Core Insights - Unity Software Inc. reported a strong second-quarter performance for 2025, driven by the launch of its AI-powered ad platform, Unity Vector, which contributed to a 15% sequential growth in the Unity Ad Network [1][9] - The company anticipates continued double-digit sequential growth in the third quarter, alongside stabilization in other ad products, indicating a positive outlook for the broader Grow segment [1][3] Financial Performance - Unity's second-quarter revenue reached $440.9 million, reflecting a year-over-year decline of 1.9% but surpassing estimates, while adjusted EBITDA was $90 million, representing a 21% margin [3] - The company is leveraging efficiency gains to reinvest aggressively in Vector and AI content creation without compromising profitability [3] Product Development and Market Position - Unity Vector's early success is attributed to its scalability and ability to process diverse data types in real time, enhancing install quality and return on ad spend for clients [2] - The platform benefits from Unity's extensive reach, powering 70% of top mobile games, which provides unique behavioral data advantages [2] Competitive Landscape - Unity is positioned in direct competition with AppLovin Corporation and Digital Turbine, both established players in mobile ad tech [5][6] - While AppLovin utilizes advanced machine learning for ad targeting, Unity's deep integration into game development offers a unique data edge [5] - Digital Turbine focuses on mobile content discovery, but Unity's first-party game runtime data may provide a stronger long-term advantage [6] Stock Performance and Valuation - Unity's stock has increased by 57.8% over the past three months, outperforming the Zacks Internet - Software industry and the Zacks Computer and Technology sector [7] - The stock currently trades at a premium with a forward 12-month price-to-sales (P/S) ratio of 7.33 compared to industry peers [11] Earnings Estimates - Unity's loss estimates for 2025 and 2026 have narrowed to a loss per share of 79 cents and 64 cents, respectively, indicating a year-over-year improvement from a loss of $1.68 per share in 2024 [14]

Investment Rating - The report maintains a "Buy" rating for Unity Software with a target price of US$37.50, revised from the previous target of US$27.75 [1]. Core Insights - Unity Vector AI platform has contributed to a 15% quarter-over-quarter growth in advertising network revenue [6]. - Revenue forecasts for 2025-2027 have been adjusted to US$1.808 billion (+1.2%), US$2.037 billion (+1.4%), and US$2.201 billion (-3.6%) respectively [6]. - The adjusted EBITDA estimates for 2025-2027 are projected to be US$356 million, US$428 million, and US$449 million respectively [6]. Financial Performance - For the fiscal year 2023, Unity Software reported total revenue of US$2,187 million, with a net loss of US$822 million and an EPS of -US$2.161 [5]. - The revenue for 2024 is expected to decline to US$1,813 million, with a net loss of US$664 million and an EPS of -US$1.677 [5]. - The company anticipates a gradual improvement in net losses, projecting a net loss of US$377 million and an EPS of -US$0.906 for 2025 [5]. Segment Performance - The Create segment's revenue for Q2 2025 was US$154 million, a 2% year-over-year increase, exceeding expectations by 8.5% [6]. - The Grow segment's revenue for Q2 2025 was US$287 million, a 3.8% year-over-year decline, which was below expectations by 1.4% [6]. - The advertising network's contribution to the Grow segment revenue was significant, accounting for 49% of the total [6]. Market Positioning - The report highlights strong performance in the Create segment, driven by new partnerships and growth in the Chinese market, which saw revenue increase to US$83.6 million, a 28% quarter-over-quarter growth [6]. - The report also notes the potential for further growth in the Create segment with the upcoming release of Switch 2 in collaboration with Nintendo [6]. Valuation Metrics - The report uses a standard EV/Sales multiple of 8.0x for valuation, aligning with industry peers [6]. - The target price reflects a valuation of 9.0x, 8.0x, and 7.4x for the years 2025-2027 respectively [6].

