Jarrod Yahes; Senior Vice President and Chief Financial Officer; Unity Software Inc
Welcome to Unity's fourth quarter 2024 earnings call. My name is Daniel Amir, VP and Head of Investor Relations. Our earnings press release and investor spreadsheet is now available on our website at investors.unity.com.
Today, I'm joined by Matt Bromberg, our CEO, and by Jarrod Yahes, 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 press release and on the sec.gov website.
Before we begin, please note that starting this quarter, we have made available on our Investor Relations section of our website a new investor-friendly spreadsheet that includes our quarterly and annual SEC financials, associated non-GAAP bridges, KPIs, as well as new disclosures with incremental details around revenue breakdown that we hope will be helpful. There will be more to come as we endeavor to further help investors understand the Unity investment story.
With that, I will pass the call to Matt.
Thanks, Daniel. Good morning, everyone. On behalf of all the good people of Unity, I'd like to thank each of you very, very much for joining us today.
On our prior calls, we've talked about the principles powering the transformation of Unity, how we're building a culture of execution and discipline, re-establishing trust with our customers and the community, and accelerating the pace of product innovation and quality.
Although it's still early, we can clearly see how these principles are fundamentally changing the company, and our optimism is increasing with each passing day. Unity's results in the fourth quarter reflect real progress, meaningfully exceeding our guidance for both revenues and adjusted EBITDA.
Revenue on our strategic portfolio grew at its fastest rate in four quarters, and adjusted EBITDA beat the top end of our guidance by 26%. It's good for the company to get back to competing effectively, and we're proud of the team for delivering financial results in Q4 that demonstrate solid execution. But to be clear, it's not our aspiration merely to compete. We're here to spark rapid, sustained, long-term growth.
So I'd like to take a few minutes this morning to detail precisely how we're going about that. Let's start with our advertising business. Q4 results in our growth segment exceeded our expectations, and were the best we've seen in the last year, driven by strong holiday demand and improved ROI for our customers. But although the results exceeded our expectations, they are clearly not enough to satisfy our ambitions. We firmly believe that we have the assets and the capabilities to grow much faster.
And so today, we're excited to officially announce the migration of the Unity ad network to our new AI platform, which we're calling Unity Vector. The migration begins towards the end of Q1, with this first phase of work slated to be complete by the end of Q2 2025. Ongoing efforts to expand the scale and our quality of our offering will, of course, continue thereafter.
Vector is designed to leverage data from across the Unity ecosystem, integrating self-learning, artificial intelligence models that will provide deeper insights, optimize performance, and deliver better results for customers. Vector enhances targeting precision and increases audience scale through a sharper analysis of richer data sets. And it's also able to adapt in real time, helping customers navigate an increasingly competitive mobile marketing landscape.
Although our enthusiasm around this planned transition is very high, we do want to highlight the iterative nature of the work, and to caution some patience around the time we'll need to mature the product as it begins to operate at scale. Unity Vector is a significant undertaking, and we won't see the benefits immediately. The caution in our Q1 guide reflects some prudence with respect to this.
With that as context, we remain confident that the introduction of Vector will establish Unity as a fundamentally stronger competitor in the years ahead. I also do want to note how proud we are that we were able to move Unity Vector in production at this velocity, and to thank everyone involved. It speaks to a significant enhancement in our operating capabilities, as well as to the passion and dedication of the team.
This same appetite for rapid change, increased growth, and delivering more product value is also very much present in our Create business. So let's turn there now. Customers have responded immediately to the cancellation of the runtime fee and the launch of Unity 6. And we're now closing new deals and booking renewals at a rapid pace. This is reflected in the 15% year-over-year increase in subscription revenues they've experienced in Q4. Unity 6 is being sampled at a higher volume than our other recent releases, and nearly 38% of our active users have already upgraded.
Additionally, Unity 6 has already been downloaded 2.8 million times since launch. In 2024, Unity maintained its position as the top game engine in the world, with more successful games being built in Unity across more platforms than any other engine. Of note, about 70% of the top 1,000 mobile games worldwide were made with Unity, including the top three grossing mobile games. And 30% of the top 1,000 PC games on Steam are made with Unity as well.
As new kinds of devices are introduced, Unity continues to show strength and flexibility in its platform. For example, we are leading the way in mixed reality and spatial computing. Batman: Arkham Shadow, a made-with-Unity title, launched exclusively on Meta Quest 3 in October and won the Best AR/VR Game at the 2024 Game Awards. In fact, seven out of the top 10 AR games in 2024 were made with Unity.
