Unity Software Aktie

Ladies and gentlemen, thank you for joining us, and welcome to the Unity Technologies Q1 Earnings Call. [Operator Instructions]

I will now hand the conference over to Alex Giaimo, Head of Investor Relations. Alex, please go ahead.

Thank you. Good morning, everyone. Welcome to Unity's First Quarter 2026 Earnings Call. I'm joined this morning by our CEO, Matt Bromberg; and our CFO, Jarrod Yahes.

Before we begin, I want to note that today's discussion contains forward-looking statements, including statements about goals, business outlook, industry trends and expectations for future financial performance, all of which are subject to risks, uncertainties and assumptions. 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 financials are in addition to and not substitute for 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.

With that, I'll turn it over to Matt.

Thanks, Alex, and good morning. On behalf of everyone at Unity from across the globe, I'd like to thank each of you for joining us today. It is a privilege to be with you this morning.

Unity is on an incredible trajectory, growing rapidly on both the top line and the bottom line while also shipping the most ambitious product road map in our history, a product road map that we believe will transform both Unity and the future of interactive content creation. Our first quarter results reflect this momentum with Unity posting strategic revenue growth of 35% year-over-year and our best adjusted EBITDA margin in over 2 years at 27%, up 65% year-over-year.

As Jarrod will share in more detail later, we expect the second quarter to bring more of the same with guidance for strategic ad revenue to grow 50% year-over-year, including robust Vector revenue growth as well as year-over-year margin expansion. This organic growth trend, combined with operating discipline means that we now expect our business to become GAAP profitable by the fourth quarter of 2026, an important financial milestone and a reflection of the kind of company we want to run over the long term. This is another topic that Jarrod will address in more detail in just a bit.

Unity's tremendous financial performance, a passion for execution and a deep commitment to our customers have also positioned us well to take advantage of the massively positive forces we're seeing in the marketplace, driven by the adoption of AI across our industry. Our research is telling us that 90% of game developers are already using AI in their workflows, and these tools are accelerating the production of new games. We're also seeing this up close every day in our work with studio partners, both large and small. Newly released mobile apps are up 60% year-over-year across both iOS and Android with a particularly noticeable uptick in more recent months. And remember, mobile games continue to account for the majority of all new app releases worldwide. These are the trends propelling our business forward. Newly published Made with Unity games were up 12% over the prior quarter in Q1, with new Unity sign-ups showing 20% quarter-over-quarter growth, the fastest growth we've seen since 2020.

So more games are being made. That's great for Unity. And because AI is making game creation more approachable, there are also more creators. That's great for Unity. And with more creators and more games, the need for game discovery becomes ever more acute as many more titles compete for consumer attention. So helping match consumers with the next game they want to play becomes even more critical than it is today, and that's great for Unity as well.

Crucially, while these developments are driving significant change for many developers and publishers, we expect they will also be strong drivers of growth for the entire industry for many years to come. But AI is not just accelerating adoption of Unity's platform in the marketplace. It's also propelling the pace of our own product development. Unity is truly meeting the moment by building new products that we believe will form the foundation of the next generation of interactive content creation and marketing.

Let's start with Vector, the AI system that sits at the heart of Unity. Improved performance and enhanced returns for our advertising customers drove another quarter of 15% sequential growth, the fourth in a row, exceeding our own already ambitious expectations. Our Vector revenue in the first quarter of 2026 is 80% larger than 1 year ago, an astonishing result. But what we're really excited about is just how young Vector still is. We believe we've just begun to see the impact it will have for our customers and our business.

Most notably, later this quarter, we'll see Unity's runtime data graduate to our live production models for the first time. Our conviction remains high that real-time sequential behavioral data will provide a significant future catalyst for growth. We're now ingesting this data inside Vector, and we are very encouraged with the results we're seeing in testing. And with opt-in rates to our developer data framework remaining at over 90%, adoption rates continue to scale each day, enhancing our unique competitive position.

But Vector is about much more than just advertising. At its heart, Vector is personalization AI, designed to understand how and why games appeal to players. It's trained on 20 years of game making on the one side and interaction with billions of consumers on the other. Our vision is for these 2 domains to interoperate so that we can better understand both what appeals to players as well as how those appealing experiences are designed, constructed and delivered. Vector is where these 2 domains come together, and it's now at the center of our product development across both Create and Grow.

Our first Vector-driven enhancement for the Unity engine, Unity AI, went into public beta earlier this week, and the response from creators has been really gratifying. Unity AI is an integrated agent tuned specifically for Unity. It has full context for your project and is custom-made for Unity workflows. So it knows both your game and our software better than anyone else, and it writes code directly in a Unity project. From scene hierarchies, packages, code, assets, all the way down to performance controls we've never made available before. It knows not just how to make a game, but how to make a game that runs well across every platform, fully in service of the individual creator's vision.

The Unity AI interface also offers extreme flexibility so that our customers can work not just faster and more efficiently, but more creatively. For example, we've remarked on many occasions that generic world models would be a great source of prototyping material and that game engines like Unity could ingest those pixels, transform them into Unity scene and enable developers to build deep interactive content and systems around them. Well, that's just what Unity AI now does. It ingests image pixels, outputs primitives and does mesh up scaling and textures, constructing the entire content pipeline almost instantly. Image data is thus transformed into production-ready format, massively accelerating the process of game development. You can check it all out, including a cool video introduction at unity.com/features/ai.

The conversation about world models and game engines has been framed as a contest, but I think that framing misses what's actually happening. Today, the most ambitious interactive experiences will combine what generative systems do best, speed, personalization and the ability to produce variation at a scale humans can't with what engines do best, which is determinism, persistence and the consistency players and developers depend on. As neural capabilities continue to advance, new forms of interactive entertainment will emerge, and they will look quite different from the games we play today, different modalities, different form factors, things we haven't yet imagined.

We don't think the future is a threat to what Unity does. We think it's the reason Unity exists. In fact, Unity has a pipeline of new products scheduled for release before the end of 2026 that we believe have the potential to accelerate this future massively and redefine our industry. These new launches are AI native, yet integrated with authoring tools robust enough to produce professional results, not just for today's professionals, but for the motivated and talented millions of new creators who will be inspired by all these new capabilities. These creators, both professional and otherwise, need tools and technologies that will enable their inspiration to become more than just an experience to enable them to become a real system, a real game, distributed everywhere, rendered at high fidelity even on mobile devices, tied to our advertising and monetization capabilities, driven by data and AI, but not defined by them.

Empowering this new creative class and realizing the next era of the democratization of gaming is very much in Unity's DNA. Here's what's crucial to understand about the future of interactive entertainment. Great experiences will still come from human creative vision. AI models are powerful precisely because they're trained on what human creators have made. The bottleneck in the future isn't generation that will become a commodity if it hasn't already. The bottleneck is effective direction and realization. It's how a creator takes a spark of an idea and transforms it into a deep, engaging commercial system that is distinctive rather than generic. That can be distributed and enjoyed at high fidelity on any device that has a business model to sustain its creator. That's a tools problem. And it's a creator meets technology problem, and those are exactly the problems Unity has spent 20 years solving and will continue to solve. Our role in this future is to build the tools that human creativity shape what AI can do so that the results reflect the creator, not the average of the training data.

So you can see what an incredible opportunity we have. All of us around the world feel so privileged to be delivering the kind of extraordinary business results we are today and are also on the precipice of so many incredible advancements in the near future. There is no company in the world better positioned to win in this marketplace than we are.

With that, I will thank you once again for your time, and I'll pass it over to Jarrod for a deeper dive on our business results. Jarrod?

Thanks, Matt, and good morning, everyone. Unity had an exceptional first quarter of 2026 with strategic revenue growth accelerating and adjusted EBITDA margins expanding rapidly. We are in our best financial position in years with a portfolio that's driving faster revenue growth alongside robust margin expansion. We're in the enviable position of posting these impressive results while simultaneously investing heavily in AI to drive further growth and create new revenue streams for Unity in the future.

First quarter results were driven by strong performance above our expectations across both Create and Grow. Strategic Grow revenue in the first quarter was $279 million, representing 49% year-over-year growth. Revenue upside compared to our guidance and our expectations was once again driven by the exceptional performance of Vector. While our growth was impressive, it does not yet reflect any impact from our runtime data, which we believe will provide us with a sustainable competitive advantage for many years to come.

In Create, strategic revenue was $154 million, up 15% year-over-year. The consistency of this business over the last year has been phenomenal with 4 straight quarters of mid-teens year-over-year growth. Performance is driven by the continued impact of our annual price increases, meaningful strength in China as well as strength in our nongames industry business. All of this is as a result of dramatically improved products, delivering performance and stability to customers, enhancing Unity's core value proposition over time.

Over the past 2 years, we've made a firm commitment to performance and stability, resulting in a 22% decrease in user-reported issues since the launch of Unity 6 and improved satisfaction from our customers. This has allowed us to maintain a robust 70% market share in mobile game creation while passing along moderate price increases and allowing us to invest aggressively in our products.

We expect our business model in Create to evolve as we roll out new AI products. The new pricing models we've introduced with Unity AI, which account for the number of first- and third-party agent connections in addition to seats, ensures our pricing scales fairly with usage rather than penalizing creators who use AI to be more productive. Over time, we expect this will allow us to scale revenues from both agentic and human consumption. Ultimately, customers value outputs, not inputs, and we expect that business models will completely adapt to that preference. We welcome that and the minimum commit model we maintain with our enterprise customers and the new consumption elements of our pricing model are very well suited to that evolution.

The Unity commerce platform is also on track to launch this quarter, and we already have a set of committed partners like Voodoo games and SciPlay working with us to ensure we do it right. Developers shouldn't have to be fintech experts to run a global business. That's why we think our Unity e-commerce platform is so vital. By providing a single native dashboard to manage catalogs and pricing across mobile, web and PC, we're removing the massive overhead of juggling multiple SDKs and payout systems, providing a turnkey solution for global payments.

Now turning to our profitability in the first quarter. Adjusted EBITDA was the best in over 2 years at $138 million, growing 65% year-over-year. Adjusted EBITDA margin was 27% and improved 800 basis points year-over-year. Our margin expansion is primarily driven by operating leverage, resulting from accelerating revenue growth with high flow-through margins, which enables us to simultaneously reinvest aggressively in our strategic AI initiatives while also expanding margins. Adjusted sales and marketing and G&A have both declined year-over-year and as a percentage of revenues. And we have deliberately redeployed much of that capital into R&D, where our adjusted R&D spend is up 9% year-over-year and AI-focused R&D, where spend is up 17% year-over-year, inclusive of AI-focused hiring and cloud inference training costs. We expect AI-focused R&D spend to continue to climb with any margin impact more than offset by operating leverage and further cost efficiencies.

In terms of cash and our balance sheet, our cash balance of $2.15 billion continues to increase each quarter as a result of our robust free cash flow. We also have a $558 million convert coming due in November of this year, and our current intention is to reduce leverage and pay it off using cash on the balance sheet.

Before diving into our second quarter guidance, I want to spend a moment outlining Unity's path to GAAP profitability, the time line of which has been substantially pulled forward. There are 3 factors contributing to this. Firstly, adjusted EBITDA margins are up 800 basis points, as we have discussed. Secondly, stock comp expense is down 20% in dollar terms and is down markedly as a percentage of revenue to 15% this quarter. And lastly, we expect materially lower M&A amortization that runs off almost entirely at the end of Q4 2026. As a result, we now forecast Unity to be GAAP net income profitable by the fourth quarter of 2026. With that, let's turn to guidance for the second quarter.

For the second quarter, we're guiding to total strategic revenue of $455 million to $465 million, implying year-over-year growth of 29% to 32%. In strategic Grow, we're forecasting year-over-year revenue growth of 50% to 52%, driven by continued robust growth in Unity Vector. And in strategic Create, we're forecasting 11% to 14% year-over-year revenue growth, excluding the impact of a large customer win we're comping from 2025.

As a result of our recent strategic decision to sunset the ironSource Ad Network and sell our Supersonic publishing business, our guidance moving forward will be focused on our strategic revenues. Beginning in the second quarter, there will no longer be any nonstrategic revenues in Create. In Grow, we expect $50 million in nonstrategic revenues in the second quarter. As a reminder, the second quarter incorporates 1 month of the ironSource Ad Network revenue given the closure on April 30. As we move to the third quarter, we expect about $45 million in nonstrategic revenue until we complete the exit of our Supersonic business.

For the second quarter, we're guiding to adjusted EBITDA of $130 million to $135 million, implying adjusted EBITDA growth of 44% to 49% year-over-year. We forecast that with continued strong revenue growth, high flow-through contribution margins, combined with cost reductions associated with our strategic actions, that adjusted EBITDA margins will further improve in the back half of 2026. As a result, Unity is poised to expand margins in 2026 to record levels while simultaneously bringing to market an incredibly exciting pipeline of products that will transform the process of game creation.

With that, I'd like to thank you for joining us on Unity's First Quarter 2026 Conference Call. Let me turn the call over to Alex so that we can take your questions.

Thanks, Jarrod. Operator, we are now ready for questions.

[Operator Instructions] Your first question comes from the line of Matthew Cost with Morgan Stanley.

I have one for Matt and one for Jarrod. Matt, just following up on the Unity AI public beta, obviously, a major step forward in terms of putting those tools in the hands of creators. There have been some demos from some of the companies behind the frontier models where they sort of showcase making games as a use case for some of these cutting-edge models from these big AI companies. I guess when you think about how that compares to what you can do with Unity AI and your ability to get in front of the next generation of game creators with Unity AI, given that there's going to be this proliferation of other tools that can make some sort of games. I guess, where do you feel you sit in the future of these new AI game creation tools?

And then for Jarrod, just on commerce, there was a really great update to hear about how you have some pretty high-profile partners at launch. I guess, how did those conversations evolve? How enthusiastic are the customers that you're talking about potentially working with on commerce? And this seems like a product that could be very needle-moving financially if it starts to get some real traction. So is there any way you can help us dimension how impactful that could be financially?

Matt, thanks for your question. Good morning, and good morning to everybody. Unity AI is an integrated agent that's tuned specifically for game development and for use of Unity. General -- as I kind of talked about in the opening, general purpose coding agents are really powerful, but what they lack is Unity engine-specific context as well as the context of the project you're building itself. And that gap matters a lot when shipping a real game across multiple platforms. So if you think about the kind of differentiation, you've got full project context, so it's easier scene and the packages and the assets and the code and a unified system. And then Unity-specific tuning for workflows that are platform aware and aware of your asset pipelines and how they're going to get integrated.

What we're seeing in -- it's only been about a week, but we're seeing really strong attachment rates in that product. So 70% of the users who adopt it are continuing to work with the product 5 days in. So that tells us that we are on the right track. And of course, we'll be tracking that as we go forward. This kind of attachment appears to be a function of better performance of our AI product than just generic models alone because those models aren't exposed to the context engineering that we bring to the table on our own products. It makes the AI more efficient. It makes it less expensive. It means less prompting is required and it's faster.

Now we've just launched again this earlier this week, but we're really, really excited about it. And as I also mentioned a couple of minutes ago, what's really exciting for us also is that Vector, which I think historically, most folks have thought of as having -- being built really just for our advertising business is -- has really come to the center of everything we're doing. So Unity AI is the first Vector-driven advancement for the Unity engine itself, meaning the same personalization AI thesis that sits underneath our grow business is also powering our Create business.

So we're just -- we're very excited about the future of this space, and we're really confident in our ability to combine the best tools and technologies, the robust systems and authoring tools monetization capabilities, distribution capabilities that we do, and we combine the best of what's happening in AI. And what we're seeing is that is driving our business forward. That is why we have more sign-ups to Unity than ever before. It's why there are more games being created by Unity than ever before. It is why our advertising business is in better shape than it ever has been before.

And Matt, with respect to the update that we provided on our commerce product, we too are also extremely excited to be working with landmark customers like SciPlay and Voodoo on the launch of our commerce product. As we've mentioned in the past, value to Unity is going to come in a number of ways. Including data, economic revenue share and really helping our customers with merchandising and web shop optimizations and analytics. We're excited about the potential here. This is a classic example where providing customer value and product value and create can really help the entirety of the Unity platform, including Vector.

And Unity is extraordinarily well positioned to offer this product where it can help our game developers solve a real-world problem that they're encountering, which is really ensuring that they can accept IP in an economically viable way, minimize their engineering overhead and also maximize the value of the data that they ingest as part of their IP processes. So we're really excited about the progress here, and we're really excited about taking this forward with the 2 customers that we spoke about.

And your next question comes from the line of Alec Brondolo with Wells Fargo.

Maybe a couple for me. I think first, is there a specific expectation for Vector sequential growth in the second quarter? I think you said robust in the prepared remarks, but I think investors are looking for a little bit more granularity there.

Second, I think people are trying to unpack like why the runtime data is powerful. And as I've heard you guys talk publicly over the last several weeks, as I speak to people in the industry, I think this idea of sequencing keeps coming up, right? The idea that if we can understand what the user is doing in the app in order in a sequence, that's kind of a powerful predictor as to their likelihood to convert. And so could you maybe just like help us understand that in a little bit more detail? Like why do you think sequencing is going to be such a powerful avenue of conversion prediction in the mobile game and app space?