Core Viewpoint - Unity Software's Q2 2025 earnings report showed mixed results, with a significant stock price fluctuation driven by market expectations and actual performance. The company is experiencing a clear operational turning point, with improving trends in revenue and profitability indicators [2][6]. Financial Performance - Unity reported total revenues of $444 million for Q2 2025, a year-over-year decline of 2%, exceeding company guidance and market expectations [17]. - The Create segment saw a stable growth in engine subscriptions, with a year-over-year increase of 2%, driven by the adoption of Unity 6 and a notable $12 million in licensing revenue [3][17]. - The Grow segment experienced a revenue decline of 3.8% year-over-year, but the advertising revenue showed strong performance, growing 15% quarter-over-quarter [20][21]. Operational Indicators - The company reported a slight improvement in EBITDA margin, reaching 20.5%, indicating a gradual increase in profitability [4][33]. - Deferred revenue increased by $30 million, reflecting new multi-year contracts with several mid-to-large clients, primarily in SaaS subscriptions [7][24]. - The net expansion rate improved to 100%, slightly below market expectations of 102%, with a net increase of 10 large clients [26][27]. Strategic Developments - The Vector system is identified as a key driver for Unity's future growth, with early feedback indicating improved advertising conversion rates [8][9]. - The company is leveraging game engine data to optimize the Vector model, aiming to enhance advertising effectiveness and revenue generation [10][11]. - Unity's management has adopted a cautious approach in guidance, allowing for flexibility in adjusting expectations based on market conditions [32][33]. Cash Flow and Financial Health - Cash and cash equivalents increased to $1.7 billion, reflecting a stable improvement in the company's cash position [37]. - The company reported a GAAP operating loss of $118 million, but adjusted EBITDA reached $91 million, surpassing both company guidance and market expectations [33].

Core Insights - Unity Software Inc. launched Unity Vector, an AI-powered advertising platform, in early 2025, enhancing its digital platform capabilities [1] - The launch resulted in a 15-20% increase in app installations and in-app purchase value, indicating strong initial performance [2] - Unity Software anticipates long-term revenue growth and improved margins from Vector, despite short-term instability during the phased rollout [3] Digital Platform Expansion - Unity Vector, along with other digital tools like Unity Ad Network and Unity Mediation, is expected to improve revenue visibility and profitability [2] - The company is investing in Vector to ensure efficiency and real-time processes, which are crucial for its long-term success [3] Growth Solutions Segment - The Grow Solution segment is projected to benefit from Vector's capabilities, with expectations of mid-single-digit sequential revenue growth in Q3 2025 [4] Competitive Landscape - Unity Software faces competition from major players like Microsoft and AppLovin in the advertising and gaming sectors [5][7] - Microsoft offers development toolkits and has a strong presence in the gaming ecosystem, while AppLovin competes directly in mobile advertising [6][7] Stock Performance and Valuation - Unity Software's stock has increased by 50% year-to-date, outperforming industry benchmarks [8][9] - The stock is trading at a forward 12-month price-to-sales ratio of 7.04, indicating a premium valuation compared to industry peers [10] Earnings Estimates - EPS estimates for 2025 and 2026 have been revised to a loss of 80 cents and 65 cents, respectively, but still reflect year-over-year growth of 52.4% and 18.1% [11]

Core Insights - Unity's advertising segment, Unity Ads, has shown strong growth, with a sequential increase of over 10% for two consecutive quarters, totaling a cumulative growth of over 25% [1][5][10] - The company is optimistic about the potential for profit margin improvement in the Grow segment, even with significant investments in future growth [1][11] - The Vector initiative is still in its early stages, with expected noticeable results starting in 2026, which will continue to enhance performance over the years [1][3][12] Financial Performance - Unity Ads has achieved a sequential growth of 15% in the previous quarter, contributing to a total growth of over 25% in the last two quarters [1][5] - The company anticipates a mid-single-digit sequential revenue growth of