In Q4, we also announced a significant co-development partnership with Google that provides day-one support of the new Android XR platform. This collaboration reinforces Unity's position as the leading real-time 3D development platform and highlights the growing investment in XR from major industry players. As XR grows, Unity will grow with it.
And this growth will not just be limited to gaming. Beyond gaming, Unity adoption continues to accelerate across important markets like automotive and retail, where our cross-platform 3D visualization tools are very much in demand. We had a stellar quarter in our industry segment, with revenue growth of 50%, making it once again our fastest-growing subscription business. We also recently announced several significant new customers, including Toyota, who selected Unity to power all its next-generation human-machine interface, enhancing the in-dash driving experience for all its customers, and RTX company Raytheon, who is using Unity to create 3D simulations for facilities planning and factory layouts.
In conclusion, I'd like to thank all of our teams for their relentless effort as we continue to transform Unity and earn our customers' trust each day. Together, we're shaping the future of interactive content creation, building a new platform that will enable the next generation of developers to innovate and move from prototype to profitability faster and more efficiently than ever before.
Unity is the only company we know of that can deliver value to developers of games and interactive experiences across the entire lifecycle, from prototyping to live service operation, right through user acquisition and monetization. That capability and its connection to the 3 billion monthly downloads of applications created with Unity positions us well to become the global platform of choice for creators of interactive content.
As the quality and the integration across our product portfolio continues to improve, AI continues to advance, and true platform advantages begin to manifest, we're confident we'll be able to deliver significantly more value to customers and in the process, transform our business.
Thanks again for your time and attention this morning. I'd like now to extend a warm welcome to Jarrod Yahes, our new CFO. Jarrod's an outstanding addition to our leadership team, and we're all really looking forward to working closely with him.
I'll turn it over to Jared now for an overview or financial performance.
Jarrod Yahes
Thanks. (technical difficulty) I'm convinced of Unity's extraordinary potential based on our truly global scale and unique end-to-end customer value proposition. Unity (technical difficulty) is taking to our business in terms of how we're allocating capital and delivering returns for shareholders. We plan to focus R&D towards the highest impact initiatives in order to accelerate revenue growth, with the joint goal of capitalizing on the largest and fastest-growing market opportunities, while fulfilling the promise we make to customers and developers who use Unity every day.
We intend to complement revenue growth with ongoing margin expansion and drive operating efficiencies over time, and we're committed to driving growth of adjusted EBITDA and free cash flow in order to maximize return for shareholders. Lastly, we expect to be prudent stewards of shareholder capital. We have a robust balance sheet with excess cash and solid free cash flow. Our near-term expected uses of capital will be to focus on organic innovation at the company and gradually de-lever to ensure a conservative balance sheet.
Turning to the fourth quarter, I am pleased to report that Unity meaningfully exceeded our guidance for both revenue and adjusted EBITDA. Revenue from our strategic portfolio is $442 million, up 4% year-over-year, or $15 million above the high end of our guidance. Both businesses outperformed solidly.
Create Solutions revenue from our strategic portfolio was $139 million, up 9% year-over-year, and up 6% sequentially. The year-over-year increase was driven by another quarter of strong 15% growth in subscriptions revenue, combined with accelerated growth in industry revenue of 50%. Investors should note that the strong fourth quarter growth in subscription revenues does not yet reflect the positive impact from the recently announced price increases. Those price increases will roll in radibly from our pro and enterprise customer tiers over the course of 2025 and 2026.
Growth solutions revenue from our strategic portfolio was $303 million, up 2% year-over-year, and up 2% sequentially. This is the best quarter we've seen in the past year, and the solid results were driven by better execution combined with seasonal demand. Supporting the strong revenue results, Unity experienced sequential improvements in terms of both dollar-based net expansion, which improved by 2% to 96%, and customers over $100,000, which improved to 1,254 customers.
During the fourth quarter, revenue from our non-strategic portfolio was $15 million, down 92% year-over-year as a result of our portfolio reset. We expect that in 2025, this revenue will be approximately $30 million for the full year and remain stable thereafter. With the hard work of winding down the non-strategic portfolio now behind us, going forward, we will report and guide to total revenues and provide total revenues for each of create and grow, simplifying our disclosures for investors.
