifically. On grow, our growth in China, which reflects two things. Again, it reflects business in China but as well as Chinese-based customers doing business outside of China, that has been performing well similar to every other region. So, we have now been — we have now been seeing good growth there.
Chris Kuntarich — UBS — Analyst
Got it. Thanks.
Unknown speaker
Great. Next query is Andrew Boone from JMP Securities.
Andrew Boone — JMP Securities — Analyst
Great. Thanks lots for taking my questions. Are you capable of talk with reference to the slimming down of the portfolio and whether that changes the trajectory the least bit for non-gaming your industries business? After which, for my second, how can we take into accounts expert services following the Capgemini partnership? Is there any change in strategy, or anything we should note there? Thanks lots.
Jim Whitehurst — Interim Chief Executive Officer
Yeah, well, perhaps I’ll start there. So, like, look, obviously, revenue goes down because expert services is a great deal of dollars. So, you understand, but we that’s the reason we type of showed the reset inside the numbers. Our strategy — I come from an enterprise background.
I even have been blown away at how much interest there’s and, frankly, how much patience there was, you understand, from our customers, you understand, type of with us to get this right because, you understand, frankly, there isn’t any such thing as a other solution that’s anywhere near as compelling as what we’re capable of offer. And that goes from, you understand, visualization. So, how do you connect with in-customers with a richer view of product to, you understand, configuration through distribution, you understand, all one of the simplest ways back to, obviously, the design things. There’s an entire education and training component with AR/VR. But definitely considered one of the belongings you’ll give you the option to appreciate is, I talked through all of this stuff, visualization is a component of a solution.
You realize, whether which may be a — you understand, a way that you simply just’re interacting along together with your customers in a richer way or whether that’s, you understand, constructing education content, right? So, as you’ll often see with infrastructure software corporations, you understand, you’re very much partner-led in the best way you go to market because constructing those solutions shouldn’t be our forte. And so, you understand, we have now made a alternative to be a software company and double down our roadmaps on delivering excellent software and coping with partners like Capgemini who can take that software and construct solutions, and that — that’s their business. So, I feel highly confident that by specializing in software and constructing partnerships with individuals who, frankly, have more scale and expertise on delivering in-solutions, we’ll substantially speed up that business. We — I’m super keen about it. Obviously, higher-margin profile because it’s a software business. But again, whenever you take a have a look at infrastructure software corporations, whenever you take into accounts visualization, and what we do as a component of infrastructure, virtually all software corporations that do which may be heavily partner-led.
And so, what you’re seeing as a way for us to maneuver in that direction, we’ll get lots higher distribution. I feel we’ll get lots higher outcomes by working with, you understand, people like Capgemini who’re experts in delivering, you understand, solutions. And we’ll just get moderately lots more scale. Capgemini can bring moderately lots more people to this than we definitely can in expert services. So, we’re — I’m absolutely convinced, the company is totally convinced, that — that — we call it industries, but selling into non-gaming enterprise customers is an incredible opportunity for us going forward.
But again, we would really like to acknowledge we’re a software company and we’ll construct an efficient, effective type of go to market in a way that that infrastructure is was solutions for our customers. And Capgemini is a component of that. And again, talking to just a few of our customers, they’re really keen about it because I feel they they know that we’re higher at constructing, you understand, interactive 3D software, not necessarily, you understand, constructing their industry vertical solutions out of that.
Unknown speaker
Great. Thanks. So, next query is Matthew Cost from Morgan Stanley.
Luis Visoso — Senior Vice President, Chief Financial Officer
Hey, Matt.
Matt Cost — Morgan Stanley — Analyst
Hi. Thanks — thanks for taking the query. Perhaps I’ll just start by — by following up on — on industries. I feel that you simply just said inside the opening paragraph of the shareholder letter that you simply’re pondering that it’d probably be a good greater business than — than gaming. So, I suppose, you understand, are there — are there specific use cases or, you understand — or industry verticals that you simply just’re seeing really strong uptake in that you’re feeling you’ll give you the option to have that level of confidence in it that it’d probably get from, I feel you said, 23% of the subscription business to — to the overwhelming majority of it over time? After which, I even have a follow-up.
Thanks.
Jim Whitehurst — Interim Chief Executive Officer
Yeah, well, I’ll start and maybe I’ll just offer you only slightly little little bit of color on just a few the use cases. And I’ll try and take names out of it because, truthfully, I’m unsure who we even have — have commitments to have the chance to utilize their names. So — and let me just do several real quick. So, one is there are quite just a few — of luxury retailers who don’t necessarily have all of their inventory in each store that they’ve, but they should have wealthy experiences so people can see, intimately, their products. And this goes from jewelry to clothing.
And so, we have now now multiple customers who’re — who use our technology to have the chance to have an — iPads within the shop where you’ll give you the option to have immersive, real time, so that you’ll give you the option to spin across the product, you’ll give you the option to zoom in, you’ll give you the option to check out it closely. And, you understand, in step with these customers, there isn’t any other approach to do it in a performant way on an iPad. I do know that sounds easy, 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’re the right approach to do this. So, there’s an entire series of — of I called luxury retailers who see that. Obviously, that will transcend luxury retail.
We’re seeing on the economic side customers saying, “Hey, we have now now 10 different different PLM system or CAD/CAM systems.” We want to have one visualization layer that will 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, in case you could have, AutoCAD and you might have a $5,000 workstation, you’ll give you the option to spin around interactive, real-time 3D. But when you prefer to to have the chance to indicate that to people on a web based browser or an iPad or a phone, we’re the right solution to have the chance to do this. So, in every style of industry, whether that’s, you understand, type of automotive, aerospace, etc., there’s a great deal of interest in us being the visualization solution in those markets. And eventually, type of education and training, especially with AR/VR.