approximately 5% from Q2 to Q3, with the non-Vector portion of the advertising business remaining stable [1][5][10] - Create business subscription revenue has seen a year-over-year increase of double digits, with strategic revenue growing by 16% [4][5] Vector Initiative - The Vector system is a modular platform that has been successfully deployed, with expectations for ongoing enhancements in AI model performance and data processing capabilities [2][3][12] - The company believes that the integration of Vector will significantly transform its business model and enhance overall growth [3][12] - The introduction of Vector has already led to an increase in installation rates and user value, exceeding previous quarterly growth rates of 15% to 20% [3][12] Market Dynamics - Unity's advertising network growth has not significantly cannibalized other advertising expenditures, such as those from ironSource, indicating a strong value proposition for clients [1][10] - The company is optimistic about the growth potential in the Chinese market, with a revenue increase of approximately $20 million, driven by both Create and Grow business segments [8][10] - Unity's strategy focuses on enhancing user acquisition capabilities and overall platform value, rather than solely relying on mediation market gains [15][16] Future Outlook - The company is confident in the continued growth of Unity Ads, with expectations for sustained performance improvements into the third quarter [1][16] - Future enhancements in AI capabilities and data quality are seen as critical to maintaining growth momentum [10][11] - The company is committed to ongoing investments in both the Grow and Create segments to drive long-term profitability and market leadership [11][12]

PART I—FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unity's unaudited condensed consolidated financial statements for the period ended June 30, 2025, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, are presented with accompanying notes detailing accounting policies and financial instrument values [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, Unity's total assets were **$6.72 billion**, a slight decrease from **$6.74 billion** at the end of 2024, with cash and cash equivalents increasing to **$1.69 billion**, total liabilities at **$3.28 billion**, and total stockholders' equity at **$3.19 billion** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$6,716,424** | **$6,737,407** | | Cash and cash equivalents | $1,691,045 | $1,517,672 | | Goodwill | $3,166,304 | $3,166,304 | | **Total Liabilities** | **$3,282,349** | **$3,310,259** | | Convertible notes | $2,233,255 | $2,238,922 | | **Total Stockholders' Equity** | **$3,193,378** | **$3,196,521** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q2 2025, Unity reported revenue of **$440.9 million**, a decrease from **$449.3 million** in Q2 2024, with net loss narrowing to **$107.4 million** from **$125.7 million** year-over-year, and H1 2025 revenue at **$875.9 million** with a net loss of **$185.3 million**, a significant improvement from a **$417.2 million** loss in H1 2024 Q2 and H1 2025 Statement of Operations (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $440,944 | $449,259 | $875,944 | $909,639 | | Gross Profit | $326,733 | $340,384 | $647,776 | $656,377 | | Loss from Operations | $(118,752) | $(129,420) | $(246,687) | $(504,349) | | Net Loss | $(107,365) | $(125,738) | $(185,272) | $(417,216) | | Diluted Net Loss Per Share | $(0.26) | $(0.32) | $(0.45) | $(1.07) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, net cash provided by operating activities was **$146.1 million**, a significant increase from **$81.0 million** in the prior year, with net cash used in investing activities at **$14.2 million**, and net cash provided by financing activities at **$22.0 million**, a major shift from **$377.7 million** used in H1 2024, primarily due to convertible notes Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $146,122 | $81,003 | | Net cash used in investing activities | $(14,164) | $(16,316) | | Net cash provided by (used in) financing activities | $22,031 | $(377,697) | | **Increase (decrease) in cash** | **$173,626** | **$(322,470)** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on accounting policies, revenue recognition, financial instruments, borrowings, and other key financial statement items, highlighting a change in intangible asset useful life, revenue disaggregation, and details on convertible notes and restructuring costs - Effective July 1, 2025, the company revised the