Turning from revenue to non-GAAP profitability, adjusted EBITDA for the quarter was $106 million, representing 23% margins. Adjusted EBITDA exceeded the top end of our guidance by 26%, and for the full year, Unity delivered adjusted EBITDA of $390 million at 21% margins. Adjusted EBITDA benefited from improving gross margins and operating leverage in the platform, combined with solid cost management across expense lines.
Adjusted gross margins improved from 82% in 2023 to 83% in 2024, while adjusted G&A, sales and marketing, and R&D expenses were down by a combined $235 million in 2024. There's still untapped operating leverage in the platform, and we are poised to improve profitability as we grow.
Unity had exceptional free cash flow in the fourth quarter and for the full year. Free cash flow was $106 million in the fourth quarter, up 74% from $61 million in the prior year. Free cash flow for the full year was $286 million, up 60% from the prior year. Cash at the end of the quarter was $1.5 billion, and debt was $2.2 billion. With significant free cash flow generation in the past year, we took the opportunity to delever, repurchasing $415 million of debt while maintaining a robust cash balance. Based on our free cash flow profile and the excess cash on our balance sheet, Unity has a clear opportunity to gradually delever over the next several years.
Going forward, as we focus on per-share returns, we'll also aim to reduce shareholder dilution from stock-based compensation. Share count dilution from stock-based compensation has gone from just under 3% in 2023 to just under 2% in 2024, and we believe it has the potential to come down further. Stock-based compensation expenses also expected to fall by 30% in 2025 with the lapping of M&A related vestings and a sharper focus on minimizing dilution.
With that, I'd now like to turn to guidance for the first quarter. We're expecting total Q1 revenues of $405 million to $415 million and adjusted EBITDA of $60 million to $65 million. Revenue guidance takes into account our expectation for reduced revenues from our existing ad models in the first quarter and the gradual nature of our transition to Unity Vector. Our revenue guidance also takes into consideration seasonal demand and additional working days in the fourth quarter as compared to the first quarter.
Our adjusted EBITDA guidance factors in our expectations around first-quarter revenue as well as normal increases in payroll-related expenses and incremental cloud costs associated with ongoing investments in Unity Vector.
One final note. While we have typically provided annual guidance during our fourth-quarter call, we'll be transitioning to quarterly guidance in 2025 given the rapid change and transformation taking place in our ad business. And with that, I'd like to thank you for joining us on Unity's first-quarter 2025 conference call.
And let me turn the call over to Daniel so that we can take your questions.
Daniel Amir
(Event Instructions) Matt Cost, Morgan Stanley.
Matthew Cost
Can you hear me?
Daniel Amir
Yes, we can.
Matthew Cost
Awesome. Alright. Good morning. Thank you for taking the questions. I guess I just want to start with the guide, just to make sure we can break down the pieces here. So I think it's a step down of like $40 million to $50 million quarter-on-quarter. How much of that is reduction in the strategic revenue, which I think was $15 million in 4Q. How much of that is driven by step-downs in kind of the legacy ad products in Grow? And is there any offset in there from the new ad model stepping in? And then I have one follow-up.
Matthew Bromberg
Matt, thanks very much for your question. I'll let Jarrod take most of this question, but I just want to reiterate where we open, which is that -- at the end of the day, most of this is just driven by some prudence about precisely the timing of the revenue lift we're going to get through this transition. It's a big product rollout and one that takes time to take root as we operate the models at scale, and that's really the principal driver. But I'll leave it to Jarrod to go into a little bit more detail.
Jarrod Yahes
Yes, Matt, just a couple of comments. Number one, I think we gave some disclosures around our nonstrategic revenue for the quarter at being $15 million for the fourth quarter. We'd expect that to roll forward. The majority of the prudence and the conservatism is really around the transformation that's taking place in the ad business.
As you would have seen in the fourth quarter, seeing great strong growth in Create and the growth in our subscription business. We feel good about that. Our existing models performed well in the fourth quarter. We're proactively deciding to make a shift. We think this is a necessary shift where we can be more competitive and ultimately accelerate the revenue growth of the company.
Matthew Cost
Great. And then on the Create side, the 15% growth in subscription kind of -- and I think you called out no impact from the price increases that were announced in September. What are the drivers of that subscription growth? Are you seeing some step-up in seats? Is there some other pricing tailwind? Like what are the moving pieces to have 15% without the September price increases kicking in yet?