And lastly, just maybe one on the Unity AI beta. How do you think about first-party agents relative to third-party agents? Is there still a commitment to allowing third-party agents to interact with the Unity engine via an MCP connector as you roll out the Unity AI beta, are you agnostic to whether it's a first-party or third-party agent that the customer uses? Or would you prefer them in the 1P product?

Alec, that's quite a question. We're going to -- hope to provide some time for others as well. But let me take a -- one at a time. Let's start with Vector. Vector is an AI prediction engine. And the reason Vector is continuing to grow as we're doing a better job predicting which customers are going to like which games and matching those customers with the publisher of the corresponding game. It's a process of continuous improvement, and it's pretty straightforward at a high level. We improved product, which makes it easier and more effective for our customers to use, so they buy more. So an example, we rolled out last quarter a day 28 ROAS product, which enables our customers to plan and predict their return on a 28-day basis instead of just a 7-day basis. And it's driven an incremental lift of 80% for campaigns and showing a 37% ROAS improvement versus the old day 7 benchmarks. So that's an example of a product improvement. It helps customers, it helps return. They buy more, we deliver value, they spend more. So that's product improvements.

The second piece is signal improvements. We try to improve the signal, the quality of our data. And then when we -- every time we do that, it enables us to retrain our models, which are self-learning. We retrain them around that better signal and around the increased demand that we're creating. And that constant process of optimization is what makes the product work. And all of that results in better return for customers, which drives more demand. And then you start the process again, better signal, better models, better ROAS, better product, more ad spend and you begin again. That's the flywheel of our business. And as I've said many times, what is really exciting for us is we're still at the very, very early part of Vector product that didn't even exist a year ago, a little more than a year ago. And we just -- we feel really, really good about our continued ability to run that flywheel that I just described.

So the growth is a function of the success of that process. And we've had about 4 straight quarters of 15% quarter-over-quarter growth. That growth has been broad-based. It's been balanced across different geos, different campaign types, different platforms and different genres. And as you point out, our Q2 guide doesn't yet reflect any of the runtime data contribution, which is we think going to be an incredibly important catalyst for us, and I think was the part two of your question.

So moving to runtime data. We're really excited and encouraged by what we're seeing in offline testing, and we are expecting to graduate our testing to live production models during the course of Q2. The runtime data is a kind of signal of the value which is going to build over time and compound. As we've said many times, it's not something we expect immediate spikes around, but we think it will be steady, meaningful improvements of quality in the model and the data over time.

And as you point out, what we believe is really quite valuable about runtime data is that it's real time, so it's not delayed. It is sequential, which means it helps us to understand not just what consumers are doing, but what they're doing in, which if you think about your behavior in your own life, the order in which you do things is critical to understanding what it is that you're doing. So if you combine that behavioral data from inside games, which is informed also by the context of the games themselves, which are running on our run time. It's not click data, it's not conversion data, it's not post-back data. It's a different category of signal. And we're excited about the impact we think it will have. As I mentioned in the prior remarks, we're seeing really positive 90-plus percent opt-in rates into our developer data framework. So the volume of the live published games is increasing and scaling, and we're excited about the impact it is going to have on our business in the back half of '26 and going forward.

And your next question comes from the line of James Heaney with Jefferies.

Yes. I mean I know it can be difficult to predict. But based on the guide for strategic grow revenue, I mean, you've been pretty consistent, I think, in sort of this mid-teens sequential growth trajectory. Is there a way that you can help sort of frame up the composition of growth between model enhancements and self-learning? Any way to frame that up? And then I had another follow-up for Jarrod.

Yes. So James, just as we think about strategic grow, we're extremely excited about the trajectory of growth. It's over 50% year-over-year. 80% of that strategic grow revenue line is now the Unity Ad Network powered by Unity Vector. And so that's really the driver of that substantial growth. As Matt mentioned, there are numerous constituents to that growth, which include model improvements, product enhancements as well as data and signal. We don't break out or delineate the individual contributions in a quarter of any one of those. But suffice it to say, we are powering along all 3 of those axes, with one of the most interesting and proprietary elements of it, our runtime data on the come. So we're enthusiastic about it, and we're confident in the future.

Great. And Jarrod, while I have you another one on just additional margin levers that you have at your disposal. I mean, I know there's definitely a ton of natural leverage that you get from the growth of Vector, but are there any other places where you see room to continue slimming down the cost structure and getting to these milestones that you called out?

Yes, James, absolutely. I mean, for us, we are very deliberate about the way that we think about margin expansion in the business. We've seen consistent operating leverage in G&A and sales and marketing. You should expect that operating leverage to continue as we automate the way that we operate internally and as we automate the way that we face our customers and interface with our customers and deliver our products and services.

There's a couple of catalysts that I would call out separately. Firstly, with respect to some of the strategic actions that we announced, while the second quarter does start to see an impact of some of the revenues of those actions, the costs haven't come out of the business as of yet. That will take place over the back half of the year. And so that is an opportunity for margin expansion with us as we look towards the back half of 2026.

The other piece that we would call out is we are currently in the midst of the strategic process for Supersonic. The profitability of Supersonic is such that as we divest the business, that will naturally cause our margin profile to improve. We expect at least 200 basis points of operating profit improvement upon the divestiture of that business. And so beyond the normal cost effectiveness and cost actions that we take to operate more prudently, we have sort of 2 known catalysts in the back half of the year that we expect, which should improve margins even from current run rate levels in the first half of the year.

And your next question comes from the line of Vasily Karasyov with Cannonball.

I wanted to ask you about Unity Vector performance domestically and internationally. Are you seeing any differences in adoption in revenue growth rates? Anything -- any findings in the past year that would be useful for us to know.

No, we're seeing very, very broad strength in Vector growth across all geographies, campaign types, genres, et cetera. And we're really pleased with that. So there's nothing I'd call out for you.

And the same for expectations for the runtime data integration?

Indeed.

And your next question comes from the line of Clark Lampen with BTIG.

Did I get all the unmute correct here? Can you guys hear me?

We can.

Okay. Perfect. So Matt, I appreciate some of the data points and I guess, comments that you made upfront around release volume sign-up trends. I can't recall a lot of quarters over the past couple of years where we've had those sort of positive callouts. At the risk of connecting dots, it feels like browser AI tools, a lot of the work on the product side that you're doing with Create is closing some of the gaps that might have been sort of temporarily created at the upper end of the market. I'm curious how you guys see this sort of collectively changing the commercial opportunity for the Create business as it relates to sort of both professionals and hobbyists and maybe what that means for segment growth near to medium term?

Quick follow-up, I guess, just for Jarrod. You talked about the rundown of M&A amortization. Is it possible to give us a feel for how big that is? When going back to some of the filings, we thought that, that was a number that maybe was around $200 million. Are we right to think about the change in D&A being something in that magnitude when we look at '27 and beyond?

Thank you. Good to hear from you this morning. Yes, listen, we've been on a journey, a product journey over the last couple of years, and it's been a really exciting one. And as you recall, the first stop on that journey was ensuring that our software for our core professional audience was stable and performant that the product road maps and were sound and reflected what customers wanted from us and that we delivered those advancements in a timely fashion and backed up our promises and delivered on those promises. We talked a lot at the beginning, as you recall, about rebuilding the relationship and the trust we have with our customers. That part of the process has been really gratifying. It's one that continues. As Jarrod pointed out, we have never had a product that is as performing and stable as it is now. Issues with the product are down more than 20% over the last quarter and that will continue to keep going down. And that's just a critical part of any business.

As we look forward, as I talked about in the upfront remarks, we're extraordinarily excited about 2 avenues of growth. The first one is that we believe, and as I talked about and as you rightly pointed out, I think we are seeing the evidence in the marketplace that advancements in AI are creating the opportunity to be more effective and efficient in building. That is a very important advantage for our professional customers. And I have noted before that having spent many, many years developing games, I can tell you that the biggest and most frustrating part of the time line of building a game is building the systems that are largely common and very similar in a genre from game to game.

And so you know that a lot of what you're building has been built before, many times. And what you're itching to do is get to the part of the development process where you can create differentiation, where the part that you're really excited about when you begin. Tools that enable more efficiency, allow you to get to that creative head end much faster and will ultimately result in better games and will drive the creation of more games more efficiently, and I think will be great for our industry and great for our customers and will drive more usage of our tools.

And as we talked about, over time, now and over time, our tools will merge with the best of what is available in the market from a neural perspective and combine those neural capabilities with the systemization, the syndication, the commercialization that we do best. And that's all going to be great for our professional customers. But we're equally excited about the creation of a new class of creators that ultimately is going to be much, much larger than the professional class. There will be distinctions as there always have been and there always will be between those that are capable of creating professional hit interactive entertainment and a class of, call it, prosumers who will, however, be newly enabled and capable of creating very high-level interactive entertainment.

And if you think about the hundreds of millions of folks around the world, for example, who are creators on social -- various social networks who are mostly doing -- creating linear video. We believe in the future, all those creators will be adding interactive elements and interactive entertainment to the kinds of things that they're creating because that is, by far, the most direct way to increase engagement. And engagement, as always, is the coin of the realm here.

So the tools that we -- and the history we have, the unique ability to build products that are informed and leverage the best of neural technologies, but also take advantage of 20 years of understanding of game consumers and how games are built so that we can use context engineering to make our products work better than generic AI-driven products will benefit both professionals and this prosumer class, which is going to be a whole new set of Unity customers. And we're going to build products for both of them, and we're really excited about that future.

And Clark, to your question on amortization, we are extremely pleased to be able to talk about the pull forward of Unity's time line towards becoming a GAAP profitable company. This is something that for us is a result of a lot of hard work on the part of the team in terms of driving margin expansion and exerting discipline around the way we run and operate our business. You should expect M&A amortization to fall off quite precipitously this year. From the first quarter where we experienced $117 million of amortization, we would expect $80 million of amortization in each of Q2 and Q3, dropping down to $55 million of amortization in the fourth quarter. And in calendar year 2027, that amortization for the full year should be sub-$25 million, so dramatically lower levels of M&A amortization, that combined with lower levels of stock comp, vastly improved profitability is really creating the glide path for GAAP profitability in the fourth quarter of 2026 for Unity.

Jarrod, any chance you might be willing to give us a little detail around the SBC trends? Like where could those go, I guess, maybe not quarter-by-quarter, but just sort of directionally, is that sort of compressing in the same way that we're seeing with amort?

So we experienced $76 million of SBC this quarter. That's down 20% year-over-year. It's down to 15% as a percentage of revenue. It's literally been cut in half as a percentage of revenue year-over-year. You should expect it to remain relatively stable at current run rates, which as we grow our business, will also take it down as a percentage of revenues.

And your next question comes from the line of Andrew Boone with Citizens.

I wanted to ask about AI and the increased use of tokens across the platform. Matt, as I think about what the potential is in terms of moving towards more of a usage model, can you help us unpack how the business model has to evolve as AI just becomes more of the centralized piece of Unity? And then for Create, you guys mentioned strength in terms of the nongame portion of Create. Can you guys unpack that? We haven't had an update there in a while. What's going on with that portion of the business?

Yes. So let me talk a little bit about the future and the future of our business model. As we've said this morning, AI-driven products are effectively a productivity enhancement for our customers. And the principle is that pricing should scale with usage and value created. And we don't want to penalize our creators for being more productive. Because ultimately, as Jarrod noted at the outset, customers value the outputs, not the inputs. And our models are adapting to that preference. So our current relationship with our large enterprise customers is already one that leverages an idea of minimum pricing that's only partially driven by the number of seats and it's really very amenable to modifications that reflect consumption.

And so the business model is evolving very organically is in the right place. And ultimately, it's driven by the quality of the products you have in the market and how much value created. As we talked about, we believe we can create and drive distinct value and our products are going to be better. And if we can deliver a differentiated value with these products because the context matters to the performance of the AI, and we can deliver product experience that's going to be fundamentally better and more performant, then we feel really good about our ability to inflect new areas of growth like consumption into our models. The pricing of UDI currently reflects that, and it reflects not just a consumption model, but also a recognition that concurrency is important. So you will be -- in the future, we will have, of course, both human beings as well as agents interacting with our software working together and our pricing comprehends that.

And Andrew, in respect of Create, we're really pleased to see the step-up in growth that we've experienced over the course of the last several quarters. There's a number of things that are working well for us that we've called out. Our industry business outside of gaming continues to grow very strongly. We're really a leader in auto HMI. There's a range of use cases where people are looking to have indirective content for extremely sophisticated models available across a range of platforms and operating systems, which really plays to Unity's strength. So we believe in that business. We're seeing good strength and pull-through in that business. We're not going to discretely call out the revenue growth or the contribution of that business.

And your next question comes from the line of Jason Bazinet with Citi.

I'm guessing the single biggest driver of the Vector growth is just improved conversion rates. And I guess if you could confirm that. And then is there any way you can sort of frame maybe in terms of multiples, like where your conversion rates now are versus what you see as best-in-class or where this could go?

Jason, thanks for the question. The way we've articulated this a little bit earlier in the call in our prepared remarks is, I think, the right conceptual model for you to think about. The improvements are multifaceted and happen at each portion of the development of Vector, quality of signal, optimization of models, improvement of returns and all of that process that I've been through is really the right way to think about it.

But don't all those drive to a conversion rate? I mean, at the end of the day, if you're making product enhancements.

They ultimately drive to advertiser return and advertiser return drives revenue. One of the things to think about at a high level, just notionally is that industry conversion rates are in the single digits. So when you think about opportunities for improvement in our business and an improvement in the -- for everybody in the industry, they're almost infinite. And this is why this is so incredibly exciting. As we get better and better at this, there is so much headroom for everybody in the industry to be better at conversion at a high level.

And your next question comes from the line of Omar Dessouky with Bank of America.

Can you hear me?

Yes.

It's Omar Dessouky. So let's see. For the remainder of this year, you're going to get some runtime data. Your engineers are going to be experimenting and hopefully finding improvements to your models with every passing month. I wanted to know how you think about the evolution of cloud costs and your contribution margin in the context of that and whether you want to maintain some minimum kind of contribution margin above which investments would not exceed.

So Omar, it's a great question. We've experienced 82%, 83% adjusted gross margins, which are inclusive of our cloud costs as the largest contributor to that COGS line. It is true that when we are in the process of investment and testing, those cloud costs can bump up in any one particular quarter, and we typically see an operating leverage that follows as a result of the revenue growth that comes from those investments. We do believe that as this business scales and grows, that there is an opportunity for long-term operating leverage with respect to cloud costs. If you look at larger competitors in this space, their cloud costs as a percentage of revenues are materially lower than Unity's at a larger size and scale in a similar business. And so that is a significant opportunity for us.

The reason why we don't talk about gross margin leverage and commit to that in concrete terms is we really want to make sure that we preserve the flexibility for our teams to invest in AI and to invest in Vector and make sure that they have those degrees of freedom to invest for growth. That is our current focus. And so if given a preference of optimizing cloud costs versus accelerating revenue growth in the future, we would tilt towards accelerating revenue growth in the future with the knowledge that we will optimize cloud costs over time as the business scales and grows.

Okay. So if I'm looking at the second quarter, it looks to me like your margins are guided down a little bit. Does that come from operating expenses or from this kind of contribution gross margin leverage, right? Obviously, you have runtime data coming online. I would imagine you're running more experiments. Is that the driver of the slightly lower margin? Is it something else? Or am I missing it?

There's a couple of components of that. One is we're continuing to invest heavily from a cloud perspective. And so as I mentioned, the gross margins would bounce around based on where we are in that investment cycle. I would say the larger contribution is the fact that we have taken some strategic actions, which are bringing down total revenue in the second quarter. There's 2 fewer months of the ironSource Ad Network, the cost of which are still in the system in the second quarter, and we would expect to leave the system in the back half of the year. So it's that operating deleverage that hits us in the second quarter, but we know we're going to get those costs out in the back half of the year.

And your next question comes from the line of Bernie McTernan with Needham. [Operator Instructions]

Can you hear me?

Yes, sir.

This is Stefanos Crist calling in for Bernie. You mentioned the run time would be steady improvements. Could you maybe give us more detail maybe what you're seeing on the tests you're running? And when do you think that could show meaningful revenue contribution?

Yes. As I noted, we're really excited and encouraged by what we're seeing in our off-line testing currently, and we expect to graduate that testing to our live production models during the course of this quarter. And not to be a broken record, it's the kind of signal that builds over time and compounds rather than producing immediate spikes. We think of it as a long-term quality enhancement, a really durable mode and differentiation, but we're not expecting immediate spikes. And other than that, I would just I would observe again that we couldn't be more excited about it.

And your next question comes from the line of Benjamin Black with Deutsche Bank.

It seems that the 2028-day ROAS targeting release was a decently sized unlock. So maybe talk about the feedback you're getting from your clients. And Matt, you spoke about a promising product road map at Vector. So beyond runtime, where do you think Vector could benefit from upgrades? And Jarrod, I can't help but notice that cash is piling up on the balance sheet. Your free cash flow is improving. I'd be curious to hear throughout capital allocation priorities and how you think philosophically about supplementing the business with perhaps inorganic growth.