I was once talking to no less than one large construction company that’s using this. So, when a worker type of gets on site, they may put a VR headset on and type of have a way of how something is presupposed to — to look. But that may very well be used for — for training, especially like high-stakes training, like in a — in a nuclear power facility where you prefer to to coach people the AR/VR aspect to that. Pretty interesting.
I feel with the launch of the Vision Pro, I do know people discuss it moderately lots for amongst the patron use cases, but we’re excited to work with Apple on among the many industry’s use cases around it. So, those may very well be three examples. But again, to stress, the rationale I’m so keen about it’s it isn’t like we’re a player on this; we’re with reference to the one player who can do real-time, interactive, you understand, 3D on lightweight devices like web browsers, iPads, and phones. And that’s the reason I feel there’s lots interest from enterprises in us for those types of use cases. And clearly, we have now now more Digital Twins on the earth generally, you understand.
And whether it’s, you understand, type of products and supply chains are more type of digitally connected, it just creates increasingly opportunity for us.
Matt Cost — Morgan Stanley — Analyst
Great. Thanks. After which — after which, secondly, on the grow side, I feel it has been addressed just slightly bit already inside the Q&A that there may be, you understand, a fairly large disparity between a public competitor and the way briskly they’re growing their ad network versus what grow has been doing recently. But it surely surely strikes me that it’s actually a very big opportunity for — for grow to catch up.
So, I suppose, are there specific investments or, you understand, go-to-market strategies that you simply just’re seeing have modified inside the competitive landscape, perhaps latest technology that you simply just’re specifically focused on to try and close that gap that you simply just would call out?
Jim Whitehurst — Interim Chief Executive Officer
Yeah. I mean I’ll start just slightly bit. So — so, the reply is solely yes. There’s a great deal of incremental investment in technology, each in our data stack and our data manipulation capabilities.
There’s investments in our product suite to make sure that we’re best getting the knowledge that’s most helpful, to help our monetization customers, you understand, type of increase their — their effectiveness at data science. Those investments, I’ll say, those are incremental dollars investment. But as we checked out bringing the — the — or completing the merger of ironSource and Unity somewhat than dropping just a few of those synergies to the underside line, we have now told those teams to reinvest those synergies to have the chance to fund a much higher, faster feature velocity to every close gaps and — and take some leadership in those areas. You realize, I agree with you, I feel there’s a great deal of opportunity there. You realize, what I hear time and again from our customers is, “Hey, we would really like to have multiple ad networks.
That is good for us long term.” So, our customers really really really want to see us win on this space, and so — which also gives me confidence that there’s a real desire to see us, you understand, proceed to reinforce inside the space and a desire to work with us as we go forward.
Matt Cost — Morgan Stanley — Analyst
Thanks lots.
Unknown speaker
Great. So, last query is Jonathan Kees from Daiwa.
Jonathan Kees — Daiwa Capital Markets — Analyst
Hi. Are you capable of hear me?
Unknown speaker
Yep. OK. Well.
Jonathan Kees — Daiwa Capital Markets — Analyst
OK. Great. Thanks. Thanks for taking my questions.
I’ll keep mine easy. Inside the previous call, you talked about seeking the acceptable KPIs and measuring going forward from that. Have — are you capable of discuss in terms of what you’ve got agreed to in terms of what you’re pondering that may very well be higher KPIs? Are we still the, like, previous metrics like, you understand, over 100K, what variety of hundred K — 100K customers, you understand, the variety of consumers over 100K yearly revenues, a dollar-based net expansion rate, or those separate metrics that may still be given no matter what? Thanks.
Luis Visoso — Senior Vice President, Chief Financial Officer
Yeah, I feel there are — there are several. Go ahead, Jim. So, perhaps you prefer to to —
Jim Whitehurst — Interim Chief Executive Officer
No no no no, go ahead.
Luis Visoso — Senior Vice President, Chief Financial Officer
I feel there are several metrics which may be essential, note that we have now shared with you over time. I feel that the share of — the share of our business going to industries could be very necessary, given the size of the prospect that we have now discussed and Jim — Jim has talked extensively. I feel the variety of consumers and net expansion rate are good indications. Obviously, it’s a difficult number because it’s an entire company. So, it isn’t as indicative.
I feel we have now consistently also talked with reference to the market share, what variety of — what percentage of the games of the very best 1,000 games are made with Unity on each platforms is a wonderful indicator of how engaged the community is. So, we’ll carry on providing those metrics, and we’ll — we’ll add some more as we proceed to make progress across industries. So, that is perhaps my view, Jonathan.
Jonathan Kees — Daiwa Capital Markets — Analyst
Great.
Unknown speaker
Great. Thanks lots for everybody dialing into the choice here. We’re looking forward to seeing just a few of you at type of our upcoming conferences this quarter. Thanks and have an awesome day.
Duration: 0 minutes
Call participants:
Unknown speaker
Jim Whitehurst — Interim Chief Executive Officer
Luis Visoso — Senior Vice President, Chief Financial Officer
Jason Bazinet — Citi — Analyst
Dylan Becker — William Blair and Company — Analyst
Brian Fitzgerald — Wells Fargo Securities — Analyst
Tim Nollen — Macquarie Group — Analyst
Michael Funk — Bank of America Merrill Lynch — Analyst
Chris Kuntarich — UBS — Analyst
Andrew Boone — JMP Securities — Analyst
Matt Cost — Morgan Stanley — Analyst
Jonathan Kees — Daiwa Capital Markets — Analyst
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Unity Software (U) Q4 2023 Earnings Call Transcript was originally published by The Motley Idiot