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]

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call. Unity Software Inc. (U) came out with a quarterly loss of $0.26 per share versus the Zacks Consensus Estimate of a loss of $0.25. This compares to a loss of $0.32 per share a year ago. These figures are adjusted for non- recurring items. This quarterly report represents an earnings surprise of -4.00%. A quarter ...

[Unity Q2 2025 Earnings Release](index=1&type=section&id=Unity%20Q2%202025%20Earnings%20Release) [Financial Highlights](index=1&type=section&id=Financial%20Highlights) Unity reported Q2 2025 revenue of $441 million, a 2% decrease year-over-year, exceeding guidance, with a GAAP net loss of $107 million and strong Adjusted EBITDA of $90 million and free cash flow of $127 million, driven by the new AI platform Unity Vector - The CEO, Matt Bromberg, described **Q2 2025** as an "inflection point" for Unity, with results substantially beating guidance for both **revenue** and **Adjusted EBITDA**[2](index=2&type=chunk)[3](index=3&type=chunk) Financial Metric Comparison | Financial Metric | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $441 million | $449 million | -2% | | GAAP Net Loss | ($107 million) | ($126 million) | Improved | | GAAP Net Loss per Share | ($0.26) | ($0.32) | Improved | | Adjusted EBITDA | $90 million | $113 million | -20% | | Adjusted EPS | $0.18 | $0.22 | -18% | | Net Cash from Operations | $133 million | $88 million | +51% | | Free Cash Flow | $127 million | $80 million | +59% | - The new AI platform, Unity Vector, drove **15% sequential growth** in the Unity Ad Network during the second quarter[3](index=3&type=chunk) [Business Segment Performance](index=1&type=section&id=Business%20Segment%20Performance) Create Solutions revenue grew 2% to $154 million, while Grow Solutions declined 4% to $287 million, with strong Unity Ad Network growth offsetting other ad product declines Segment Revenue and Key Drivers | Segment | Q2 2025 Revenue | YoY Change | Key Drivers | | :--- | :--- | :--- | :--- | | Create Solutions | $154 million | +2% | A ~$12 million term license sale and increased subscription revenue | | Grow Solutions | $287 million | -4% | Strong Unity Ad Network performance (15% QoQ growth) offset by declines in other Ads products | [Profitability and Cash Flow](index=2&type=section&id=Profitability%20and%20Cash%20Flow) GAAP net loss narrowed to $107 million, Adjusted EBITDA reached $90 million (21% margin), and free cash flow significantly increased to $127 million - **GAAP net loss improved to $107 million** (a -24% margin) **from $126 million** (a -28% margin) in Q2 2024[9](index=9&type=chunk) - **Adjusted EBITDA was $90 million (21% margin)**, **down from $113 million (25% margin)** in Q2 2024. The better-than-guided margin was attributed to higher revenue and continued cost discipline[10](index=10&type=chunk) - **Net cash provided by operating activities increased to $133 million**, and **free cash flow grew to $127 million**, **up from $88 million and $80 million** respectively in Q2 2024[9](index=9&type=chunk)[10](index=10&type=chunk) [Financial Position](index=2&type=section&id=Financial%20Position) Unity maintained a strong liquidity position with cash, cash equivalents, and restricted cash totaling **$1.702 billion** as of June 30, 2025 - Cash, cash equivalents, and restricted cash stood at **$1.702 billion** as of June 30, 2025, an increase of **$174 million** from the end of 2024[12](index=12&type=chunk) Balance Sheet Summary | Balance Sheet Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total Assets | $6,716,424 | $6,737,407 | | Total Liabilities | $3,282,349 | $3,310,259 | | Total Stockholders' Equity | $3,193,378 | $3,196,521 | [Q3 2025 Business Outlook](index=2&type=section&id=Q3%202025%20Business%20Outlook) Unity projects Q3 2025 revenue between $440 million and $450 million and Adjusted EBITDA between $90 million and $95 million Q3 2025 Guidance | Guidance Metric | Q3 2025 Outlook | | :--- | :--- | | Revenue | $440 million - $450 million | | Adjusted EBITDA | $90 million - $95 million | - The Grow segment is expected to see **mid-single digit sequential revenue growth** from Q2 to Q3[16](index=16&type=chunk) - The Create segment is expected to experience a **slight sequential decline** from Q2 to Q3, attributed to the impact of a large customer win in Q2[16](index=16&type=chunk) [Consolidated Financial Statements](index=3&type=section&id=Consolidated%20Financial%20Statements) Presents unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, and Cash Flows for Q2 2025 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) - Presents the company's **assets, liabilities, and stockholders' equity** as of June 30, 2025, compared to December 31, 2024[17](index=17&type=chunk)[18](index=18&type=chunk) [Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) - Details **revenues, costs, and expenses** to arrive at **net loss** for the three and six months ended June 30, 2025, and 2024[20](index=20&type=chunk)[21](index=21&type=chunk) [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) - Outlines the **cash inflows and outflows** from **operating, investing, and financing activities** for the three and six months ended June 30, 2025, and 2024[22](index=22&type=chunk)[23](index=23&type=chunk) [Reconciliation of GAAP to Non-GAAP Financial Measures](index=6&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Financial%20Measures) Provides detailed reconciliations of GAAP to non-GAAP financial measures, including Adjusted EBITDA, Adjusted Gross Profit, and Adjusted EPS - The company uses **non-GAAP measures** like **Adjusted EBITDA, Adjusted Gross Profit, Free Cash Flow, and Adjusted EPS** to evaluate ongoing operations and for internal planning[24](index=24&type=chunk) - **Adjusted EBITDA** is defined as **GAAP net loss excluding stock-based compensation, amortization, depreciation, restructuring, interest, taxes, and other non-operating items**[26](index=26&type=chunk) Adjusted EBITDA Reconciliation | Reconciliation Item | Q2 2025 (in thousands) | Q2 2024 (in thousands) | | :--- | :--- | :--- | | GAAP Net Loss | $(107,365) | $(125,738) | | Stock-based compensation | $101,435 | $113,766 | | Amortization of intangibles | $86,218 | $88,432 | | Depreciation | $10,710 | $12,977 | | Restructuring costs | $10,886 | $27,714 | | Other adjustments | $(11,367) | $(3,682) | | **Adjusted EBITDA** | **$90,497** | **$113,469** | [Forward-Looking Statements](index=10&type=section&id=Forward-Looking%20Statements) Contains forward-looking statements regarding future financial performance and strategic initiatives, with cautions on various risks and uncertainties - The press release includes **forward-looking statements** concerning **Unity's outlook**, the performance of its **AI platform Vector**, **strategic initiatives**, and **financial guidance for Q3 2025**[35](index=35&type=chunk) - **Key risks** that could cause actual results to differ include **macroeconomic conditions, competition, geopolitical instability** (particularly in Israel), and the ability to successfully **transition executive leadership** and **adapt to new technologies**[35](index=35&type=chunk)