estimated useful life for certain intangible assets (primarily developed technology from the Wētā FX acquisition) from **4-7 years** down to **1-3 years**, expected to increase amortization expense by approximately **$77 million** for the year ending December 31, 2025[33](index=33&type=chunk) Revenue by Source (in thousands) | Revenue Source | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Create Solutions | $153,782 | $150,777 | $304,160 | $314,447 | | Grow Solutions | $287,162 | $298,482 | $571,784 | $595,192 | | **Total revenue** | **$440,944** | **$449,259** | **$875,944** | **$909,639** | - In H1 2025, the company incurred approximately **$20 million** in employee separation costs and **$11 million** in other restructuring costs, compared to **$201 million** in employee separation costs and **$38 million** in other restructuring costs in H1 2024[34](index=34&type=chunk) - In February 2025, Unity issued **$690 million** of 0% Convertible Senior Notes due 2030, using proceeds to purchase capped calls and repurchase a portion of the 2026 notes, leading to a pre-tax gain of **$42.7 million** from repurchasing **$688 million** of 2026 notes for **$642 million** during Q1 2025[50](index=50&type=chunk)[58](index=58&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion covers Unity's financial performance, key business metrics, and operational results for Q2 2025, analyzing revenue trends, cost structures, and profitability, while highlighting the impact of restructuring, strategic shifts to the 'Strategic Portfolio' and 'Unity Vector' AI platform, non-GAAP measures, and liquidity [Key Metrics](index=21&type=section&id=Key%20Metrics) The company's key performance indicators show mixed results, with a slight year-over-year increase in customers contributing over **$100,000** in trailing 12-month revenue, and the dollar-based net expansion rate improving to **100%** from **96%** in the prior year, driven by reduced declines in Grow Solutions revenue offset by subscription growth - Customers contributing more than **$100,000** of revenue in the trailing 12 months increased to **1,270** as of June 30, 2025, from **1,254** a year prior[86](index=86&type=chunk) Dollar-Based Net Expansion Rate | As of | Rate | | :--- | :--- | | June 30, 2025 | 100% | | June 30, 2024 | 96% | [Results of Operations](index=23&type=section&id=Results%20of%20Operations) Total revenue decreased in Q2 and H1 2025 compared to the prior year, primarily due to a decline in Grow Solutions revenue from competition and resource allocation changes, though the migration of the Unity Ad Network to the new 'Unity Vector' AI platform led to **15%** sequential growth for that network, and operating expenses decreased significantly in H1 2025 due to headcount reductions from restructuring - Total revenue decreased in Q2 and H1 2025, mainly due to a drop in Grow Solutions revenue, partially offset by an increase in subscription revenue and a **$12 million** term license sale in Q2 2025[97](index=97&type=chunk)[98](index=98&type=chunk) - The migration of the Unity Ad Network to the new AI platform, 'Unity Vector', resulted in **15%** growth from Q1 2025 to Q2 2025, with this network now representing **49%** of total Grow Solutions revenue for Q2 2025[97](index=97&type=chunk) - Operating expenses for H1 2025 decreased significantly compared to H1 2024, primarily due to lower personnel-related costs following workforce reductions, with H1 2024 including approximately **$201 million** in incremental employee separation costs[104](index=104&type=chunk)[109](index=109&type=chunk)[111](index=111&type=chunk) [Non-GAAP Financial Measures](index=27&type=section&id=Non-GAAP%20Financial%20Measures) Unity provides non-GAAP metrics to supplement its GAAP results, with Adjusted EBITDA for Q2 2025 at **$90.5 million**, down from **$113.5 million** in Q2 2024, and Adjusted EPS at **$0.18**, compared to **$0.22** in the prior-year quarter Reconciliation of GAAP Net Loss to Adjusted EBITDA (in thousands) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | GAAP net loss | $(107,365) | $(125,738) | | Stock-based compensation expense | 101,435 | 113,766 | | Amortization of intangible assets | 86,218 | 88,432 | | Depreciation expense | 10,710 | 12,977 | | Restructuring and reorganization costs | 10,886 | 27,714 | | Other adjustments | (11,357) | (3,682) | | **Adjusted EBITDA** | **$90,497** | **$113,469** | Adjusted EPS | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | | Adjusted EPS | $0.18 | $0.22 | [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, Unity's