Yes. Listen, the set of product improvements that we have planned for Vector over the course of the next quarter is really exciting, and it's designed really to provide 2 different kinds of advantages for customers. The first kind is like the kind of day 28 product, more flexibility and more insight that will enable greater spend. Keep in mind, as I said before, we are very much at the beginning of this -- of the process of Vector. It's still a very young product. And so from a features perspective, just setting aside the model and the efficiency model from the features perspective, there is still much, much more that we can do and that we're really, really quite excited about.

The second piece of improvement for our customers that we're working on is ability for them to automate meaningfully in terms of how they interact with our systems and enabling them to buy more efficiently, track performance more efficiently in a more automated fashion, which we think is going to really help drive greater conversions and more spend as well.

And then to your second question, you are correct. Cash is building up on the balance sheet. We have $2.15 billion of cash as of the first quarter. It's a function of extremely strong free cash flow. On a trailing 12-month basis, free cash flow is up 50% to $463 million, up from $308 million last year. So there's a tremendous amount of free cash flow the business is generating with and we're poised for margin expansion in the back half of the year as well. Right now, we are planning on paying off the '26 convert that's coming due in November.

Other than that, in terms of uses of cash, we're really focused on our product road map, organic investment in our business. We think we have an extraordinarily exciting AI road map in front of us, and there is a high threshold as we evaluate M&A opportunities. So I think you'll see us be prudent with our cash, not distract our product teams and make sure we can execute on the really strong organic growth opportunity we have in front of us.

This concludes the question-and-answer session. I will now turn the call back to Alex for closing remarks.

Thank you, everyone, for joining this morning. Look forward to speaking to everyone throughout the quarter. Have a great day.

Ladies and gentlemen, thank you for joining us, and welcome to the Unity Technologies Q4 Earnings Call. [Operator Instructions]

I will now hand the conference over to Alex Giamo, Head of Investor Relations. Alex, please go ahead.

Thank you. Good morning, everyone. Welcome to Unity's Fourth Quarter 2025 Earnings Call. Today, I'm joined by our CEO, Matt Bromberg; and our CFO, Jarrod Yahes.

Before we begin, I want to note that today's discussion contains forward-looking statements, including statements about goals, business outlook, industry trends and expectations for future financial performance. all of which are subject to risks, uncertainties and assumptions. 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.

And with that, I'll turn it over to Matt.

Thank you, Alex. Good morning, everyone. On behalf of all of us at Unity from across the globe, I'd like to thank each of you for joining us today. When the environment gets noisy, it's always clarifying to tune back into performance. and the underlying product and market dynamics that produce it. It's in that spirit that I'll begin this morning by offering some broader context for why we've never been more excited about Unity's future.

Our fourth quarter results once again comfortably exceeded the high end of our guidance, led by exceptional performance from Vector, which experienced its third consecutive quarter of mid-teens sequential revenue growth. Vector revenue has grown 53% in the first 3 quarters since its launch, and we believe we are still very much at the beginning of its trajectory. This January was Vector's best revenue month ever, larger even than the holiday record set in December and 72% larger than January of last year. By the end of 2026, we expect the quarterly revenue run rate for Vector to be comfortably more than $1 billion a year. We could not be more optimistic about how this business is scaling and the value it is delivering to our customers.

Throughout 2025 and into the first quarter of '26, the sharp decline in the ironSource ad network has at times masked this incredible growth in Vector. That dynamic, however, is swiftly drawing to a close, which will materially enhance growth rates and profitability in our advertising business as a whole in the years ahead. The ironSource ad network will represent less than 6% of total Unity revenue in the first quarter and will become an even smaller component of our financial profile over time. And this isn't just a shift in revenue. It's a shift in quality.

We are displacing commoditized lower-margin ad network revenue for deeply differentiated AI platform revenue. The success we're seeing in our advertising business has been mirrored by the return to growth of our software business, where the fourth quarter of 2025 showcased the fastest year-over-year growth in Create in more than 2 years. And this growth is truly global in nature.

Over the course of the year, our Create business is up nearly 50% in China, the world's largest video game market, driven by our unique interoperability with local operating platforms like Open Harmony and compatibility with popular consumer channels like WeChat. Unity is the global abstraction layer that allows a developer to write once and deploy everywhere so that no one has to choose, for example, between building a WeChat mini game and a high-end iPhone release, they can have both at the push of a button. Unity 6 is being adopted more quickly than any version in our history. And as a reminder, it's for around 90% of our active creators completely free to use.

Our customers typically only pay us once they build successful games, which, by definition, includes wiring a full suite of infrastructure, monetization and content optimization tools to the Unity platform, tools which might be developed by us, but because we are an open and extensible platform might just as likely be offered by third parties or even self-built. This is what we mean when we say we're the assembly point for interactive content creation. And when that creation is ready to meet its audience, the Unity runtime is the universal bridge that connects imagination to execution, ensuring that regardless of the hardware platform, the experience remains seamless and performing.

Our runtime doesn't just display pixels. It serves as the persistent foundation that manages the complex interplay of physics, input and networking across devices, making U not just a tool for building, but the standard for deploying interactive content globally. New creative tools like emerging world models that make it possible to generate high-quality interactive assets from simple no-code prompts are a massive opportunity for Unity and should greatly increase the market for interactive creation.

The Unity engine is not an asset generator, and it never has been. Assets have always been created largely outside of our software. We'll transform these new assets, enabling them to be brought directly into Unity's platform and adding the physics, game logic, infrastructure and distribution systems to turn them into full-fledged games, making it possible for our customers to run multibillion-dollar live service businesses. As we increasingly integrate native AI into the creation process, Unity will become easier to use, which will draw more customers into the world of interactive content creation than ever before. This explosion of new asset types, new creators and new games will also drive our advertising business.

As the amount of content multiplies, the primary challenge then becomes discovery. How will consumers find the next thing they really want to play. And that's where Vector comes in. As it grows and becomes ever more efficient at understanding consumer preferences, it will become more effective at making high-quality recommendations. We expect this dynamic will be a tailwind for Unity for many years to come. With all that as context, now let's look ahead to what we're building and delivering to the market in 2026. We'll begin our advertising business with Vector.

Last year was about laying the foundation, modernizing our tech stack, improving our capabilities to customers by delivering both improved install volumes and ROAS across geos, genres and platforms. 2026, however, will be about taking the next leap forward. Over the course of Q1, we'll scale our testing of runtime engine data with the expectation that it will be live in Vector during Q2. This milestone has been made possible through a great deal of hard work over the last 2 years, and we're really proud of the team for getting us to the launch threshold.

As we've mentioned previously, we don't anticipate that the inclusion of runtime data will produce a lightning strike moment, but rather, it's our conviction that the addition of highly differentiated behavioral data will result in significant compounding model improvements over time. What makes Vector different isn't just the quality of our AI model. It will also be the quality of the signal. We're moving beyond capturing clicks towards fully understanding how users interact with the game world, what engages them, how they progress and where they find value.

Our runtime will enable us to interpret this unique deep behavioral signal and provide more value to our advertising customers for years to come. As a signal improves, modeling becomes even more valuable. So we're optimistic about marrying these runtime data advances with the long list of planned product improvements to be delivered in Vector over the course of 2026. One of those product improvements already in beta and having a positive impact is our day 28 ROAS feature, which enables customers to manage their campaigns based on longer time horizons.

There will be many such improvements over the course of the year, and we expect runtime data will boost the impact of everything we do. In our Create business, we expect 2026 will also be a year of fundamental transformation. While continuing to deliver a road map to customer that provides enhancements to the product they depend on every day, we'll make fundamental advances in 2 areas: collaboration and AI offering, both of which we expect will meaningfully grow our addressable market.

Let's take collaboration first. In 2026, Unity authoring workflows will become largely accessible by web browser, no download required with project and gameplay views shareable with a one-click URL. This shift will, for the first time, enable software developers who are currently our only customers to collaborate seamlessly with the artists, designers, product managers, back-end developers and executives that comprise the full creative team, massively expanding Unity's utility and the size of our addressable market.

Our first steps in enabling this vision of the future can be glimpsed today in Unity Studio, our recently announced no-code 3D editor that's already in beta for industry customers today. By moving the Unity environment to the browser, we are moving 3D creation out of a siloed local install into a live collaborative workspace, bringing the business and creative stakeholders directly into the heart of the project. For every current Unity developer, there are a multitude of others working collaboratively on each project will benefit from access. We're excited to drive this expansion of the Unity platform in 2026. AI-driven authoring. That's our second major area of focus for 2026.

At the Game Developer Conference in March, we'll be unveiling a beta of the new upgraded Unity AI. which will enable developers to prompt full casual games into existence with natural language only, native to our platform, so it's simple to move from prototype to finished product. This assistant will be powered by our unique understanding of the project context and our runtime while leveraging the best frontier models that exist. We believe together, this combination will provide more efficient, more effective results to game developers than general purpose models alone.

AI inside Unity will lower the barrier to entry, raise productivity for existing users and democratize game development for noncoders. When combined with our new web accessible offering environment, our goal is to remove as much friction from the creative process as possible, becoming the universal bridge between that first spark of creativity and a successful, scalable and enduring digital experience. And to better enable these new creators to build their businesses, Unity's tool set will include our newly enhanced in-app purchase commerce offerings. These also move into early access next week with general availability in Q2.

By integrating monetization and commerce directly into the AI offering flow, we won't just make it easier to make games, we'll make it easier to succeed them. When you look at all these pieces together, the compounding intelligence and performance of vector the accessibility of Unity in the browser and the massive potential tailwind presented by AI authoring, the picture becomes clear. We're moving from a world where game development was the province of the few to one where it will be accessible to the many. This is what we've always called the democrization of game development, and it is in our DNA.

Unity is the common denominator in this transition. We'll provide the platform to create interactive content, the engine that renders it, the runtime that connects it to players and the advertising stack that helps consumers discover it.

With that, I will pass it over to Jared for an overview of our financial performance. Jared?

Thanks, Matt, and good morning, everyone. Unity had exceptional momentum in the fourth quarter, which translated into the fastest growth and the highest margin we've experienced in the past 2 years. Our execution and ability to hit our targets is improving and becoming more consistent. And as expected, that accelerating organic growth, paired with high contribution margins is enabling operating leverage and driving free cash flows. In the fourth quarter, we had strong performance across both Grow and Create.

Grow revenue in the fourth quarter was $338 million, up 6% sequentially and up 11% year-over-year. Revenue upside compared to our guidance was driven by the exceptional performance of Vector. Vector experienced yet another quarter of mid-teens sequential growth, its third in a row, driven in part by a robust holiday season. As a point of context, Vector added more incremental dollars in the fourth quarter than in any prior quarter. January was Vector's best month ever, and we remain extremely confident that our ad business remains in the early innings of a multiyear growth story.

In the fourth quarter, Vector represented 56% of Grow revenue, up from 49% just 2 quarters ago. Grow results in the fourth quarter were impacted by a $7 million sequential revenue decline in the ironSource ad network, which represented 11% of Grow revenue for the quarter. Our internal analysis shows that Vector's ongoing strength is almost entirely coming from incremental advertiser demand and improved conversion performance rather than a shift over from customers who have been reducing spend with ironSource.

In Create, revenue was $165 million, up 8% year-over-year. As a reminder, we lapped $10 million in nonstrategic Create revenue from the fourth quarter of 2024. Excluding the impact of nonstrategic revenue, our Create business grew an extremely healthy 16% year-over-year, powered by strength in our subscription business. Revenue growth accelerated during 2025 as customer contract renewals and related price increases took effect. We also exhibited extremely strong growth momentum in our Create business in China this year. Our commitment to product stability and performance, coupled with the successful rollout of annual price increases and an improved go-to-market approach has now translated into consistent, steadier growth for our Create business.

Turning from revenue to non-GAAP profitability. Adjusted EBITDA for the quarter was solidly above our expectations at $125 million, representing 25% margins, an improvement of 200 basis points, both year-over-year and sequentially. We were able to achieve this despite significant sales and marketing spend in the quarter for our UNITE conference in Barcelona and additional accruals associated with sales commissions and annual performance bonuses. We also experienced elevated R&D spend due to significant increases in cloud spend and additional AI hiring.

I would like to touch on some key financial highlights from 2025 that underscore how our strategy is beginning to result in faster organic revenue growth and improved profitability and cash flow. Firstly, organic year-over-year revenue growth has been accelerating in each of Create and Grow as well as Unity in the aggregate. Year-over-year growth has accelerated every quarter throughout 2025.

Secondly, our focus on cost discipline and prudent capital allocation has demonstrably benefited profitability and cash flow. In 2025, we increased adjusted EBITDA margins to 22% while converting an impressive 99% of our adjusted EBITDA to free cash flow. As a result, Unity's free cash flow grew 41% in 2025 to just over $400 million. Free cash flow margins expanded more than adjusted EBITDA margins by 600 basis points, highlighting Unity's ability to meaningfully scale cash flow as revenue grows. Cash flow benefited from positive working capital contributions, combined with a significant reduction in restructuring charges.

In 2025, we also made impressive progress in our path towards GAAP profitability, including reducing our stock comp expense by 19%. As a result, stock comp expense as a percentage of revenues declined from 33% in 2024 to 21% in 2025. And lastly, before turning to guidance, we exited the year with a strong balance sheet. We successfully refinanced $690 million of our 2026 convertible notes, extending those maturities into 2030. With over $2 billion in cash on hand and a highly cash flow generative business, we are confident in our ability to pay off future obligations using cash on the balance sheet and cash generated from our business.

And with that, I'd now like to turn to guidance for the first quarter. We're expecting total first quarter revenues of $480 million to $490 million and adjusted EBITDA of $105 million to $110 million. In Grow, we are forecasting revenue to be flat on a sequential basis due primarily to seasonality as we come off the holiday-rich fourth quarter and with 2 fewer calendar days in Q1. Despite these dynamics, we expect Vector to grow 10% sequentially in the first quarter, and we expect Grow to return to sequential growth in the second quarter, powered by continued strength from Vector.

In Create, we are forecasting double-digit year-over-year revenue growth in the first quarter, excluding the impact of nonstrategic revenue. This growth is driven by continued strength across our subscription business. We anticipate a similar cadence of growth throughout 2026, excluding roughly $40 million of nonstrategic revenue and onetime items. We expect adjusted EBITDA margins to expand 300 basis points year-over-year in the first quarter.

Similar to our 2025 trajectory, adjusted EBITDA margins should improve throughout the year and drive solid overall margin expansion for Unity in 2026. I would note that we expect healthy margin expansion despite a heavy investment in our product road map across Vector and a range of strategic AI initiatives.

With that, I'd like to thank you for joining us on Unity's Fourth Quarter 2025 Conference Call, and let me turn the call over to Alex so that we can take your questions.

Thanks, Jarrod. Nicole, we are ready for questions.

Your first question comes from the line of Matthew Cost with Morgan Stanley.

So I guess Grow grew double digits organically for the first time in 4 years. And you mentioned kind of the consistent mid-teens sequential growth in Vector over the course of the past couple of quarters. So a really meaningful improvement in the trajectory of this business. I think what the market is wondering this morning is where are we in the process of kind of harvesting the low-hanging fruit for Vector? And how many significant ongoing breakthroughs are there still ahead for Unity ads? And then how much of a drag is ironSource going to be as we move through the rest of 2026? And then I'll follow up on commerce after we touch on that.

Matt, thanks very much for the question. As we laid out during our prepared remarks, we are just thrilled with the continued strong growth of Vector. It continues to meet and exceed our expectations. As I mentioned, January is a business up more than 70%. So it's extraordinarily exciting for us. And as we've indicated before, all of this growth predates any of the impact, which we believe will be substantial over the long term of including our runtime data in our models. I know that there appears to be some consternation in the market about the long-term ability for us to grow this business. I honestly have a difficult time understanding why.

As you can see, quarter after quarter, this business is growing and delivering not just in the quality of the model and the quality of the signal, and the amount of return we are offering to customers, both in the volume of new installs, but also on the ROAS of their spend. And we feel like there is no natural ceiling to what this business can do in the future, and we're incredibly excited about it. I called out at the top of my remarks, the trajectory of the ironSource business only because my sense is that investors are overly focused on the performance of that business, which is a legacy business for us.

And as I indicated, is that will get smaller and smaller over time and won't be material to our overall picture, which was really the reason why I highlighted it. So I would just say that going forward, it's not going to be an important component of our revenue. And that is really strongly and completely been driven by the growth of vector. And so that's not -- it's just a statement of the obvious.

Great. And then just on commerce, as you kind of head towards a GA launch, it sounds like in 2Q. What are you seeing so far in terms of demand and uptake of that business? Is it in certain segments of your client base that are interested in potentially testing it? And how broadly do you think you might see your commerce tools adopted as you go into GA?

We've been extremely pleased by customer reaction to our product. As I think I mentioned, we're moving into early access next week, and the product will be generally available by Q2. We've been talking to a very wide range of customers and the interest is extremely strong. And the 3 primary benefits that we're hearing from customers that they're taking from this product. The first one is it dramatically accelerates the pace in which they are able to take advantage of sort of the changes of the regulatory environment related to storefronts and that enable them to control their own payment layer in their own storefronts.

We're also really excited about the potential -- continue to be excited about the potential for the purchase behavior to enhance vector models over time, which is going to be great for customers. And because this product is organically integrated into our platform, it's extremely easy for our current and future customers to use in a way which is really streamlined. So we're super happy by the initial response we're getting, and we're really looking forward to the launch.