Matthew Bromberg
Yes, Matt, you'll remember that we had a prior round of price increases that have been flowing through and are reflected there. And I'd say that the other main driver is just some real velocity and reconnection that we've had with our customers, not literally as much because we're seeing the pricing -- the new pricing increases flow through, but because we were effectively kind of in a little bit of a frozen mode prior.
As you recall, the looming price increases were tied to the upgrades to Unity 6 and had sort of -- again, it sort of frozen conversations we had with folks, lots of ongoing conversations about new deals and expanding relationships. So this reconnection we've had with our customers is just related to more deal velocity and put us in a much better place.
Matthew Cost
Thank you so much.
Daniel Amir
Gili Naftalovich, Goldman Sachs.
Gili Naftalovich
Hey, everyone. Thanks for taking question. I had two. One a little bit more on the quarter and then one that's a little bit more level on the competitive landscape. So if I may, on the first, you mentioned 38% of Unity users moved to Unity 6 already are part of the migration.
I believe that's facing well against your prior model updates. So I'm curious to know how that's tracking versus your initial expectations maybe how that may affect the way your pricing may be a more material contributor to growth in calendar '25.
Matthew Bromberg
Absolutely. HI, Gili. Nice to hear from you. Yes, indeed, it is tracking really well. And we do think it's tracking more positively than prior new releases we had. So we're really, really encouraged about it. You'll recall that when we launched Unity 6, again, in addition to what we thought was more customer-friendly pricing, we also really helped our customers understand that we want to focus on core values that are really, really important to them: Stability, performance and ease of upgrade.
And we want to really kind of lean into those values while also, of course, pushing the binary forward and adding internal features, but really, really making sure that we're delivering on the core. And I think that message has really landed in a positive fashion for our customers.
And that -- again, keep in mind that our big live service customers could be operating on Unity 6 for many, many years. So making this transition in the right way, and leaning into some core values that are going to make it easier and better for customers who use Unity than ever before. It's just really important, and we're seeing a lot of really positive velocity from it.
Gili Naftalovich
Understood. And a bit on that thread. The second question I had was a bit more on the competitive landscape. We've heard Microsoft launch its video gaming development offering yesterday, and OpenAI has suggested that AI tools like Sora can be used for game creation in the future.
While appreciating these are seemingly a lot more console and web-based today, it would be great to get more color around your initiatives on how you're taking this on and making sure that Unity is on the forefront of innovation and market leadership with Unity 6 and maybe future releases beyond that?
Matthew Bromberg
Yes, absolutely. It's a great question. Here's the most important thing to remember and understand about Unity. We are a platform and our greatest strength has always been our extensibility. So we're going to be the assembly point for building interactive experiences and deep systems around 3D assets.
Those 3D assets can be created outside our tool, can be created inside our tool as long as we can ingest those assets and then begin to build experiences and systems around them, we're going to be in really great shape.
I have no doubt that -- and we're all really excited by the advances in Generative AI that we're seeing across the world right now. But building a major live service game that's played by millions of players is not just about creating assets, it's creating deep online systems, optimization systems that engage players over the long term. And it's our position to want to be the platform that creates all those systems and to ingest any and all assets as we go. I hope that makes sense.
Gili Naftalovich
Yes, thank you.
Daniel Amir
The next question is David Mak from Arete.
David Mak
Hi, thanks for taking my question. Just trying to get a sense of the fundamental rebuild of Grow Solutions and the time line involved in that. You mentioned being a stronger competitor over the years ahead. But what is the expected time line between where you are now and the new products hitting the market? And it would also be great to hear what the key personnel are working on specifically?
Matthew Bromberg
David, nice to hear from you. So as we've talked about before, over the past two quarters, we've been doing the fundamental work of building out the Unity Vector system. And I think we talked about last quarter how we began testing on live data. So effectively, our progress in testing has been really rapid. And we were so pleased with the progress that we want to communicate the fact that we'll be beginning a full migration to our new system at the end of this quarter. And that the first part of that work will be complete by the end of Q2.
And it's important to understand, I know you understand that this is an iterative process. It's going to go on for some time. We're going to be building and scaling and creating more velocity and quality in the system forever. So this is just the first part of the work.
And the system is really based around improving sort of three core attributes or at least we should begin to feel the impact of real-time adaptive self-learning models most acutely in three areas. The first one is around better conversion. So the idea that we can more accurately predict what new game a player would like to play. Secondly, somewhat less importantly, but still crucially, we want to be able to match the most valuable players with the right games. And finally, we want to enhance our ability to bid effectively into competitive auctions for those players.