principal source of liquidity was **$1.7 billion** in cash and cash equivalents, with the company generating positive free cash flow of **$134.0 million** in H1 2025, a substantial improvement from **$65.0 million** in the prior year, and management believes existing liquidity is sufficient to meet needs for at least the next 12 months - Principal sources of liquidity as of June 30, 2025, were cash and cash equivalents totaling **$1.7 billion**[129](index=129&type=chunk) Free Cash Flow Reconciliation (in thousands) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $146,122 | $81,003 | | Less: Purchases of property and equipment | (12,164) | (15,956) | | **Free cash flow** | **$133,958** | **$65,047** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states that its assessment of exposures to market risk has not materially changed since the disclosure in its Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no material changes to the company's market risk exposures since its 2024 Annual Report[141](index=141&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the reporting period[143](index=143&type=chunk) - No material changes to internal control over financial reporting were identified during the quarter ended June 30, 2025[144](index=144&type=chunk) PART II—OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) Legal matters involving the company are detailed, including the dismissal of a securities class action in March 2025 and related federal and Delaware derivative actions in July 2025, with the company not expecting a material adverse effect from their resolution - The securities class action lawsuit (In re Unity Software Inc. Securities Litigation) was dismissed with prejudice on March 12, 2025[146](index=146&type=chunk) - Related federal derivative actions were dismissed without prejudice on July 1, 2025, and Delaware derivative actions were dismissed with prejudice on July 22, 2025[147](index=147&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) Unity highlights a new risk factor concerning the increasing integration of Artificial Intelligence (AI) into its offerings, noting potential risks related to intellectual property infringement from training data, regulatory scrutiny, competition, and market acceptance of its AI technologies like Vector and the Unity AI product line - A new risk factor has been added regarding the use of AI in the company's offerings[150](index=150&type=chunk)[152](index=152&type=chunk) - Key AI-related risks include potential liability from third-party models trained on infringing data, regulatory scrutiny of generative AI, and uncertain market acceptance of new AI products[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) The adoption and termination of Rule 10b5-1 trading plans by the company's directors and officers during Q2 2025 are disclosed, noting new plans adopted by the CEO, COO, and Chief Legal Officer, alongside other terminated plans Rule 10b5-1 Trading Plan Activity (Q2 2025) | Name | Title | Action | Date | | :--- | :--- | :--- | :--- | | Anirma Gupta | SVP, Chief Legal Officer | Termination | May 9, 2025 | | Anirma Gupta | SVP, Chief Legal Officer | Adoption | May 9, 2025 | | Alexander Blum | SVP, Chief Operating Officer | Adoption | May 9, 2025 | | Matthew Bromberg | President and CEO | Adoption | May 14, 2025 | | David Helgason | Director | Termination | June 9, 2025 | | David Helgason | Director | Adoption | June 9, 2025 |

Business Performance & Strategy - The company views the second quarter of 2025 as a potential inflection point for its turnaround, driven by accelerated product development and improved customer offerings [2] - The primary focus is on building a growing and enduring business [2] - The company does not focus on market share, but rather on delivering value to customers, which drives increased spending and business growth [9][10] Mobile Gaming Market - Mobile gaming is the biggest priority for the company [4] - The company is effectively the operating system for the mobile gaming business globally [4] - 70% of the mobile games in the world are built on the company's platform [5] - 85 of the top 100 mobile game advertisers use the company's advertising solutions [5] Product & Technology - The company is delivering better products for the mobile gaming business, leading to business growth [5] - Unity 6 has seen the fastest adoption rate of any version of Unity and is considered stable and performant [7] - The company provides tools for developers to build and operate their businesses, helping them monetize and acquire users [12][13] Investor Relations - The company believes the stock reaction is likely due to the over 100% run-up in the past year, anticipating better results [8]