Your next question comes from the line of Alec Brondolo with Wells Fargo.

Maybe 2 for me. First, could you help us understand what you've seen in the market for Meta so far in the first quarter? Has it become meaningfully more competitive on iOS inventory? And has that impacted the growth of Vector at all? That's the first question.

The second question, can you maybe talk about Cloud X's entrance to the mediation market? How do you think about the trade-off between Global play potentially losing share relative to the ability to partner with Cloud X and have an independent platform to bid through over time?

Thanks so much, Alec, for the question. Let me take them in reverse order and start with Cloud X. As I think everyone is aware, we are partnering with that team as one of their demand partners. As I think you also know, the family of that business working with us. So we have a close relationship and are wishing him and his team all the best. As you've heard me say many, many times before in this call, we are supporters of any platform that desires to open up mediation and making it more transparent and effective for customers. We think this is going to be good for the industry and the mobile ecosystem, and that's the direction we want to see this go.

You've also heard me say many times on this call that mediation is not a central piece of our strategy going forward because we feel comfortable that the first-party connections we have to our customers through our engine and the runtime is all that we need in that regard. As an ad network bidder, we are completely agnostic in terms of what mediation platforms exist and which ones we're bidding into so long as they're fair and transparent. So that's the short answer there. Our mediation business is not in any way material to the overall results of Unity, not in any way.

Second, Meta. I know there was a lot of consternation over the course of the quarter, which as far as I can tell, was kicked off by LinkedIn post. Let me just say this. Unity has and always will compete with some of the largest, most sophisticated companies in the world that's our advertising business. We do that every day. We always have. Meta, Google, AppLovin and many others. We have nothing but respect and admiration for all our competitors. Meta has been competitive on iOS traffic for quite some time. This wasn't a new dynamic. It did not have a meaningful impact on us in any way.

We are laser-focused on the games industry in our business, not e-commerce. Given our strength through Vector and the engine, the understanding we have in that segment, we feel very, very good about our ability to compete with anyone. And as I say, we've seen no -- essentially no impact. And I would, in general, caution investors from overreacting to LinkedIn posts.

Your next question comes from the line of Brent Thill with Jefferies.

Matt, I think everyone would love to hear your thoughts on Google Genie and what that means going forward. And that was my question.

Thank you so much for the question. Let me start at a macro level. At a macro level, it's our belief that AI is going to be a massive tailwind for the video game industry. The first reason that's true is that leisure time is going to increase massively over time, and that's going to lead to an explosion of time spent in video games. The second thing is that AI is going to make the creation of video games much more efficient and less expensive.

And as you've -- I think you guys have heard me say before, our bet is that the impact is going to be much more about what I would call the time to innovation than the time to market. And what I mean by that is the vast majority of time spent building games is building out the really complicated, sophisticated systems that power these games as live services and as features, but many of which are at the base layer, very common game to game.

And so to the extent that AI helps to build those underlying systems more quickly and to kind of remove some of the drudgery from the work, it will allow creators, which we believe will be -- continue to be human in the loop creators, more time to focus on differentiation and innovation and building new things. And we believe that it's going to have an extraordinarily positive impact on our industry over time. As I said about 10 days ago and made a public post about this, I think it's just important for folks to understand what world models are and what they are.

We believe world models are going to be a source of inspiration and assets for creators, but they are not in any way going to replace game engines. They are complementary, not duplicative. The kind of video-based generation that world models are good at is exactly the type of input our AI workflows are designed to leverage. We're going to translate some of that rich visual input, which right now is less than a 1-minute video, but will probably improve over time. Those type of 3D assets are going to be integrated into our engine where they can then be refined with the deterministic systems that Unity developers are using today.

Interactive paramount controllable video from world models are just going to enhance that pipeline, and we think it's going to be a really meaningful step forward. So basically, we view our role to operationalize these advancements. Outputs are converted into our real-time engine, where they're converted then into structured deterministic, fully controllable simulations, where creators are defining physics, gameplay logic, networking, monetization, live operation systems, all the things that's needed to provide consistent behavior across devices and sessions. In other words, the things that make something a game. So we see these developments as really complementary.

We have a relationship, a long-term relationship with Google as well as developing relationships across the space. And I would just again say one thing, I think I said in my prepared remarks, we are completely agnostic as to the nature of how 3D assets get created and where they come from. We're an assembly point for building interactive experiences. We compile the pieces together after those assets are created, and we help creators turn those into real games. where Unity is not an interactive video generator. It's a 3D execution platform designed to build once and then run everywhere efficiently and seamlessly. So that's my feeling about G.

Your next question comes from the line of Vasily Karasyov with Cannonball.

I wanted to follow up on what you said earlier on cross-platform commerce management solution. Would you mind giving us more details on a couple of points here. Number one, how does the economics in general terms works for you with this solution? And for example, your partnership with Stripe. And number two, how should we think about potential tangible and intangible benefits to other business lines within Unity from this solution?

Yes. We participate in the economics of the e-commerce transactions at an extremely high margin, but very modest. And so our goal here is not to make massive dollars on these transactions. It's really to deliver value to customers and to ensure that their commerce experiences can be built natively in a tightly integrated way with all the rest of the systems that they're building on Unity. But to your point, we believe that over time, processing and helping customers, most importantly, optimize and improve their commerce capabilities and optimize and improve the engagement in their games, which leads downstream to more revenue is going to both fundamentally enhance the operation of Unity itself.

We make it more valuable for our customers and also fundamentally enhance the value of vector because optimization around engagement and the experiences which lead downstream ultimately to transactions and revenue growth are a really important part of building a game and a really important part of forming a complete picture of the video game consumer.

And as you guys know, our primary strategy here is to be -- is to have the deepest and clearest and most accurate sense of every one of the billions of gamers globally that move through our product. last count, more than about 3.5 billion every month are in a made with Unity game. And the clearer we can understand those consumers and their behavior, both with respect to commerce, but also more generally, the more value we're going to be able to deliver to our customers.

Your next question comes from the line of Eric Sheridan with Goldman Sachs.

Maybe one follow-up and then one more bigger picture. But on the follow-up, I think you gave a number for January growth relative to Q4 growth. And then you also talked about the quarterly growth of the Grow business that you would expect. Could you talk a little bit about what you're seeing in January relative to what you saw in Q4 and how it sort of informs your broader view for the Grow business in the whole of Q1 relative to January? Just want to make sure we sort of got the right messaging on that. And then I had a quick follow-up, if that's okay.

Sure. So Eric, at the highest level, Vector as a business grew mid-teens in the fourth quarter, which is the third sequential quarter of that kind of growth. So we're extremely pleased about that. January was a record for Vector. That is to say that our January revenues were higher than December, which was also a record revenues for Vector. And we expect the first quarter of 2026 to be an incremental 10% growth sequentially for Unity Vector on top of the 3 quarters of mid-teens growth that we've experienced, such that January on a year-over-year basis is growing in excess of 70%.

Suffice it to say, we're elated that our largest business is growing at those extraordinarily rapid growth rates. We knew Unity was going to transform. We knew the underlying growth profile of the business was going to accelerate. I think we just are continually impressed by the success that we're seeing in the market, and we're thrilled with the investment that we're making.

Great. And then just on the Create business, really building on Brett's question and sort of the way you framed Genie going forward. I think there's a lot of investor concern about the long-term strategic positioning of Create. Maybe you just want to address a little bit what you're seeing across the base of customers in Create today relative to the broader narrative that maybe has sort of made its way into the investor conversations, just to sort of tee up your view broadly over the longer term, maybe not just about Genie, but just about what you're seeing across the customer base.

Yes. Thanks, Eric, for the question. We are seeing incredible strength in our Create business. As Jarrod mentioned, it's really important to remember that just a few quarters ago, both Create and Grow segments were shrinking. And a year down the line, a little bit more a year down the line, our largest ad business is growing 70% and the Crate business is up 16%. So the strength in the business is obvious to us. The quality -- the improvements in quality and stability and the clarification we are making around our investments and our road map for our customers has been extremely well received.

We are delivering more value more consistently. We still have work to do, but our interactions with our customers and the time and the time we spend with them is just radically more positive than it was when I arrived. It has really been a pleasure. And we're seeing strength across that business. And as I called out, not just in the West, but also in China. The time we spent -- I spent answering the Genie question, it's really nothing to do with Genie, right? The reason I spent the time was to try to explain the depth that -- of value that our software provides to makers of interactive entertainment. These are -- and the distinctions are meaningful and important.

So we are -- and I also -- as I called out, Unity 6, which is our most recent release, is being downloaded and adopted faster than any release ever. So it's -- we're seeing -- we're seeing really positive results, and we're getting really positive feedback on that. on that business in general. I also called out in my prepared remarks that we're incredibly excited about the opportunity that our collaboration-centric enhancements to you are going to have. And for those maybe slightly less familiar with how the product works, let me take a minute to explain why we're so excited about it.

So if you imagine that at the present time, our only customers are software developers. The rest of the team that makes a game, everybody else generally does not have access to Unity. And making Unity accessible through the browser and moving it away from a kind of closed download-centric environment where everybody can share bills and share progress and work on projects together is going to be a massive unlock for our business. It takes us again from being able to appeal to just one part of the creative enterprise and opening up to everything else.

Secondarily, incredibly excited about the progress we're making in AI in our product. And maybe it might have gone by a little bit quickly in my opening remarks, but we're really enthusiastic about, for example, in GDC, we're going to show a Unity AI product that is where you're able to -- with natural language just prompt a full casual game into existence, but in a way that's inside Unity such that you're then able seamlessly to have the close control and to build the systems around that early prototype to turn that piece of the beginning of a project and turn it into a real game, which is what's critical. And then once you finish building that game, you're able to distribute it anywhere on any platform.

So these are -- it's really funny. My sense of this market is really different from the kind of overall Internet vibe. There are going to be tens of millions of more people creating interactive entertainment driven by AI making these tools more accessible. -- tens of millions more people. We are the leading engine of creating interactive entertainment in the world. especially on mobile, we are increasing our market share on PC. We're the leading engine in China, and we feel great about the product enhancements and the way we're moving forward.

So as we look at '26, '27 in general, and we look at the acceleration of our advertising business, which we don't see any natural ceiling for, beginning to experience runtime in the vector models in the middle of this year and the likely extraordinary tailwind that both AI and opening up our products to many more potential users is going to have, we feel like the year and the year after, especially are set up extraordinarily well for us.

Your next question comes from the line of Clark Lampen with BTIG.

I have 2 as well. Maybe the first one, I guess, to sort of draw this Genie point out a little bit more. Matt, I think one of the things that the market is sort of wrestling with right now is what the end state of a lot of this ends up being kind of as Eric alluded to, one of those things, I think, is also what happens from a pricing standpoint.

And I'm curious if there is potentially an outcome where tens of millions more individuals are essentially creators here is there potential in a world where you have a much larger potential customer base that we either need to have more tiers of the product to appeal to a lower end of that potential new community? Or does this -- if we also see the commerce business start to take shape and take flight, does that enable you potentially over time to be more competitive from a pricing standpoint? I have a quick follow-up after this, too.

Great. That's -- thank you for your question very much. Yes, let me try to answer that in 2 ways. We do believe that the greater accessibility of our product that is being driven by AI is going to open up opportunities for us to monetize much more effectively the 90-ish percent of users that we have that don't pay us because we'll be able to deliver some value-added services to them, whether that be consumption-based or otherwise. And as I said, we also expect the addressable market to grow much larger, which makes that opportunity even greater.

The other thing in your question, I think, is a really important point is that we are extraordinarily flexible and open-minded about business model here. We are not dug in around a seat-based SaaS model. There's no reason for us to be dug in around it because, as I said, first of all, we have a very large freemium motion. Second of all, to your point, we have in commerce an AI enhancement in our advertising business in Vector. Lots of really interesting ways to offer really high value-add products to customers that we can then generate meaningful business around.

One of the things that's really interesting, if you step back for a minute and think about -- just think about the tension that exists in our model as it exists right now. We charge for the engine. But the truth is, especially with respect to our commerce products and our ad products, mostly, we just want more people to use the engine. The more people that use the engine, the bigger our ad business is. The bigger our commerce products are, the more value we can deliver around a lot of the individual products we're building.

So this is not a transition we're afraid of in any way. And by the way, our advertising business is also significantly larger than our Create business. So when we start to see moves and opportunities to evolve business model, we will take them. And I think you've seen with us, we're not afraid of making fundamental shifts, which is one of the reasons why we see this landscape is so incredibly interesting for us going forward.

That is very helpful. And maybe if I could just sort of follow up quickly on ironSource. As part of some of the headwinds sort of drawing to a close, I'm curious if you could help us understand maybe what the derivative consequences might be to direct cost of operations for the ad networks that you're managing right now or sort of other segments of the enterprise right now? Is that an opportunity? Or how should we, I guess, in general, think about that and maybe what's baked into guidance?

Yes. Sure, Clark. I think Matt partially addressed this in his prepared remarks where he spoke about displacing commoditized lower-margin ad network revenue for deeply differentiated AI platform revenue. We strongly believe that this is ultimately an opportunity over time for simplification of our business, streamlining of our business. And ultimately, this is going to result in a higher-margin business with greater scalability and leverageability. Today, we are spreading resources across multiple networks.

As our business evolves and changes, we'll be able to ultimately concentrate those resources, leading to greater operating leverage and ultimately greater gross margins in our business. So I think we feel really good about that. The commentary on EBITDA margins for 2026 should reflect that. We spoke about operating margins improving over the course of the year. We spoke about 300 basis points of margin expansion year-over-year in the first quarter, and that's up to and including some of the changes that we expect in the mix of our business over time as Vector becomes a much larger piece of the overall portfolio. And really, we're getting to the core growth engines of our business by the end of this year.

Your next question comes from the line of Andrew Boone with Citizens.

Matt, you talked about the developer data framework and kind of layering that into the model in 2026. Is there any additional help you can provide us in terms of the contribution from that or maybe a little bit more on the timing as we think about what that could mean for the ad model? And then you talked a little bit about increasing the collaboration tools across the platform and including more types of developers that come and utilize Unity. Can you talk about the opportunity there and the potential monetization as you bring on different types of developers and creators onto the platform?

Absolutely. Thank you so much for the question. So on runtime, just as a reminder for everybody, we rolled out the developer data framework first in August. So that we began collecting data on new games that were built with our 6.2 release. We've been really thrilled with the uptake. We've had opt-in rates in excess of 90%. And there are a lot of applications being created there.

We also more recently rolled out a streamlined self-service feature that allows customers that are operating games using older versions of Unity to also take advantage of the developer data framework, which is critical. So in terms of testing, we are feeling now that we're reaching critical mass, and we feel comfortable that this robust testing that we're seeing is ultimately going to yield meaningful results for us, which is part of why we've -- we are kind of moving into Q2 release of the runtime data into our models.

So again, we plan to do that integration in the second quarter and the precise time will depend on on the testing and ramping, but we're feeling really good about that. As it relates to your question on collaboration and model, our current -- there's a couple of things going on. So we believe we'll have the opportunity to sell in a more traditional seat model of the -- we call sort of collaborator licenses to folks who are not our core software developer customer, but sit around that customer. So in the initial instance, that is most likely the way we will monetize that additional consumer base. And around our AI products, we'll expect to -- especially for our enterprise customers who are paying us already, they will likely get an allocation of tokens and consumption as part of their offering and then be able to buy additional tokens on top of that to use our product.

So we're really excited about dimensionalizing kind of the connects we have with our customers and providing more opportunities for monetization and diversification of those revenue streams. And then we'll see ultimately over the years what model takes root. But in the near term, we see real opportunity in those 2 areas.

Your next question comes from the line of Dylan Becker with William Blair.

Gentlemen, really appreciate all the detail here. Maybe, Matt, just kind of touching on the aggregate Grow business. I think you made some important comments here. I think you said that you're going to exit fiscal '26 at $1 billion plus run rate within vector. You gave us the 11% moving to 6% on ironSource. So maybe that natural attrition will allow Grow to properly reflect the recent vector momentum. I guess, is that a fair characterization? Just making sure I heard that correctly first?

And then second, as we think about kind of the third piece of the pie, the other non-vector components outside of ironSource and the ability to layer in AI and see improvements in some of those assets, I guess, where we sit kind of on that adoption curve as well, too.

Yes. So thanks, Bill. The answer to your first question is yes, you understood precisely what we were talking about. And the description you had of the growth of Vector and the sort of concomitant smaller piece that ironSource will comprise of the total is exactly right. And as Jarrod mentioned a little bit earlier, not only will that lift growth rates, it will increase profitability because taken as a whole, Vector is a more profitable product and business for us. We will also drive additional efficiencies.

To take your second point, outside of the ironSource ad network, all other growth businesses actually showcased sequential growth in the fourth quarter and remain meaningful drivers of revenue and profit. So in fact, excluding ironSource, the growth segment was up double digits sequentially in the fourth quarter. So we feel really well poised for sustained growth as this business develops.

Your final question comes from the line of Martin Yang with Oppenheimer.

I want to touch on your observation on the Mini Apps growth in China. Can you articulate how Unity can benefit from the growth, both on the Create and the Grow side of it?