So those are the three significant pieces we've been working on, three significant kind of core values of the system. And we're excited over time. We believe there's no reason not to believe that, that's going to really enhance the ROI that we're delivering to our customers.
David Mak
And just a quick follow-up, if I may. You mentioned improving conversions. Am I right in thinking that user acquisition tools and demand side platform revenue is a relatively small part of Grow Solutions today. And so if you do launch an effective product, this is effectively a new business for you, and it would be more impactful to Grow Solutions as opposed to just a slightly higher growth rate over the years ahead.
Matthew Bromberg
David, no, I wouldn't put it that way. We have a substantial user acquisition business today, but it's one that hasn't been as competitive as it needs to be. So the way I think about this is that it's a good business today. We hope and expect that over time, it will become a great business.
Daniel Amir
Parker Lane, Stifel.
Parker Lane
Can you hear me okay?
Daniel Amir
Yes.
Parker Lane
Great. Looking at some of those deals in the industries business, Toyota, Raytheon during the quarter and the overall growth rate, it seems like a lot of things are going well there. I wonder if you could talk about pipeline development and what you see for that business into 2025? And how competitive are some of these large enterprise deals on the industries business today?
Matthew Bromberg
Parker, thanks for the question. Yes, we're really excited about the growth we're seeing in our industry business and really the continued growth in Q4 and what we expect -- and we expect that to continue.
As I mentioned, it's our fastest-growing subscription business and for it to grow 50% year-over-year was really encouraging. Listen, all significant deals with major players are going to be competitive. And so we do see competition in the marketplace. But having said that, we have a pretty unique offering in the marketplace. So focusing on this 3D visualization and creative -- and creation of interactive experiences around it, focusing really narrowly on that is starting to really show results for us.
And we're going to -- we're also focusing very hard on auto, retail and manufacturing, in particular. So we've seen the benefits of focusing both sort of on the product offering as well as in our go-to-market efforts. We are very -- and we don't see lots of offerings that can really deliver the kinds of value that we can.
The other thing we have going for us is that a lot of our business historically has been pull rather than push. So because our tools are so popular across different industries, we often get groups of developers inside an entity adopting tools without even ever speaking to us and then we become aware of it. They reach out to us and we grow relationships that way.
So what we want to do is complement that with a more effective go-to-market mechanism and kind of push mechanism, if you will, as well. So we're working really hard to expand our partnerships with resellers and with other large systems integrators so that we can really kind of in high volume begin to close the scale and size of deals that you're starting to see now with much more effectiveness and efficiency. And we don't see any reason why that shouldn't happen. So we're feeling very good about it.
Parker Lane
Got it. One quick circle back to the Vector. It's a significant undertaking. It will be an iterative process through the years. Just wondering how much of the R&D groundwork has already been laid here versus some incremental investment that we're going to be seeing manifest in the model throughout '25?
Matthew Bromberg
Yeah, the vast majority of the R&D groundwork has been laid to your point. So the investment you'll see going forward will likely mostly be in the kind of cloud area where we're continuing to train models as they expand. But even that should become more efficient over time and it's something that's done more efficiently with our new models than was done with our old model. So we're feeling pretty good about how it will play out through our P&L over time.
Parker Lane
Understood. Thank you
Daniel Amir
Tom Champion, Piper Sandler.
Thomas Champion
Hey, good morning, everyone. Matt, you've been very candid about competitive challenges in grow. So just curious how Vector addresses some of the issues with the ML stack deficiencies and data infrastructure. And then secondly, how should we think about ironSource the network in the context of the transition to Vector?
Matthew Bromberg
Tom, thanks for the question. Again, as we've talked about many times before, it was our view that in order to compete over the long term, we needed a fundamental change in our tech stack and how we're approaching this business. And I think maybe when we first began talking about it a couple of quarters ago, it was maybe a sense that sort of who knows, is this the science project? Is this going to take years? How long is it going to be? Is it going to have massive impacts on margins?
And I think what's sort of really exciting about where we are now is that we're starting to see this come into the real world for us. And we're going to start seeing it have impacts. And it's just I'm really, really pleased and proud of the team for being in a position to do this build out and make this major transition so quickly.
And to your point, we do expect it to put us in a better position competitively over time. But again, understanding that the work here is just beginning and that there is much of it still ahead of us. But the -- having a new model that provides a more detailed and consistent understanding of the implicit preferences of gamers at the gaming level, it gives us a more granular view and a better prediction of what gamers will respond to. This is really important.