Core Insights - Unity Software reported Q2 2025 GAAP revenue of $441 million, exceeding analyst estimates of $427.79 million, while adjusted EPS was $0.18, beating the $0.14 estimate [1][5] - Despite outperforming expectations, both revenue and profits declined year-over-year, with revenue down 1.8% from $449 million in Q2 2024 and adjusted EPS down 18.2% from $0.22 [1][2][5] Financial Performance - Adjusted EPS (Non-GAAP) for Q2 2025 was $0.18, compared to $0.14 estimate and $0.22 in Q2 2024, reflecting an 18.2% decline [2] - GAAP revenue was $441 million, surpassing the estimate of $427.79 million but down 1.8% from $449 million in Q2 2024 [2] - Adjusted EBITDA reached $90.5 million, down from $113.5 million in Q2 2024, with a margin decrease from 25% to 21% [8] - Free cash flow (Non-GAAP) was $126.7 million, up 59.2% from $79.6 million in Q2 2024 [2][9] - Net cash provided by operating activities was $133.1 million, a 50.6% increase from $88.4 million in Q2 2024 [2][9] Business Segments - Create Solutions generated $154 million in GAAP revenue, a 2% year-over-year increase, largely due to a one-time $12 million license sale [6] - Grow Solutions reported $287 million in GAAP revenue, down 4% year-over-year, although the Unity Ad Network saw a 15% sequential quarterly gain [7] Strategic Focus - Unity is focusing on expanding its platform to new devices, integrating AI innovations, and enhancing engagement with its creator community [4] - The launch of Unity 6 and the migration to Unity Vector aim to improve advertising monetization and support for third-party devices [10][11] Future Guidance - Management projected Q3 2025 revenue between $440 million and $450 million, with adjusted EBITDA guidance of $90 million to $95 million [12] - Expectations include mid-single-digit sequential revenue growth in Grow and a slight decline in Create due to the fading impact of one-off licensing [12]

Financial Data and Key Metrics Changes - The company exceeded the top end of guidance for revenue by $16 million and adjusted EBITDA by $15 million in Q2 [18] - Grow revenue was $287 million, down 4% year over year but up 1% sequentially, with strong performance from the Unity ad network [18][19] - Create revenue was $154 million, reflecting a 2% increase both year over year and sequentially, with a 16% growth when adjusting for non-strategic revenue [19][20] - Adjusted EBITDA for the quarter was $90 million, representing a 21% margin [20] - Free cash flow reached a record $127 million, an increase of $47 million year over year [21] Business Line Data and Key Metrics Changes - The growth segment saw a 15% sequential revenue growth driven by Unity Vector, which is expected to continue into Q3 [6][9] - The Create segment experienced double-digit subscription growth, with Unity 6.2 showing strong adoption [13][19] - The Unity ad network now comprises approximately half of total grow revenue, with expectations for this percentage to increase [8][22] Market Data and Key Metrics Changes - The company reported significant growth in China, with a $20 million sequential increase in revenue, driven by improvements in both Create and Grow segments [57] - The advertising business is seeing broad-based growth, with 85 of the top 100 mobile games in the world using Unity [10][11] Company Strategy and Development Direction - The company is focusing on accelerated product innovation and enhancing customer value, particularly through Unity Vector [5][12] - Major partnerships were announced with Tencent and Scopely, aimed at strengthening Unity's position in the gaming ecosystem [14][15] - The company is also expanding its presence in non-gaming sectors, with automotive and healthcare applications showing strong growth [16][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the future growth potential, particularly with the integration of AI and data-driven insights into their products [11][12] - The company anticipates that the full impact of its competitive advantages will be realized starting in 2026 [11] - Management highlighted the importance of maintaining operational efficiency while investing in high-impact initiatives [21][22] Other Important Information - The company is implementing a developer data framework to enhance transparency and control over data usage [12] - Adjusted gross margins are at 83%, with expectations for further margin expansion as