Yes, thank you so much for your call. I'm sorry, for your question. As I said upfront, we're really excited about the position we have in China, which is the fastest -- which is the largest and probably fastest-growing game market in the world. Unity is fully compatible with all the local platforms in that region, and we have really deep and long-standing relationships with that developer community. So we're seeing a lot of growth and expansion of customer revenue there on the Create side. And by the way, that is not just games related.

Our industry business is particularly strong in Asia. We are particularly well penetrated, for example, in the auto industry in Asia, where the vast majority of companies use Unity for their in-dash display and other things as well as more deeply across that region. So we're feeling very optimistic about that business.

The growth of Chinese-built games that are then released in the West just like with any other game that gets created on Unity, that is also an opportunity to have additional customers for our Vector product and additional opportunities for us to integrate other tools, technologies and products into those games.

This concludes the question-and-answer session. I will now turn the call back to Alex for closing remarks.

Thanks, everyone, for joining this morning, and we look forward to connecting throughout the quarter. Have a great day.

[Presentation]

Good morning. Good morning, Barcelona. Did you see that lineup of games? Megabonk, which just became one of the most played games ever on Steam; PEAK, a game built by just a handful of talented developers in a few weeks; Schedule I from solo dev TVGS now topping the charts; Kenny Sun and Friends' BALL x PIT, which sold over 300,000 copies in 5 days; or Tainted Grail: The Fall of Avalon; Blue Prince; and of course, Hollow Knight: Silksong, three of these years' highest-rated games. And let's not sleep on the quality and the artistry of the Unity games we're seeing on mobile this year, like Kingshot and Umamusume, a diverse set of hits that show just how vibrant mobile gaming is across all genres.

What an incredible explosion of new ideas and new gameplay we've been treated to this year. Each week, we're seeing new breakout hits like these, too many to fit into just one highlight reel, and we are so proud that they are all made with Unity. There has never been a more innovative and successful game development community in history than all of you. And everyone at Unity is working to serve your dreams, to ensure that you have the power and control to create your vision. We build and maintain a cross-platform ecosystem that will support you, from the day you first install the editor, to the day you find yourself operating a live game with millions of players. Thank you so much to all of the developers whose games you just saw, many of whom are with us here in Spain, for making us a part of their present and future and a very warm welcome to all the Unity builders out there, wherever you are in your creation story.

Hello again, everybody. My name is Matt. I'm the President and CEO of Unity. It's great to be back with you here for another Unite. Whether you're here in person or watching us online, we're really happy to have you with us. And a special shout out to all of our sponsors who are making this possible for us.

Today, over 3 billion people play games, and the love for interactive entertainment has never been deeper or more profound. Consumers are spending more and more time gaming. And as enthusiasm for the new AI-infused social media dips and short-form video consumption flattens, the world increasingly realizes what we've known all along, that play and the connections we make while we're playing are a beautiful and fundamental part of what it means to be human, and that will never change.

For 20 years, Unity has been on a mission to democratize game development. And thanks to your creativity and trust, the Unity engine now powers 70% of the top mobile games in the world. On PC, your games represent 1/3 of this year's hit games on Steam. In web gaming, you're making your presence felt as well with about half of all web games made with Unity.

And while it's clear that many of you are thriving and the industry as a whole is certainly growing, we also know that for many, it has been a tough year making games. We've seen some high-profile closures of studios, some talented individuals looking for work, and players finding frustration in some of the entertainment they love. Challenging platform economics, broken game discovery mechanics and increased marketing costs continue to squeeze all game makers everywhere. And with AI creating both excitement and some uncertainty about the future, there's understandably a lot of debate about how the creative community should respond. But when I look out at the landscape, what I see is great Unity developers everywhere tuning into what players really value. And when we, as an industry, do that, good things happen.

So what are the great developers focused on? Building innovation in gameplay rather than investing time to achieve marginal enhancements in graphical fidelity, bringing those gameplay innovations to market faster rather than spending time cramming in every tired genre trope, ensuring high performance across every platform, and then taking the time to build authentic and vibrant communities to support the creative endeavor. When we, as creators, stay true to these ideas, games will find their audience, regardless of the size of the team or the resources available. And it's our job at Unity to be your partner through that process, to be the bridge between your creativity and the players who will turn it into the next global phenomenon.

At Unity, we think of a game creation process in 3 phases: develop, deploy, and grow. We've always cared a lot about all 3 phases, but we're increasingly focused on how they work together and the possibilities that those connections can unlock for you. In the development phase, we've always believed in flexibility and extensibility, enabling you to create the ideal tool set to reach your vision. But historically, that openness has sometimes come at the cost of performance, stability, upgradability and security, but that is all changing.

To enhance security, we recently launched a new initiative called Unity Core Standards. Core Standards is a new set of technology guidelines that will provide developers with verified and signed packages to enhance trust and reliability for the third-party tools that bring our platform to life. To drive better performance, stability, and upgradability, we've changed, well, basically everything about how we develop the Unity engine.

With Unity 6, we now production verify everything we build with external partners, and this has allowed us to set an entirely new standard of performance across all of our teams. This included partnering with KONAMI build a full game ourselves from scratch this year, Survival Kids, the development of which was pivotal in pressure testing our day 1 support for the Nintendo Switch 2 and GameShare. But Konami is just one of the production partnerships that's helping us deliver quality to all users of Unity. And today, you'll hear from both us and some very special guests about how it all works.

Speaking of partnerships, we're placing a very strong focus on collaborative development in 2026. Our industry team is charging ahead with a new web authoring tool currently in beta for nongaming customers, which we call Unity Studio. Unity Studio enables teams to easily access and import data and then collaborate together on the production of interactive applications with no code required. We're excited about the new workflows of Unity Studio, and it's helping us think about how to build out collaborative authoring for everyone in the future. Later today, you'll hear from Adam Smith, our Head of Product, about how we're trying to speed all these new advancements and many more into Unity 6, where they can be seamlessly accessed through a new and improved upgrade process rather than what we used to do, was to make you wait years for a new version of the engine.

And finally, for developers who choose to bring AI into the workflow, we're introducing something new in '26 called the Unity AI Gateway. The gateway ensures that verified third-party agents can interact with the editor, but securely, while enabling highly accurate Unity assistance powered by the deep context we have on your scene, hierarchy, assets, platform targets and much more. To start testing the gateway, we want your feedback. So we're releasing early access beta today so you can explore how it all works.

Next, we have the deployment stage. This is a stage where your software begins to meet your players, the phase where developers really begin to understand the promise of what they've created. Our goal has always been to help you deliver quality and stability to the most players across all platforms. And now not only are we delivering a new platform toolkit that makes cross-platform development far simpler, but we've also shipped a new foundation we call the developer data framework, which provides you with deeper, more actionable insights about game performance while enhancing your control about how that data is shared and collected.

The final part of your journey is where everything comes together, it's growth. With an optimized game developed and deployed, Unity stays with you to help you focus on player acquisition monetization. And today, we'll be showcasing the latest from Unity Vector AI, which is designed to do just that. And with app stores opening up globally and mobile IAP spend growing, we're introducing native commerce to Unity, a single place to manage everything from your digital catalogs to payment providers and web stores or across not just mobile, but web and PC too.

Now the industry response to our open cross-platform commerce solution has been really gratifying. And it sparked some extraordinary conversations, none of them more exciting than the one I had over Twitter with Tim Sweeney. But rather than tell you what we talked about, how about we just bring out Tim to tell us more?

Please welcome our newest partner, the Founder and CEO of Epic Games, Tim Sweeney.

Yes. You probably didn't expect to see me here. So at Epic, we make this other engine, begins with a U. But we also make the Epic Games Store, which has a huge number of awesome Unity games, and we make Epic online services in Fortnite. Recently, we got together with Unity, and we realized that we all share a common view of the need to support fair and open digital platforms. And one of the big challenges for developers now is the fragmentation of tools and publishing pathways. And just like the early days of the web, we believe that companies need to work together to build open and interoperable systems, and we're doing this now.

So today, we're announcing that Unity is going to bring their new in-app purchase SDK to all Unreal Engine developers. So this means Unreal Engine devs, like Unity developers, will be able to choose Unity's in-app purchase APIs to handle our cross-platform purchases, entitlements, pricing logic and everything else, and to integrate the API once into their app and then have it work everywhere, across all platforms and payment services. And this is really valuable now. Mobile platforms are finally opening up to competing stores and competing payment methods. I've heard me opining on this in the past. But it's happening now, and we're grateful for Unity to supporting it.

And the ultimate goal is for developers to be able to build games and then deploy them anywhere they want, in mobile app stores, PC stores, on console, and in games that support developer-made content like Fortnite and other things, which are a big and growing part of gaming.

So today, we're announcing a really unique collaboration between Unity and Epic that bring games made with Unity into the Fortnite ecosystem. So Fortnite is a huge game that hit 100 million monthly active users last holiday. And though it began as a little battle royale game that we built, over time it's evolved into an ecosystem where 40% of playtime is going to third-party content built by independent developers like yourselves. And they're earning hundreds of millions of dollars a year from participating in Fortnite. And now it's going to open up to all Unity games, thanks to some really amazing network technology that Unity built that connects other engines into Unity through a networking protocol to make this work.

So starting next year, Unity developers will be able to publish games directly into Fortnite to peer in Fortnite's discovery system alongside games built with Unreal Engine and to participate in the Fortnite economy, as it evolves towards an open metaverse economy, connecting all users and all engines. So we're really excited about this, and we're grateful for the partnership with Unity and to be able to work together to build an open and fair future for all gamers. Thank you very much, and thanks, Matt.

Appreciate it. Thanks again so much to Tim and the entire team at Epic for the partnership and for Tim for being with us this morning. We're so excited to see the collective imagination of the Unity community introduced to the millions of players in Fortnite, and to enable Epic developers to take advantage of our new commerce tools.

So that was a lot. But remember, it's all about develop, deploy and grow. We want to be the bridge between your creativity and the players who will make your game the next enormous phenomenon. So to get us started, I'll hand you over to Adam, our Head of Product Development. But just to say one last thing, which is on behalf of the thousands of us who work at Unity around the world, thank you so much again for your passion and your partnership and your support. It really does drive everything we do.

Adam, take it away.

Well, I am not sure how to top that. Unity, Epic on stage at Unite. That's unreal. Forgive me, I had to. I had to. Couldn't help it. Hey, everyone. I'm Adam Smith, and I lead the engine product team here at Unity. Prior to that, I've worked in both games and with our partner studios for the past 2 decades. And Matt just mentioned, we have the absolute privilege of working with every single kind of studio and seeing every single kind of game in production.

What excites us most is how many of you are building games today. The industry is changing, and we are as well. At Unity, we love giving you choice. From the openness of our engine to the pipelines and extensions that you add, we see many different approaches to production. And lately, we've seen a new model from many of you that's really inspired how we think about what we do.

Essentially, it comes down to develop, deploy and grow. You are collapsing older, phased approaches to making games into one development phase. You know what you want to build. You don't need a green light from anybody or anyone. You just start developing. And then you deploy fast. Test with players, get feedback, iterate. And from there, players discover your game across platforms, across communities, and your success grows. And this is not a theory. It is already happening right here within the Unity community.

This new model is changing how we work as well. We are rebuilding our road map to accelerate exactly this. Here is how. We're helping you develop faster with shorter import times, quicker play mode and faster builds, all while ensuring Unity 6 remains stable for you. We're helping you deploy faster with more supportive platforms than any other engine and adding new cross-platform tools to simplify development. We'll help you grow an audience of engaged players faster with our discovery platform, Unity Vector, bringing players who will love your game and keeping them engaged with real-time diagnostics, smarter live ops tooling and in-app purchasing to give you more options for monetizing your game. We're going to be talking about all 3 parts of this production model today: develop, deploy and grow.

So let's start with develop. With Unity 6, we decided to make a big change to how we develop the Unity engine. With many exciting updates in development, we spoke with many of you, from solo developers to our largest enterprise customers about how you want to receive changes to the Unity engine. The loud and clear message that we got was upgradability. You want us to deliver new updates to Unity in a way that keeps you working. And this is why we pivoted our approach to deliver updates incrementally with each release of Unity 6, so that you can adopt them without friction to your ongoing projects.

In Unity 6.3 currently in beta, we're laying the groundwork for 2026. This coming year, we're making iteration speed one of Unity's absolute greatest streams. We all know that nothing slows momentum like waiting on a long build time. That's why we started optimizing our very foundation in places such as asset bundles, scriptable build pipelines, shader variant management, and beyond. And the results speak for themselves. In testing with Stunlock, V Rising saw a previously 4-hour build time drop by half. And 10 Chambers' upcoming Den of Wolves went from 90-minute build times to just 30 minutes.

Alongside this, we are continuing our journey towards support for CoreCLR with a technical preview in desktop player in an upcoming Unity 6 release. The player preview will give users first access to CoreCLR in Unity, which when complete, will bring modern .NET C# features that you expect today, higher CPU performance by default, smarter garbage collection, fewer frame spikes and less memory fragmentation for smoother gameplay and a future-proof foundation for all platforms to come.

And as Matt just mentioned, we are investing in providing new ways to create and collaborate. Many of our industry customers are interested in creating 3D applications, but lack the in-house experience to use the Unity editor itself. After all, their business is selling cars, airplanes, entire factories and beyond, not building 3D software. For those users, we just launched a new product in beta, Unity Studio. Unity Studio is a simplified offering tool that runs in a web browser. It features everything that an industry customer needs, such as built-in asset transformation that supports all of their CAD data, low-code and no-code workflows and a one-click publishing solution.

Unity Studio just launched in beta, but we think there is great potential in bringing more offering workflows to the web browser in the future, and we will be sure to share more about this next year. There's much more to tell, so be sure to check out the road map session for the full picture today. This road map is built specifically to align directly with your goals and your needs, iterating faster and reaching players across platforms to build the largest possible player community.

Lately, many of the most exciting game launches did not take years of planning. These were small teams using Unity to develop quickly, deploy fast and find the fun with their players in real time, which brings me to a story that I cannot wait to share with you. One of these studios is here with us today. Everybody, please welcome Zorro from Landfall Games, who will tell you how the summer hit, PEAK, came together in just weeks and launched straight to the top of the steam charts. Zorro?

Hi, everyone. My name is Zorro. I'm a programmer at Landfall. I'm here to talk about PEAK, which we built in collaboration with our friends at Aggro Crab. PEAK is a co-op climbing game. You and your friends play as a lost scouts group. You need to scale a mountain to get rescued. You manage resources, treat injuries, and need mysterious mushrooms when you try to climb your way to the top.

PEAK came together pretty quickly. Seven devs spent about 10 weeks full time on this project. The 2 teams went to an Airbnb in Korea together for 4 weeks with no idea except to make and ship the game. In the first week, we set up a multiplayer game in a player controller. And after that, we would work every day, go out for dinner and talk about what we wanted the game to be, and then have a play session for 2 or 3 hours before going to sleep. This created this really nice feedback loop. Every night, we'd play the game and then decide what to work on the next day. We kept playing until we had something that felt really special and strange.

I'm not sure we would have been able to get there if it weren't in Unity 6. The fact that we could just slap a bunch of rocks together and call it a mountain without worrying too much about to render all of that really helped us focus on what the game was. We decided to focus on just the fun of climbing the mountains. After that, we explored mechanics built on friendship, like placing rope, sharing items, reaching out to help someone.

Working together can be really fun, but so can the scenarios when you trust someone and they betray you. Like, hey, you didn't help me, why? I screamed for you. Do we just eating a banana? It was immediately super funny. I think it helped that we were developing the game the way we did, that we were all friends playing the game together like we assumed our players would be. So if you haven't played PEAK yet, I hope you check it out. I hope you really like it. Thank you.

Thank you, Zorro. Aggro Crab and Landfall, small team iterating for just weeks, not years. They launched PEAK and sold 10 million copies in just a few months. That is extraordinary. But again, what excites us most is not how high they climbed, it's how they got there. They did not grind through bottlenecks, they built fast, tested, iterated and Unity made that possible. It's the new reality that we want to accelerate for all of you, for every developer, for every Unity developer. And to do this, we're holding ourselves to a higher standard of quality, performance and stability.

So the question is, how? How do we do this? It starts with production verification. We do not just test features in labs anymore. We codevelop with partners and we ship them inside real games or if they ever reach you. We took our Unity Studio productions team and put their work on real productions at the very heart of the engine development process. With production verification, every new feature going into the engine is tested, both automated and hands-on in real game productions.

In addition to Survival Kids, the game that we developed in partnership with KONAMI, we work with many of you to pressure test updates to Unity in productions, large and small. Our focus on performance and stability is already yielding some amazing results. In the last 2 years of Unity development, our focus on quality has seen regressions decline by 30%. User-reported issues declined by 22%. More issues resolved month by month than we received. In fact, 2025 is on track to close with the lowest open bug backlog levels in 3 years.

These are the kind of real measurable gains that we know make a difference to all of you, iteration improvements, proven in production. Runtime optimizations, proven in production. Cross-platform reach, live operations, monetization, everything that you need to succeed will be production verified in real-world games. And we are taking this mindset beyond Unity's own tech to continue building a healthy ecosystem.