And we do believe over time, it's going to create a lot of value. We -- our new models have faster input processing. They iterate more quickly in a more timely way, they're more accurate. We've incorporated more real-time features so that the model can dynamically reflect gamers' preferences. So these are all fundamental shifts that, again, lots of work to do, but put us in a position to be able to compete for the long term.
Daniel Amir
Andrew Boone, JMP Securities.
Andrew Boone
Thanks so much for taking my questions. I'll stick with advertising. Matt, can you talk about the opportunity to better integrate data sources into the ad stack? How much does Vector incorporate in terms of just taking additional information that you guys have available as Unity versus kind of what was the previous model?
And then looking at some of your competitors, there's been an expansion of the gaming advertising category into other kind of verticals. Can you talk about that broader opportunity of what may e-commerce look like or other kind of industries that may be available over time?
Matthew Bromberg
Absolutely. Thanks for the question. Yeah, listen, as we said before, we believe the Unity platform has some unique value, and that ultimately, our deep understanding of player behavior globally is an asset that through incorporation into our data models is going to have a meaningful impact.
Again, keep in mind that we have nearly 5 billion DAU of players that interact with our run time globally. And historically, we've not leveraged this connection -- this first-party connection with players at all. And that's a connection that dwarfs the size of other networks in the world. And we were working really hard to change this and to building these capabilities in a privacy safe manner, where we're getting opt-in permission wherever that's necessary.
And all the fundamental work we're doing is designed to create an environment where we can incorporate more and more of that data over time. So it's very much part of our plans and part of the work that we're doing. As it relates to sort of e-commerce and other verticals, I'm really bullish on the opportunities that we have there. I think that what folks are waking up to is that the quality of the relationships that we and others have in the space and the scale of our audiences are going to be really valuable across other verticals and other ad types and that's because gamers are basically everyone.
And to the extent we've developed a really detailed understanding of consumer behavior and really good systems, that's going to benefit us and the industry in lots of different ways. For us, we're focused primarily in the near term here in the gaming vertical and in fundamentally improving the way we address our core customers. But we're also really bullish over time that there are -- that there is expansion there and excited that the market is waking up to that.
Daniel Amir
Ross Sandler, Barclays.
Ross Sandler
Great. Can't let Jarrod get off the hook here without asking a cost and margin question on his debut here. So Jarrod, I guess the overall comments about improving margins in 2025 and beyond. You guys mentioned increased cloud costs for Vector model rebuild.
Could you just put some numbers around that? And maybe around like your go-to-market once Vector is launched? And I guess, broadly as we look out over the next couple of years, if Vector revenue does start picking up, should we see the kind of high incremental margins that we see broadly in the digital ad market starting to show up here?
Jarrod Yahes
Sure, Ross. And I really appreciate you not letting me off the hook on my first call. We have done a great job as a company in driving margin and really making sure that we have the right cost structure for where we are as a business today.
If you look at the EBITDA margins of the business, EBITDA is up by 1% year-on-year. We've done a good job in bringing down G&A costs. We've done a good job in bringing down -- bringing up gross margins for the business. So we feel really good about what we've done.
And we've done that all the while making the requisite investments in Vector. If you look over the past couple of quarters and you look at cost of goods sold, where a lot of our cloud costs reside and you look at R&D costs, those have gone up by about $10 million a quarter over the past couple of quarters, evidencing some of the investment that we've been making.
So we've been at the same time, driving margin expansion and making the requisite investments in Vector, which we think is the right thing to do for the business. This is a business with 80% plus adjusted gross margin. There's a lot of leverageability in our model and a lot of operating leverage in that model.
And so as you would expect, it's going to become even easier for us to expand margins as our business starts to grow and as that acceleration takes place. So we're going to get that benefit of Vector, both in terms of revenue growth, but also in terms of operating leverage and margin expansion. And I think we look forward to that.
Right now, our near-term priority is to make the required investments in Vector to get back to a pace of revenue growth that we're comfortable with and we're pleased with so that's going to be the near-term focus. But we think we can walk and chew gum. We think we can continue to drive margin, plus also make those investments.
Daniel Amir
Chris Kuntarich, UBS.