the business scales [23] Q&A Session Summary Question: Potential to expand Unity ad strength to other products - Management confirmed that Unity Vector is modular and can be applied to improve other ad products [28] Question: Rate of improvement with Vector - Management indicated that Vector is a significant upgrade, with ongoing improvements expected over time [31] Question: Next steps in product evolution for Grow - Management emphasized that improvements will be gradual and ongoing, leveraging AI capabilities [35] Question: Clarification on a $12 million perpetual deal in Create - Management explained that this was a small component of a larger contract and does not represent recurring revenue [38] Question: Guidance on Grow revenue - Management expects mid-single-digit growth in Grow, with strong performance anticipated from the Unity ad network [46] Question: Growth in China - Management noted that the growth in China is primarily due to improvements in the Create business [56] Question: Incrementality vs. cannibalization in ad spend - Management stated that cannibalization is minimal, with growth driven by increased value provided to customers [64] Question: Scalability of ad spend on Vector - Management acknowledged that while there are strong performance improvements, there is still work to be done to optimize scalability [96]

Financial Data and Key Metrics Changes - Unity exceeded the top end of guidance for revenue by $16 million and adjusted EBITDA by $15 million in Q2 2025 [18][20] - Total revenue for Q2 was $441 million, with adjusted EBITDA at $90 million, representing a 21% margin [19][20] - Free cash flow reached a record $127 million, up $47 million year-over-year [20] Business Line Data and Key Metrics Changes - In the Grow segment, revenue was $287 million, down 4% year-over-year but up 1% sequentially, driven by strong performance from the Unity ad network [18][19] - The Create segment reported revenue of $154 million, up 2% year-over-year and sequentially, with strategic revenue growth at 16% when adjusted for non-strategic revenue [19][20] Market Data and Key Metrics Changes - The Unity ad network now comprises approximately half of total Grow revenue, with expectations for this percentage to continue increasing [6][22] - The company reported significant growth in China, with a $20 million sequential increase in revenue, driven by improvements in both Create and Grow segments [56][57] Company Strategy and Development Direction - Unity is focusing on the full emergence of Unity Vector, which has exceeded expectations and is expected to drive sustainable growth [4][5] - The company is investing in AI capabilities to enhance both the advertising and content creation experiences, with a long-term vision for growth in these areas [10][13] - Partnerships with major companies like Tencent and Scopely are aimed at leveraging Unity's platform for mutual growth [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the future, citing the unique consumer insights gained from Unity's position as the leading game development platform [10][11] - The company anticipates continued improvements in performance and growth driven by AI advancements and the integration of new data capabilities [10][12] Other Important Information - Unity's adjusted gross margins are at 83%, with expectations for further margin expansion as the company scales its operations [23][80] - The Developer Data Framework is set to enhance transparency and control for developers regarding data usage [11][45] Q&A Session Summary Question: Potential to expand Unity ad strength to other products - Management confirmed that Unity Vector is modular and can be applied to improve other ad products [28] Question: Rate of improvement with Vector - Management indicated that Vector is a significant upgrade and will continue to provide performance lifts over time [32] Question: Next steps in the evolution of the product - Management emphasized ongoing improvements and investments in AI to enhance existing capabilities [35] Question: Guidance on Grow revenue - Management clarified that mid-single-digit growth implies strong performance in the Unity ad network, with stabilization in non-Vector parts [46] Question: Growth in China - Management noted that the increase in China revenue is primarily due to improvements in the Create business [56][57] Question: Strategic importance of mediation in ad pricing - Management highlighted the unique position of Unity in the marketplace and the importance of mediation in optimizing ad performance [111]