Core Insights - Unity Software Inc. is set to release its second-quarter 2025 results, with previous earnings surpassing estimates by 50% [1] Q2 Estimate Revisions - The Zacks Consensus Estimate for Unity's Q2 2025 loss per share is 25 cents, compared to an adjusted loss of 32 cents in the same quarter last year, with no changes in the consensus over the past week [2] - Revenue estimates for Q2 are projected at $425.8 million, reflecting a 5.2% decline from the previous year's figure [2] Earnings Surprise History - Unity has consistently beaten earnings expectations, achieving this in the last four quarters with an average surprise of 28% [3] Factors Influencing Q2 Performance - The company's revenue in Q2 is expected to be impacted by the transition to the AI-powered Unity Vector platform, which may not have fully realized its financial benefits yet [4] - Declines in revenue from legacy ad products like ironSource and Tapjoy are anticipated due to resource reallocation towards Vector, creating short-term revenue friction [4] - A slight sequential decline in the Create segment is forecasted due to the winding down of non-strategic revenue streams, although subscription growth continues [5] Cost Considerations - Elevated R&D and cloud infrastructure costs during the transition period are expected to normalize in the second half of the year, but may have negatively impacted profitability in Q2 [6] Earnings Whispers - The model predicts an earnings beat for Unity, supported by a positive Earnings ESP of +40.00% and a Zacks Rank of 2 (Buy) [7][8]