Chris Kuntarich
Great. Thanks for taking the question. I just want to touch on Vector here for a second and really focus around 2Q and the migration that's going to be kind of unfolding here. How should we be thinking about this more tactically. Are certain advertisers going to be seeing this earlier in the quarter, and it's going to be rolled out more so on a regional basis?
Or should we be thinking about some of this functionality and your ability improving around conversion and matching the right user with the right game in the efficiency of your bids within the auctions just kind of improving through the quarter and all advertisers will be seeing this really at kind of the start of 2Q?
Matthew Bromberg
Chris, thanks for the question. Yes, the way to think about it is this, the integration first -- will take first iOS traffic and later Android traffic. So there's a step -- there's kind of two steps there.
And then the first part of the work focuses really hard on our conversion models to create better conversion. The second part of the work, and that spins out over time, works on kind of user value, so matching the most valuable players with the right games and the bidding models, and aiding us in effectively bidding in these competitive auctions for players. So that's the sense in which we're kind of taking that one step at a time and why it grows over time.
Chris Kuntarich
Got it. Thank you.
Daniel Amir
Michael Funk, Bank of America.
Michael Funk Funk
Thank you for the questions, guys. First point of clarification, on Vector and the timing of the rollout. You're now saying migration end of 1Q. I think previously, you said midyear. That was the first part. And then second, the first quarter guidance, how much of that incorporates disruption to the Grow business due to the migration versus, say, seasonality?
Matthew Bromberg
Thanks for the call -- for the question, Michael. Yes, we are -- the rollout is -- has gone more quickly than we anticipated. So the work has gone really well. It's gone more efficiently. And we're really pleased to be doing it -- to beginning to roll out about kind of a quarter before we expected.
Although, as I said, it's an iterative process. So you're right about that. And as it relates to the kind of the prudence in our guide for the first quarter, yes, it is anticipating some disruption in our existing ad business as we transition from one to the other.
Michael Funk Funk
And can you share any performance comparison, new versus old model, maybe genres, geos or devices, what you're seeing?
Matthew Bromberg
Yeah. That work is kind of ongoing and not something we're talking about just yet. But at a high level, this is brilliant flash of the obvious. Our goal is for the new models to outperform the old models over time.
Michael Funk Funk
Great. Thank you again
Daniel Amir
Clark Lampen, BTIG.
Clark Lampen
Thanks for taking the question. I just want to make -- I guess, clarify some of the questions and I guess sort of answers that we've gotten around the Vector transition. So essentially, what we're seeing happen right now is a consolidation of a couple of different operating assets previously.
I guess if we're thinking about like ironSource, Tapjoy and Unity ads independently. They're getting consolidated down to one asset. And is the expectation now that maybe as part of that migration, some customers might not fully migrate budgets. I'm just curious if you're seeing -- one, if that's correct? And two, if you're seeing any evidence of either less than 100% migration or any sort of pause on a like-for-like basis along the way so far?
Matthew Bromberg
Thanks for the question. The work around Vector is principally work that's being done around the Unity Ad Network. We're excited and supportive and continue to be bullish about the opportunities we have for the ironSource ad network as well, and we will remain in the market very aggressively selling that network as well.
But to your point, the overall in the migration, we are taking several assets we have, including Tapjoy and others and consolidating the data around each of those what have been prior been vertical businesses and migrating them into one central data source, which we think improves all the products, but isn't the same as collapsing those products in.
Clark Lampen
Understood. And if I can just ask one more sort of clarification around Create performance this quarter. I think Matt sort of at the top of the order asked the question around sort of what's embedded here. Maybe to put a finer point on that, was there a Plus to Pro migration benefit in 4Q? And as we're thinking about sort of organic growth and the trajectory of the nongaming editor business, any directional commentary you can give us for '25 or the contribution for the former item?
Matthew Bromberg
Yes, it's my pleasure. Thank you. Yes, there was some impact of the Plus the Pro migration to your point, there was definitely impact and increased velocity in our industry business, which we're really, really excited about as well as the impact, as I said, of just resetting our relationships with our customer base and spending more positive time with customers.
We think all those -- all three of those trends will continue. And then we'll see in 2025, in addition to those three trends, is the beginning of the rolling in of the major price increases around our subscription business, which we'll -- you'll see in addition over '25 and '26.
Clark Lampen
Thank you.
Daniel Amir
Thanks, Clark. So with that, we'll wrap up. So thank you for dialing in today. We look forward to seeing you at one of our upcoming investor conferences that we're going to have this quarter, and have a great day.