You just heard Matt talk about Unity Core Standards, a new verification program that helps key third-party SDKs, ensures that they are held to the highest quality bar with compatibility information, built-in versioning and package signatures. This is how Unity becomes the assembly point for your games tech stack, bringing together first-party, third-party and your own proprietary technologies, all proven, predictable, trusted. This is not just a principle. It's already how we're working today.

Now to show you how this looks in practice, I want to hand it over to the team that leads the way on production verification every single day, Unity Studio Productions, to share with you how they partner with KANAMI to co-develop Survival Kids using it in production to verify many of the core improvements to Unity 6.

Like many of you, I'm a game developer. In my career, I've worked on a wide range of genres, platforms and engines. I've also experienced the same highs and lows of game development that many of you have. Unity Studio Productions is our in-house development studio. And we believe that to make the best version of Unity for you, we need to be hands-on with our own technology. So we partner with studios to help them solve development challenges in Unity. We work with the likes of Second Dinner and their phenomenal MARVEL SNAP; Kinetic Games with their nerve-wracking Phasmophobia; and Black Salt Games with their beautiful horror at sea Dredge, to name just a few.

But we wanted to go further. In 2023, we embarked on a new project with KONAMI. We asked ourselves a simple question. Could Unity create an entire game, from start to finish, in partnership with a publisher and against the ticking clock of a new platform launch? Well, on June 5, we released Survival Kids, a family-friendly online co-op game alongside the launch of Nintendo Switch 2. The experience was, of course, great fun, and at times, it's a humbling reminder of how difficult game development can be. We built Survival Kids with a range of Unity technology. We used Unity 6 rendered with URP and the new adaptive probe volumes and optimized with our Burst and Job system. Our online networking was built on Netcode for Entities. And on the back end, we used Lobby and Relay. We tried to use as many different Unity tools and features as possible.

And we weren't just validating existing systems. One of the most exciting features of Nintendo Switch 2 is GameShare. With GameShare, a single Nintendo Switch 2 console can share multiplayer sessions of games, no downloading, no additional purchases. Let's take a look at GameShare in action. Playing Survival Kids alone is fun, but it's even better together. During development, we'd already built a great split screen mode that ran at 60 frames per second. We used this as the basis of our GameShare support. To get started, all you need is a Nintendo Switch 2, a copy of the game, and you can start playing immediately with 2 friends locally. Survival Kids shares independent views to other Nintendo Switch or Nintendo Switch 2 consoles. Three players exploring together with just one copy of the game.

Rendering multiple independent views requires great runtime performance and Unity 6 delivered. Working directly on real productions like this is how we can make brand-new platform features possible on day 1. So all of you can build for Nintendo Switch 2 and GameShare with confidence. More players, more fun, more reach, all tested in Unity 6. You can learn more about how we optimize Survival Kids during our in-depth session here at Unite. This release wasn't just a milestone for us. It was a production verification exercise that will help us identify bugs and improve Unity's capabilities long into the future. Right now, more than 30 internal teams are using Survival Kids to test features and validate new releases.

Next, I'm really excited to take a look at another Unity Studio Productions' partnership with one of the most notable developers and publishers in the business, 2K Games. I'm thrilled to announce a multi-title partnership between 2K Games and Unity. Unity Studio Productions will help bring one of 2K's most loved games to a new platform and audience. This type of collaboration benefits every Unity developer. It allows us to verify even more of our technology in real-world productions.

James from HB Studios and 2K Games will join us to talk about our first project together. But before that, we have a message from a very special member of the development team.

Hey, Unite. I'm thrilled to give you an exclusive first look from 2K, HB Studios and our partners at Unity.

[Presentation]

Hello, Unite. It is great to be here. PGA Tour 2K25 is our most immersive and authentic golf experience ever. You can step on to the fairway as iconic pros like Tiger Woods, Justin Thomas, Lydia Ko and many more, or you can create your own MyPLAYER and live out your dream golf career in the PGA Tour and at major tournaments like the PGA Championship, the U.S. Open and the Open Championship. You can also create and share your own courses with the world. Golf is our passion, and so is reaching as many players as possible through the joy of sport.

The PGA Tour 2K golf franchise started out in a small town in Nova Scotia, Canada, where HB Studios began working on a little game called the Golf Club. We built that first golf game in Unity, and we've continued to use Unity to power our game as it grew into the PGA Tour 2K series that you know and love today. As you can see, it's high definition and beautiful. We used physical lighting and sky, atmospheric and volumetric fog, advanced global illumination and reflections. Our characters use fabric and skin shaders with subsurface scattering. Their hair is rendered using double-sided transparency. And we use a range of post-processing effects, including depth of field, bloom, color grading and temporal anti-aliasing.

And our partnership with Unity is allowing us to bring all of this to the Nintendo Switch 2. You can already hit the greens in PJ Tour 2K25 on PlayStation, Xbox and Steam. And as you heard here, it's coming to Nintendo Switch 2 very soon. We're releasing post-launch seasons that bring more challenges, more rewards and endless reasons to keep coming back.

So thank you, and back to you, Andy.

Thank you, James, and everyone at HB Studios and 2K Games. Working with a visually stunning game like PGA TOUR 2K25 has been the perfect opportunity for us to production verify these rendering features in Nintendo Switch 2. It looks so real, I'm sure I'll still find a bunker on every hole. But of course, striving for realism is just one way to approach making a great-looking game. Up next, we're going to look at how we're continuing to iterate and update our 2D tooling to help support your vision. Here's Rus.

Unity powers the vast majority of cross-platform 2D games across the world. We're proud to be the engine behind the 2D games that players love, and that comes from the inspiring ways that you use our dedicated 2D tools. 2D animation, the 2D Pixel Perfect camera, and the 2D Tilemap Editor have helped bring your artistic visions to life. Whether it's a precise pixel art or smooth skeletal animation or sprawling handcrafted worlds, we've seen these tools at work in some extraordinary games over the years, including acrobatic action platform rouge-like, the Rogue Prince of Persia; the occult puzzles of Strange Antiquities; and beloved subterranean sandbox game, Core Keeper, and countless more.

These games delight players while showing the sheer breadth of what you can create. Our 2D tooling is designed to empower you to build anything you can imagine, whether it's organic, hand-drawn experience, a tile-based adventure or a physics-centric puzzle game. We're committed to giving you the most performant, optimized and stable 2D authoring tools possible to power your vision.

Hollow Knight: Silksong. Maybe you've heard of it. Team Cherry's follow-up to 2017's Hollow Knight was probably the most anticipated game of this year, launching simultaneously on 6 platforms, including Nintendo Switch 2 and built with Unity. The game uses classic 2D game development techniques in Unity to feature beautiful handcrafted levels and fascinating characters brought to life with 2D Flipbook animation. These visuals are arranged on the Z-axis for parallax scrolling, creating a vast, deep environment, and dynamic chains and rolling rosary beads simulated with Unity's 2D physics are scattered throughout the game's brooding landscape. The Unity ecosystem provided all the tools, workflows and extensive platform support that the team needed, so they could focus on telling the story of Hornet in the kingdom of Pharloom.

Now let's dive into Unity 6.3. We have some exciting new 2D workflows that I can't wait to share with you. And this includes streamlined integration of 3D elements within your 2D projects. Now we'll start by looking at this platform. The world is 2D, made of sprite shapes and tile maps. And of course, it uses beautiful 2D lighting. But the character is 3D. This is a common scenario to take advantage of efficiencies in 3D character production. For example, it's much easier to create and iterate on a lot of animation clips in 3D, especially for a character or asset that's seen from different angles.

To get the 3D character to render seamlessly with the 2D environment, we're using sort as 2D on the sorting group attached to the 3D object. We can see the 3D object sorts correctly. We're also using the new Sort 3D as 2D compatible mode in the material shader on the character. This enables the shader to work with the 2D lights that affect the corresponding 2D sorting layer. This mixed rendering works with all of the 2D renderers like the sprite shape and tile map renderers and it integrates well with other Unity features, too. For example, in this cave, we can see shader graph and VFX graph working with the character. And finally, it also works with sprite masks. The 3D character is now only visible inside the sprite mask in this portal. If you're with us in person at Unite, you should check out the demo at our expo booth.

There's a growing need for scalable and consistent as well as performance-optimized physics content in 2D games. So we're introducing a new 2D physics low-level API. It's built on Box2D version 3, the latest actively developed version. So whether you're developing 2D games or physics-based assets for the asset store, you'll benefit from multi-threaded performance, enhanced determinism and visual debugging support for both editor and run time. Now all the features you just saw are available in Unity 6.3, so you can jump right in. We're also updating our 2D e-book with fresh 6.3 content and we'll be releasing the new 2D samples shortly.

So now you've seen some of what we're working on to help you develop great games. Production verification used across the engine, Core Standards leveling up our ecosystem, plus better stability and performance through iterative delivery of new updates to Unity 6.

So now let's turn our attention to deployment, getting your games out there and in players' hands. First up, James is going to talk about some really exciting work from Unity's Platforms team. Thank you.

Thanks, Rus. We've come a long way since being the [ Mack engine ] -- only engine 20 years ago. Today, Unity supports over 25 platforms from mobile phones and the latest consoles to high-end desktop and everything in between. You can deploy your games to the largest number of platforms with Unity. And on the platforms team, our mission is to bring you stable and performant run times, so you can meet your players wherever they want to play even on day 1. We were so proud to offer full launch day support for Nintendo Switch 2. And we're already seeing a strong made with Unity lineup of amazing games like the awesome co-op hit LEGO Voyagers, which is available now; and Skate Story, which we cannot wait to play on December 8. And we also offer day 1 support for Android XR with tools, features and documentation to help you get started on this exciting new platform. But here's the thing. When you're releasing a multi-platform game, making a bunch of different builds for each of your platforms is really only one part of the journey. You actually have to publish that game everywhere, and that can be tricky.

Before I joined Unity, I was a solo indie developer. I shipped a bunch of games across most of the platforms that Unity supports. But I really hit some hurdles when I came to make my first console game. I'll be honest with you, I had no idea what I was doing. I had no idea how to integrate all those different SDKs. And I think most developers don't, especially if you've never gone through the process before. And that's before you even start certification. And I remember thinking to myself, why is this so difficult? Why doesn't Unity just handle all this stuff for me? And I found that many of you shared that same sentiment. Well, in my work on the Platforms team, I've made it our mission to solve that problem for you, which is why I'm thrilled today to introduce you to the Platform Toolkit.

This is a new package you can use to integrate with platform SDKs with just one code pass that works everywhere. We've started with the most critical areas you need to ship and pass certification, such as user management, controller management, save data, achievements. We've abstracted all of those things into a handy API that you call once, and it just works on all its supported platforms. We've even built systems to help you on platforms with and without SDKs, such as a proper save system, so you no longer have to write your own. So you're probably thinking, great. That means I don't have to rewrite my console code anymore. Well, it actually goes beyond that. We fully support not just consoles, but all major mobile and desktop platforms, including Steam. That's right. use it once, it just works everywhere.

So let's take a look at an example. Let's say you're using the Platform Toolkit to build your game for mobile. First, you integrate the Platform Toolkit into your project using our simple setup guides and samples. Then you can unlock an achievement by getting the current user, accessing the achievement system and then simply unlocking it. But what if you wanted to unlock that achievement on Steam? Well, there's nothing more to do. It's one code path, works everywhere. In fact, let's say this Steam game is a huge success and now you want to release it on Xbox, easy, just import the platform support package for that console into your project and you're done.

But it's not just about reducing the complexity of platform code. And if you're like me and maybe failed certification a few times, we want to help you there, too. This new API has built-in workflows and validation checks that help you pass certification by ensuring the correct SDK usage. And in fact, you don't even need to build a device to test them. You can run all the workflows directly in the editor and even simulate failures such as a user logout, storage full or a network issue. And to further our commitment to production verification, we worked closely with our partners at Microsoft to put the Platform Toolkit through Xbox certification. And with our successful pass, this toolkit has proven ready for production use. And we continue to work with other partners to complete similar verification processes. We've been quietly working on this for a while now, and I'm so excited that I can finally announce it. And the best bit is coming in Unity 6.3. And I'm hugely excited for you to all go and try it and share your feedback.

But this is just the start. We began with the most critical areas that you need to target, and we're going to continue to develop this toolkit, adding new features and support for any new platforms in the future. Our goal is to remove as many obstacles as possible from the development journey, so that you can all focus on what you do best, which is making great games.

Up next, we're going to take a look at how we're approaching data, including how you could use it to boost and customize your games performance everywhere that it's played. Thank you.

Thanks, James. Simplifying how you can build for different platforms is essential, because that's where the players are. And since players are using so many different platforms today, success means scaling your games' reach and playability. And that means you need to win across a few different areas. Games need to be highly stable and performant to offer smooth playable experiences. They need to be highly discoverable, which means finding and reaching the right players, and they need to be optimizable, so you can continually tune your games experience.

Now where and how you fine-tune your game will evolve over its life cycle. But the key to success at scale is data, your data. Data helps you understand if your game is even working. Is it stable? Is it performing? Are your players doing what you expected they would? Or are they trying to tell you they want something that's slightly different? Are your current players even the right players? Or is there a more valuable group out there that you haven't been able to reach yet? These are all critical questions, and they all point to great opportunities.

So to unlock success at scale, you need both the right data and the ability to use it to make the right move. And that makes your data extremely valuable. But putting that value to work requires that you understand and have control over how it's being used. And this is why we introduced the concept of developer data alongside Unity 6.2. It marks a change in Unity's approach to data, and it clarifies that the data your apps generate belongs to you, including, for example, the result of users playing your game or outside data that you bring to the Unity ecosystem from sources like Google Analytics. And since that data belongs to you, it remains in your control.

With the developer data framework, you tell us what to collect and process along with where and how you want that data used. The framework makes managing your data easy and clear, so you can direct Unity both explicitly in your framework settings and implicitly through the products and features that you use. Introducing developer data was something that we chose to do. We did it intentionally, so we could make it clear that we are prioritizing your needs and choices, because Unity only succeeds when you succeed.

We want to offer transparent, ethical data collection and processing for both developers and for players. So this starts with configurable, easy-to-understand data collection and usage controls for developers, which you can in turn extend to players via intent-based consent APIs and controls. This way, we want you to be able to focus on using developer data to achieve success at scale with complete peace of mind about how your data is collected and used, because you can be certain it's only doing exactly what you want it to.

Okay. So I know that's all a bit abstract, and I'm talking about data like it's a bunch of ones and zeros. So let's take a look at a specific example of how data can help solve real-world problems in your games. Something you've told us loud and clear is that runtime performance and stability are both critically important to you and your players. But that gets really hard because players are on so many different platforms today and using all different kinds of devices and form factors.

Nevertheless, your game and the Unity engine need to operate seamlessly in this fragmented environment. And that fragmented environment is something that's far too complex for us or anyone else to simulate in QA. So real-world diagnostic data becomes the key to unlocking performance and stability at scale. And doing that requires a totally new approach.

So now I'd like to welcome out Ashley, who's going to tell you about our new engine diagnostics. Ashley?

Thanks, Russ. So let's talk about how you can use Unity's diagnostic data and tools to unlock unparalleled performance and stability in your game and Unity's run time. Available for mobile and PC, Unity's new diagnostics is built natively into the engine, and it lets you monitor game health at a glance with critical metrics like crash-free sessions, application not responding messages, average session length and memory usage, all in one place. You can also find tools to speed up triage and resolution of complex stability issues with detailed breadcrumbs and session time lines that streamline identification of root causes. And finally, you can leverage workflows with critical session, device, performance and stability data alongside insights on how issues are affecting actual players to prioritize by impact.

Diagnostic data provides crucial insights into Unity's runtime performance for players at scale, so we can build a more stable development environment for everyone. We understand that optimizing your game shouldn't affect performance for players. So our diagnostic data collection is thoroughly tested and optimized for high performance on device. In fact, our production verification program validates these capabilities in real-world productions at player scale, like our publishing solution, Supersonic's mobile games.

Take the Camo Sniper team, for instance. They use diagnostics to tackle a fundamental question many studios face. What defines a quality app for our players? By analyzing ANR rates and crashes across various Android devices, they could proactively diagnose issues, reduce instability and pinpoint root causes. We've heard from many of you, even basic out-of-the-box game metrics can be transformative. And that's why we made diagnostics that offer clear, actionable insights into real-world performance. As data access deepens and diagnostics evolve, we'll continue unlocking even more advanced capabilities, particularly for studios with established data pipelines. You can find diagnostics in Unity 6.2 and later.

Russ, back to you.

Thanks, Ashley. Diagnostics is an awesome example of how you can put your data to work. And it's just one of the many things we're working on to help you deploy your games and reach even more players and on more devices. So what comes next? Well, once your game is deployed, the life cycle of your game moves on. And naturally, monetization becomes a pretty important focus.

So up next, here's Rambod to talk to us more about IAP.

The landscape of in-app purchases is changing fast. Mobile, web and PC platform app stores are no longer walled gardens. As different web shops and payment providers become available for games, paying high platform fees to access your players just doesn't make sense. We've extended our IAP solution to offer you more choice, so you can use web shops and use third-party payment processing systems to lower your platform fees and keep more of your revenue while making your games available on more sites. And if you want to just keep using the same built-in setup you've always worked with, you can still choose to do that, too. But most of you will probably want some mix of these approaches to respond to market factors, because laws and regulations are changing quickly, regional norms vary and some player cohorts are just less inclined to make purchases off platform.

With Unity IAP, you can optimize your pricing and business models across platforms to offer this mix more simply. It streamlines commerce to a single integration, where you can manage payment providers and storefronts across every platform. It's designed to put you in control, giving you the freedom to move between solutions, access to multiple providers based on location and a single place to manage all these choices across multiple purchasing platforms built directly into the editor. And all of this while increasing your profit margins.

To do this, we're partnering with third-party payment solutions like Stripe, the programmable financial services company. Stripe's merchant of record solution and app-to-web payments platforms let you lower your costs, while Stripe manages fraud, disputes and tax behind the scenes. And Coda, a trusted partner to leading game publishers. Coda delivers global solutions for digital content monetization and distribution covering over 70 markets worldwide. We're also investing in IAP to make it work better for you by ensuring that our purchasing APIs are stable and that you can access new store features as soon as they become available. And we're making all these engine-native commerce features simple and scalable to reduce your maintenance overhead. So you can manage things like pricing, promotions and live operations for multiple web shops and payment solutions across mobile, web and PC.

Unity IAP gives you a holistic view of your revenue no matter where it's coming from, all in one place, free from any platform-specific tools and restrictions. So you have greater visibility and control over how you optimize your entire catalog across all platforms and devices. We're dedicated to putting you back in control of your own success.

So now I'd like to introduce you to Forrest and Tim from SciPlay to talk about why the social gaming powerhouse is getting it on the ground floor with IAP by partnering with Unity to production verify IAP tech while generating more revenue from their game.

Tim, Forrest, welcome to Unite. So glad you could join us. So let's start with this. There are lots of tools out there to handle end-user payments. Why is the Unity ecosystem the right move for SciPlay?

Yes. When it comes to something that's as fundamentally important to our games as payments, the who is actually as important as the what. And partnering with a familiar company that understands the unique challenges of the gaming industry just really gives us confidence. We need a solution that meets the needs from both flexibility, scalability and performance. And this partnership minimizes the barriers to entry and the number of vendors that we have to integrate. So that's great.

Right now, the landscape is shifting. The rules around digital commerce are evolving, distribution methods are constantly in flux. And suddenly, every gaming company is being asked to solve problems that used to fall squarely into sort of the platform's domain. And let's be honest, that's not where our competitive advantage is, right? Our focus is on creating amazing experiences for our players. So the value of Unity's ecosystem for us isn't really about a single feature, it's about a partner who is investing in the less glamorous, deeply operational parts of the stack.

Forrest is exactly right. And from an operator's perspective, we are also extremely pragmatic. We use the tools that win in practice, not just the ones that look good on a slide. So if Unity can offer a stable, well-tested path through that chaos, it lets our teams focus on building experiences that players can feel instead of chasing the shifting edges of policy and compliance. We're here because Unity is placing bets in the same direction the industry is already moving.

So your audience is really global. How important is the ability to control regional rollouts around local laws and user habits to you?

Hugely important. And honestly, it's one of the most quietly painful parts of running a scaled operation. People talk about global launches like they're one event, but they're really not. There are 1,000 micro launches wrapped in legal, cultural and behavioral nuance. Germany isn't Brazil, Korea isn't Canada, and the rules can change while you're asleep. So having the ability to tune an experience by region isn't just a nice-to-have, it's table stakes for anyone who wants to be in the top tier. And honestly, most companies simply don't have both the infrastructure and the appetite to build all that themselves. Even at SciPlay with a pretty sophisticated tech backbone, it's real work.

Yes. I mean if Unity can take on that burden for the broader ecosystem, that's good for the whole industry. It levels the playing field without pulling engineering teams away from their actual missions. And taking on the burden in a way that actually unlocks more alpha is a huge windfall for Unity developers.

Definitely. And when you think about it, how important is it for you to have something that you can just drop into a live game while being able to leverage your existing data and targeting?

That's a magic word, drop-in. Retrofitting anything into a live game, especially one already doing real revenue is like upgrading the engine of an aircraft while you're still in the air. Nobody wants to do that more than once, and approximately never if you get your choice. So if you can give a team a truly drop-in solution that respects their existing data models and lets them continue using the targeting and segmentation that they already trust, if you don't have to rewire the entire stack, that's the difference between adoption and a great pitch deck. So our competitive advantage is in using that data to create those experiences, not building payment and consent pipelines. Unity delivering a solution we can plug in seamlessly on top of what we've already built is a huge win.

Yes. I mean here's the thing. We've been a Unity customer for a long time, and we are genuinely excited to actually be partnering at an even more strategic and fundamental level to really maximize the benefits of this relationship, and we're super excited to see how we can help to deliver something that adds immense value to developers everywhere.

Yes. And if I can leave the room with one thought, it's that we're all building in an environment where the speed of change outruns most, if not all, of our road maps. The companies that thrive aren't the ones that guess right. They're the ones that stay adaptable. So anything that can help you stay nimble without burning your teams out is worth all of our attention.

Guys, thank you so much for coming out here to talk about this. We're so excited to be building the next era of in-app monetization closely with you.

The flexibility of Unity's IAP management system unlocks so many possibilities for the future, like experimenting and A/B testing different approaches by region, genre or demographics to discover what works best for your audience in real time. You can sign up for early access using the QR code here. And the possibilities for personalization based on user data are huge. And up next, we'll take a peek at how this dynamic looks with Unity Vector optimization to power greater player discoverability.

Thank you, Rambod. Players have more games to choose from than ever. So getting yours discovered is increasingly challenging. Game development is getting faster. But with that growth comes a need to ensure those games don't just get made, they get discovered. Helping players find the right game is an essential problem to solve, but discovery is personal. There is no one size fits all in this market. You need to put the right game into the right hands.

Enter Unity Vector. It's built to understand both the game and the player to redefine how the industry solves its discovery problem and make sure that your games reach the audiences they were made for. At Unity, we combine 2 powerful advantages, insights about video games and visibility across billions of player sessions around the globe. Unity Vector understands the interactions between players and games. It makes decisions in real time, powered by state-of-the-art deep learning models capable of understanding complex patterns. This gives every game its best chance to be discovered by matching tens of thousands of titles to billions of players, helping you find exactly the right players who will love your game.

Unity Vector is your intelligent partner, leveraging artificial intelligence and automation to scale your title with performance at its core. Performance for us is simple: the right game, the right player, the perfect match. When that happens, everyone wins. Players are delighted when they discover the games they love. Developers are delighted when their daily active users grow with the audiences that matter most. While Unity Vector is relatively new to this market, it's already delivering impressive results. We are seeing an increase of 15% to 20% in installs and up to 20% increase on in-app purchases spent by those players. And these results continue to climb. With Unity Vector, Homa dramatically boosted performance in All in Hole. To share more about their success with Unity Vector, let's welcome Naveen from Homa.

Well, thank you so much, Felix. All in Hole has been our largest launch at Homa, and it marks a real shift in the kind of games all of us are trying to make. We've gone from quick hyper-casual titles to games that are built for longer-term play where players invest more time. Going in, our goal for ad spend was clear: to grow fast, but to make sure we were not using one channel across our users. We like to advertise across a lot of different channels. This way, if one slows down, we can keep growing. Historically, [indiscernible] ads was never our best channel. However, when we launched All in Hole with Vector, everything changed. In the very first month, we saw higher quality players who stayed longer, engaged more at a cheaper cost per install. Vector helped us 2x the percent of players who buy, but also 2x the amount these players buy there.

Getting users during soft launch is one challenge. However, keeping quality high while you scale is the real test. Most campaigns tend to have an influx of players at the beginning and then across have a slowdown over time. With Vector, we saw the complete opposite actually happen. It kept both scale and quality consistent for months after launch. This trend continues to happen. Just last month, Vector made up 1/3 of our ad spend across All in Hole, which is making this game a huge hit for us.

We at Homa really value the partnership with the team here. They've been crucial to help us grow with their key insights. Their team has helped us find growth opportunities, have changes with the algo and auction, as well as help improve the campaigns over time. One insight that stands out a lot helped us push outside of the U.S. market across APAC. This is where the team's insights was helping us grow APAC to the best geos for All in Hole across the U.S.

At the end of the day, what matters most is bringing players who generally enjoy our game, who continue to come back and also have a good time. That's what actually matters here as well. Thank you guys so much. Appreciate it.

Hello again, and thank you, Naveen. It's so amazing to hear about studios succeeding at this scale. So now you've seen what we're working on, to make it easier for you to build and grow your games business within the Unity ecosystem with better tools to reach more players with Unity Vector and more control over your player transactions with IAP.

Unity has been and always will be about your success stories. Our work does not stop at just doing production verification. We're also giving back samples on how we do this. We want every Unity developer to have similar success to the studios that you've heard from here today. And to help accelerate your work, we're thrilled to announce 2 new templates that will help you develop multiplayer games. First, our multiplayer third-person gameplay sample. It's a multiplayer prototyping kit that uses Netcode for game objects and features Unity building blocks content for quick iteration. There's a huge world of flexibility in what you can build with this.

And secondly, there's a new multiplayer first-person shooter template. It's an extensible multiplayer FPS sample networked by default, and it leverages a new high-performance bridge technology between game objects and entities that our team developed to ship Survival Kids. These templates will be available in the hub with the full release of Unity 6.3. We are looking so forward to seeing what you will build with these.

It has been amazing to spend this time with you today talking about this new vision of success in gaming and to show you the tools and workflows we're working on to support you as you develop, deploy and grow your incredible games and studios with Unity. Now it is almost the end of our show. But before we break, I want to shift focus back to you and your incredible games.

Let's welcome Kelly from the Made with Unity program.

Hey, everyone. It's great to be back here again with you this year and what a year it has been for Made with Unity Games. That's why I'm particularly thrilled to talk about the 17th Annual Unity Awards, which recognizes incredible games and experiences across the Unity community. Let's see some of this year's amazing nominees.

[Presentation]

Kelly, those look awesome. I've seen many of those. I've played many of those, but not all of them.

Okay. Well, Adam, good news. We've got you covered. We, with our friends at Akupara, we're launching our very first Unity Awards Steam sale running from December 2 to December 9. We'll showcase some of this year's Unity Award nominees along with past winners and a few hidden gems. It's the perfect chance to discover your next favorite game, maybe even one you had sitting on your wish list for way too long.

And that's not all. We'll kick it off with our Unity Awards showcase on December 2, where we'll announce the winners, give away a few exciting -- sorry, give away game codes and premiere a few exciting unannounced Made with Unity games. We hope you'll join us for our live stream, but before then, we need you all to weigh in. Grab the QR code. Voting closes on December 21, so don't miss your chance to pick the winners.

I definitely will. That's our show. Thank you. If you're here with us in person, we hope you have a great Unite. We hope you enjoy the sessions, the party and most of all, each other, the Unity community. In 2026, we're taking our developer conference to new locations and on the road. We hope to see you there. Thank you for joining us. Bye-bye everybody. Thank you so much.

Ladies and gentlemen, thank you for joining us, and welcome to the Unity Technologies Q3 Earnings Call. [Operator Instructions]

I will now hand the conference over to Alex Giaimo, Head of Investor Relations. Alex, please go ahead.

Thank you, Nicole. Good morning, everyone. Welcome to Unity's third quarter 2025 earnings call. Today, I'm pleased to be joined by our CEO, Matt Bromberg, and our CFO, Jarrod Yahes.

Before we begin, I would note that today's discussion contains forward-looking statements, including statements about goals, business outlook, industry trends, expectations for future financial performance and similar items, all of which are subject to risks, uncertainties and assumptions. You can find more information about these risks 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 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.

And with that, I'll hand it over to Matt.

Thanks, Alex, and good morning. On behalf of everyone at Unity from across the globe, I'd like to thank each of you for joining us today. On our last call, we posited that the second quarter of 2025 would ultimately be seen as an inflection point in Unity's trajectory, the moment where it became clear that the company was poised to deliver sustainable long-term growth in the years ahead. Today with the third quarter now behind us, it's clear that's precisely what was happening.

In Q3, Unity showed strength across both our Grow and Create segments, driving results that once again meaningfully exceeded both our guidance and consensus for both revenue and adjusted EBITDA, including an 11% quarter-over-quarter lift in our Grow segment, driven by Vector AI.

Progress in the Create segment has been equally exciting. After backing out the impact of nonstrategic revenue, our Create subscription software business increased 13% year-over-year, reflecting the fundamental improvements we've made in both the quality of our product and the connection we have with our customers.

But this inflection point we're referencing is about so much more than just the financial results we're reporting, because in the new Unity, we're not choosing between execution and vision, we mean to achieve both. The video game industry has already overtaken Hollywood, music and linear video combined in scale. We believe social media and short-form video are the next targets. As consumers increasingly demand that their entertainment be interactive in nature and creators source relentlessly for ways to increase engagement and time spent, all roads lead to gaming as the solution.

Unity has always been about democratizing access to technology. We aim to give every software developer the tools and the platform to become a game developer. That's in our DNA. Advancements in artificial intelligence will enable us to enhance and extend this mission. Soon Unity's software will empower any creator, not just any software developer, to build interactive experiences. We believe this new form of democratization will not only spark an unprecedented explosion of content creation and more time spent in games, it will also make user acquisition and personalized discovery through Unity Vector more vital than ever. Players will have more choices about how and where to play than at any other point in history, with Unity uniquely positioned at the intersection of the creation, discovery and monetization of those games, all powered by Vector AI.

For the most talented segment of developers, this increase in the efficiency of content creation won't just be about making more content. It will mean making more time: more time to build something truly different and great as the basic game elements increasingly become just table stakes. We believe the real metric for the skilled game developers in the future won't be time to market; it will be time to innovation. How long did it take not just to complete the basic requirements, but to ship something that changes the nature of the art? And Unity will continue to be the bridge between that creativity and the players who turn it into the next global phenomenon.

For now, let's dive a little more deeply into some of the product improvements we delivered in the quarter. During Q3, we continued to make rapid fundamental advancements in Unity Vector, delivering stronger returns for our customers. These performance gains are broad-based, spanning client size, geography, operating system and genre. As we continue to ingest higher-quality signals and refine our models, Vector will keep learning, driving sustainable, healthy revenue growth well into the future.

We expect these efforts to be further enhanced by the highly differentiated behavioral data available through our Runtime, which should begin having a financial impact in 2026.

In August, we rolled out the Developer Data Framework, a unified system featuring dashboards that allow our customers to control how data is collected, shared and used in the production and operation of the interactive applications they build with Unity. This framework is designed to enable developers to unlock the power of the Runtime to better diagnose problems and to optimize the experiences they offer their players. We are pleased to report that over 90% of new projects built with Unity 6.2 are now utilizing the new Developer Data Framework.

In October, we announced our expansion into cross-platform commerce with Unity IAP, enabling developers to manage their entire global commerce and catalog from a single dashboard within Unity. The scale of this opportunity is meaningful. Each year more than $120 billion of in-app purchases are made in mobile gaming alone. The majority of these purchases are taking place in a Made With Unity game. As the gaming ecosystem continues to open beyond the traditional app stores, providing developers with a central Unity-native commerce capability is a big win for our customers in the ecosystem.

Alongside our announced partnership with Stripe, we also recently entered into a new partnership with Coda and are in active discussions with several other payment providers.

With the Unity Engine and Runtime at the core and our industry-leading distribution, we are uniquely positioned to help developers capture value from the generational platform ships that are taking place and will help them drive success through accessible, open, easily integrated commerce solutions. That's just the first step for us. Over time you'll see us take every opportunity we can to provide content creators with a trusted, open, developer-friendly platform they need to develop, deploy and grow interactive entertainment.

The increased velocity of our product release cadence is occurring against the backdrop of steadily improved quality, stability and performance of the Unity engine. Since the launch of Unity 6, customer reported issues are 22% less frequent. And with enhanced quality and features, we're seeing significant continued momentum and adoption. Unity 6 has now registered over 9.4 million downloads, a 42% increase from just last quarter.

Developers of all sizes are using Unity to create many of the most popular games in the industry. In the last few months, we've seen a meaningful increase in high-quality Unity games hitting the charts, from developers of previously modest scale. Peak, a climbing adventure game built by just a handful of developers in a few weeks, this sold well over 10 million copies worldwide since its launch in June. Mega Bonk just became one of the most played games on Steam of all time. Schedule I, a Made With Unity game created by a single incredibly talented developer, is one of the highest revenue-generating games over the last 6 months. Tennyson and Friends' Ball x Pit sold over 300,000 copies in its first 5 days, all Made With Unity, all made with very modest-sized teams.

This is the dream that Unity lives to serve, and each week we're seeing new breakout hits like these. This is not an outlier. It's a trend.

Before passing the mic to Jarrod, I do want to take a moment to highlight the advancements we're making with respect to emerging technologies like extended and augmented reality. We recently announced day 1 support for Android XR in close collaboration with Google and Samsung. This initiative enables teams across gaming, education, entertainment and enterprise to quickly build new games and apps or port existing Unity apps to the Android XR ecosystem. With shipments of AR and VR headset expected to grow 39% in 2025, this is an area where we're fully leaning in and we'll ensure that Unity has the capabilities in place to support robust industry growth.

And finally, we're incredibly excited to connect with thousands of creators and industry professionals at our upcoming user conference, which we call Unite, just 2 weeks from now in Barcelona. Unite offers us an opportunity to celebrate and showcase the incredible talent and success of Unity creators as well as the highlights on the exciting new Unity products that are going to be pivotal to our vision and the future of gaming.

Thank you again for your time and attention this morning, as always. With that, I'll pass it over to Jarrod for an overview of our financial performance. Jarrod?

Thanks, Matt, and good morning, everyone. The inflection in Unity's business we spoke about last quarter is rapidly translating into faster revenue growth and improved profitability. In the third quarter itself, we added $30 million of high-margin incremental Grow revenue on a sequential basis, resulting in $19 million of additional adjusted EBITDA, well in excess of the top end of our guidance range. Grow revenue in the third quarter was $318 million, up 11% sequentially and up 6% year-over-year. Revenue upside compared to our guidance was driven by the exceptional performance of Vector, which drove further acceleration of the Unity ad network, even when compared to the rapid sequential growth we saw last quarter. We are proud of the turnaround in our Grow business, sparked by the launch of Unity Vector, and we're confident that this business will continue to grow strongly into the future.

In Create, revenue was $152 million, up 3% year-over-year. As a reminder, we lapped $12 million in nonstrategic create revenue from the third quarter of 2024 and $12 million of revenue from a large customer win recorded in the second quarter of 2025. Excluding the impact of nonstrategic revenue, our Create business grew 13% year-over-year, powered by strength in our subscription business. Growth was driven by ARPU improvements from ongoing price increases and continued momentum in China, which has been an extremely bright spot for us in 2025.

Turning from revenue to non-GAAP profitability, adjusted EBITDA for the quarter was $109 million, representing 23% margins, an improvement of 200 basis points year-over-year and versus the second quarter, as both sales and marketing and G&A costs came down as a percentage of revenues. As a team, we're executing steadily around operating expense reduction opportunities, maintaining our cost discipline and increasingly leveraging automation and AI.

Over a multiyear time horizon, we believe Unity has the potential for dramatically higher margins driven by extremely high flow-through contribution margins, combined with operating leverage resulting from faster revenue growth.

Unity had record free cash flow in the third quarter of $151 million, representing an improvement of $36 million year-over-year. This represents our second straight quarter of record free cash flow, showcasing the success of the restructuring efforts we have taken over the last 2 years. While there are always quarterly movements due to working capital, investors should expect Unity to continue to convert an extremely high percentage of our adjusted EBITDA to free cash flow, highlighting the cash flow generative nature of our business.

Our balance sheet remains strong with cash of $1.9 billion and convertible debt of $2.2 billion.

With that, I'd now like to turn to guidance for the fourth quarter. We're expecting total fourth quarter revenues of $480 million to $490 million and adjusted EBITDA of $110 million to $115 million. In Grow, we're forecasting mid-single-digit sequential revenue growth. We expect Vector to continue to drive strong performance, while also experiencing benefits from work we've done to leverage Vector in other Grow products.

In Create, we're forecasting steady revenue growth. Excluding the impact of nonstrategic revenue, our guidance assumes high single-digit year-over-year revenue growth driven by continued strength in our subscription business.

We expect adjusted EBITDA margins to remain stable in the fourth quarter, while revenue growth remains strong and flow-through margins highly attractive. We have some known expense items in the fourth quarter, including Unite, our global user conference. We are also seeing outperformance in create bookings, resulting in end-of-year accelerators for Unity's sales force.

With that, I'd like to thank you for joining us on Unity's third quarter 2025 conference call. Let me now turn the call over to Alex so that we can take your questions.

Thanks, Jarrod. Nicole, I'll hand it to you for questions. .

[Operator Instructions] Your first question comes from the line of Matthew Cost with Morgan Stanley.

In terms of the faster revenue growth for Grow in the second quarter, I was wondering if you could break down a little bit more what the drivers of that were. Is this a function of Vector improving its ad targeting capabilities for people who are already using it? Is it about rolling Vector out to more customers? Were there new customers coming into your ad business entirely? I guess help us understand the moving pieces for that acceleration in Grow in the second quarter -- excuse me, in the third quarter. And then I do have one follow-up as well.

Matt, thanks for the question. Vector AI is proving to be scalable and highly performant. And compared to our prior offerings, what's really important about is it's able to ingest vastly larger quantums of data, more complex types of data with more features, and respond to changes in the real-time marketplace more effectively, and then to learn from those changes. So the self-learning AI continues to improve as we continue to invest in its development and as we continue to invest in the development of the data sets to feed it. So we -- and we believe the road map we have in place, coupled with positive trends in overall mobile gaming advertising spend, is positioning us really well for continued sustainable growth over the long term.

I think as I mentioned in my comments upfront, it's important to note that we're seeing really broad-based strength across all geographies and platforms and game genres. It doesn't mean that that's always true with every single customer in any given day. There's always work to do to optimize, and we are investing and working really hard to do that. But there's nothing at all structural that we see standing between us and continued broad-based improvement for our customers, which is a really powerful dynamic and it's really encouraging. We feel very good about having the infrastructure and systems in place to power continued sustainable growth over the long term with Vector. And we just -- we couldn't be more thrilled with the progress we're making.

Great. And then on the Developer Data Framework and the runtime data, very encouraging to hear about the high uptake of the developer data framework with new customers. I guess how should we think through the impact in 2026 that that data might have? Obviously, Vector in the absence of that data is clearly improving. How big of a sea change might that be? And how should we think through the timing and magnitude of that impact?

The way to think about runtime data is as a multiyear growth opportunity, a long-term advantage for us and a moat. It's -- you shouldn't think about it as like a lightning strike that's going to happen on a particular day. I also think it's probably critically important here to emphasize for everybody that, absent any contribution from run time data, we remain really highly confident in the growth trajectory of Vector, and you could already see that from the progress we're making.

Having said all that, yes, we're really pleased about the launch of the Developer Data Framework in August, as you mentioned. We're pleased with the opt-in rates and the developer reception, and we feel like we have the pipes and the processes and privacy in place. And as more and more games are built in Unity 6, these tools are all going to have an increasingly important impact. We also -- the really positive adoption trends, as you noted, will speed that.

But listen, this is a marathon, not a sprint, which doesn't mean, as the great Jeff van Gundy, the former coach of the Knicks, once observed, it doesn't mean we're not running as fast as we can the whole race. We are. But it's a long-term it's a long-term race. And we're feeling really, really good about the progress we're making.

Your next question comes from the line of Brent Thill with Jefferies.

Jarrod, on the guide for Grow at mid-single digit, you just put up 11% sequential. Maybe just talk through what you're embedding in the guide, why you're expecting the sequential slowdown.

Sure, Brent, and thanks for the question. I think, firstly, just taking a step back and looking back, we're really excited about the progress we've made with Vector. This is sort of the second quarter where we've seen extremely fast, rapid sequential growth. There's nothing looking forward that gives us any pause about where we are with respect to the momentum, where we are with respect to leveraging data to help with model improvements, and our product road map is really exciting as we look forward.

Ultimately, the guide is a function of many things. It's a function of where we are run-rating into the quarter. It's a function of the seasonality that takes place in the fourth quarter. And it's a function of the data that we expect to flow into the model.

We outperformed our third quarter expectations based on where we were when we reported the second quarter. We feel great about where we are. There's nothing to say that our performance will not continue to improve over the course of the fourth quarter and will end up in as phenomenal a place as the third quarter.

So again, on our side, there's no reservation. There's no hesitation. I think we feel really good about the guide and about where we came out vis-a-vis the third quarter.

Just the one thing I'd add to that, Jarrod, and that's well said, is that like, keep in mind, we're not running this business to a quarterly earnings clock. New product rollouts, enhancements, these are things that are organic to the business. They come when they come. The quarter ends on whatever day it ends. It's just not how we're running the railroad.

So I wouldn't read anything into where particular things happen to fall over the course of 1 month or another month. The long-term prognosis for this business is really, really good.

Your next question comes from the line of Alec Brondolo with Wells Fargo.

With regard to the non-Vector Grow business, could you call out some specific points of improvement, maybe ways that you were able to leverage the learning from Vector into other areas of the business? I think you mentioned in the prepared remarks, there was some improvement in the third quarter driven by that. But maybe some specific examples might be helpful for us.

Yes. Thank you very much for the question. We are really excited about the entirety of our ad business. And I appreciate your question because I think we rightly focus on Unity Vector a lot. That is the largest and fastest-growing segment of that business. But we're really excited about the opportunities across the whole segment. And we do have plans in place to incorporate some of the technology and learnings from Vector into our other ad businesses. Now that we are through the launch, the first piece of the launch of Vector, we do have additional cycles to apply to that. It's something we've already begun. We're optimistic about some of the early results we've seen and the scale of the opportunity there over time. And ultimately, our goal is to drive healthy and sustainable growth across the entirety of that business, and we feel great about the opportunity to do that.

Your next question comes from the line of Chris Kuntarich with UBS.

I wanted to ask on the Unity in-app payments initiative here. How should we be thinking about this from the perspective of an incremental monetization opportunity versus more of a value add for your customers?

Chris, thanks for the question. We're super excited about this opportunity, and there was again some news this morning in the space, which underlines just the trend that globally app stores are opening up all over the world as a consequence of legal challenges and other regulations, and just the trends that we're seeing. And that, combined with the increase in mobile in-app purchase spending is really exciting. As we noted upfront, there's this enormous -- there's just an enormous opportunity for Unity to be able to deliver value to its developers, to enable them to manage cross-platform, multi-store their full catalogs and manage payment providers all natively from inside the engine that they're already using to build and operate their live service business.

So this is something we're really excited about. It's something that, as we spend time with customers, I think they're really excited about it. I saw a recent survey that said they thought more than 3/4 of game developers would incorporate alternative app stores into their business model in the next few years. I think that's maybe even undershooting what we're going to see. So it's a real opportunity for us to provide value.

The product is completely free to our users. We'll collect a modest fee that's negotiated with the merchant of record. But that's not really what it's about for us. We do think though that, over time, we'll be able to build new commerce products that deliver more value to the developers and we'll be able to enhance this offering over time, and that can grow into a meaningful product opportunity for us.

But more than anything, the point that we're hoping that folks will take away in our customer set is this is just a perfect example of the kind of product that only Unity can provide, natively, deeply integrated into the tool you already use. And it's, we hope, one big, but not the final step in enhancing our role as a platform across the entirety of the video game space: mobile, PC, ultimately console, and to be there for developers and to help them in what's going to become an increasingly complex, more open world.

Really appreciate that. Maybe just one follow-up. As we think about Vector where it is bidding across various mediation solutions, you called out really strong scalability here, is there any evidence that Vector is going out and bidding more into nonlevel play mediation solutions?

At a high level, Chris, I'd just say that we've seen that Vector is really competitive across all platforms, and we're seeing that continuing.

Your next question comes from the line of Vasily Karasyov with Cannonball.

Congratulations. Wanted to ask for details on the Grow segment growth in Q3. Can you please tell us how the revenue from the solutions, excluding Unity Vector, did in the quarter? And what does the guidance -- your guidance for Q4 imply for that chunk of revenue? And also, if you could, how we should think about that longer term, is it sequential growth, flat? What is like the rule of thumb for us to model it out?

Vasily, thank you for the question. We are not reporting breakdowns in the ad revenue number. So we really can't get into that. I would say that in general, we couldn't be more thrilled with the progress we're making across the entire segment. We're seeing really positive trends across all of our ad businesses. And we expect that number to grow over time. But beyond that, I don't think we want to comment too much.

Your next question comes from the line of Andrew Boone with Citizens.

Matt, in your prepared comments, you spoke about empowering any creator, not just software developers. Can you flesh out that comment and help us understand kind of the bigger picture strategy and the product road map as generative AI becomes more impactful?

And then, Jarrod, is there anything on the cost side that we should be aware of as we think about 2026? It sounds like you may have some opportunities here. What does that look like?

Yes, I'll take the first part, and Jarrod, you can follow up, and thank you very much for the question. Here's what I was getting at. The DNA of Unity is around this -- has always been around this notion of democratization of game development. And what that meant 20 years ago was we provided a set of tools and technologies and the platforms that enabled -- any software developer will be able to get into the games industry. And our dream was that like -- and that was impossible before because you could not -- unless you were a really big scalable business, you couldn't invest in what was required to make that real.

And the dream of the founders of Unity was one day an individual sitting in his or her living room could build a game that millions of people could play. And that dream has become more than a reality. And that's sort of the thing that's at the beating heart of what we do.

And what we're seeing in the kind of next turn of the wheel here is that AI technologies are going to allow us to make that game development process ever more accessible, which is going to impact not just our professional game developers, who are going to be able to build more efficiently and effectively, and as I mentioned, especially for the professionals, will give them additional cycles to create great things as they spend less time mired in the just kind of getting to the start line, which is a significant challenge for game developers. When you're launching a new game and you look at what else is in the market, you often think, okay, first, I have to build all the features and functionality that exists in the competitor games in the marketplace, and then I have to go figure out how to innovate on top. And you spend so much of your time in that initial piece that you often have not much time left for the innovation piece.

And so we think for the professional developer, we're going to be able to provide tools that help them move more quickly through some of those routinized tests and enable them to spend more time on the innovation piece. We think that's going to have a really important, and already has had a really important, impact on the marketplace.

At the same time, this dream of democratization is going to become more accessible. Whereas before we were just hoping that we have software developers become game developers, I think what we're going to see is the Unity tools that we're going to provide are going to make it more and more accessible for nondevelopers and just regular content creators to be able to create interactive experiences, and then -- as an initial matter. And then take those experiences as far as they want them to go inside the Unity ecosystem.

What I was talking about in the remarks about interactivity is one of the things we have learned, I think, from years of building interactive applications is that engagement is the coin of the realm, engagement and time spent. And whenever creators are looking to enhance engagement and time spent, ultimately, they move to interactivity as the solution. Interactivity creates more engagement, creates more social interaction. It's what -- it's sort of -- it's what content creation ultimately is all about.

So the combination of the democratization of the tools, plus more interactivity across more different content types is something that we're really, really excited about, and we think we have a really important role to play.

And just following up on the second part of your question, Andrew, on the cost side. We're excited about the progress we've made so far this year. EBITDA margins are up 200 basis points year-over-year and sequentially in the third quarter. They're up 400 basis points from the beginning of the year.

What we've seen is operating leverage across the business, and we are blessed with extremely high gross margins. Gross margins at Unity are about 82%, 83%. Contribution margins are dramatically higher than that. There's a significant portion of our cost of goods sold that are actually fixed.

What that really means for us, looking forward into 2026, is that we can expect to benefit from the revenue growth that we expect in the form of significant operating leverage. If you look back over the last couple of years, we've had to battle against operating deleverage from the simplification and streamlining of our business. The opposite is going to happen looking forward in 2026. When you combine that operating leverage with cost discipline and our ability to leverage AI and automation to improve our business, we really think there's the potential to both expand margins and invest in some of the really important product initiatives that Matt has been laying out.

We think there's a huge organic growth opportunity in our industry. We think we're really blessed with the assets that we have. I think when you think about elements like IP, when you think about collaboration, when you think about some of the data that we uniquely have access to, we think that we can expand the margins of the business while also significantly investing in the product opportunity, really resulting in a nice setup for 2026 from a margin perspective.

Your next question comes from the line of Dylan Becker with William Blair.

Matt, maybe going back to the idea of in-app purchase monetization. I think the opportunity there is fairly clear. But wondering as well kind of the economics of that shift to a third-party payments provider, how that impacts your customers, the publishers, the studios themselves, right? Is that something that's going to be flowed through 100% to kind of their bottom line? Is that something that they're going to redeploy? Maybe lower [ Grow ads ] threshold, maybe they accelerate content creation? It feels like there are other indirect ways that that can be valuable and accretive to your business. Just wondering how you guys kind of think through the indirect opportunity there as well.

Yes. I think from the perspective of the developer, Dylan, the way to think about this is they're going to recapture some margin taking over more responsibility for their own commerce. But they're not going to recapture all that margin because there are things to do, right? To your point, they've got to be more responsible for processing payments and they've got to do some promotion to potentially encourage customers to move to their commerce solution. So there are ways that both costs and promotional costs that chip away at that.

Having said all that, there's meaningful money left over. And we have, I think, on prior calls, talked about the fact that we believe that a lot of that leftover margin is going to be turned into fuel for growth. That's what companies do. If they can continue to buy [indiscernible] positive advertising to drive growth, that's what they're going to do. And when your business gets more profitable, that's the first thing you're going to think about. And so we expect that to be, over time, I think a real positive for the -- for us and for the industry as a whole, frankly.

And then as we talked about on the commerce side itself, we're just -- we're excited about the opportunity to be an open partner to the developer and to help the developer navigate where it's going to be an increasingly complex hybrid world as it relates to commerce and transactions going forward?

Your next question comes from the line of Benjamin Black with Deutsche Bank.

I'm curious, is there anything you're seeing in the performance of Vector and the Unity ad network today that may change your strategy to potentially go after the larger e-commerce or web-based advertising opportunity earlier?

And then a follow-up on the Runtime, just looking beyond data retrieval. What other steps are necessary for the data to be distilled, to be put to work? And when next year do you think we should start seeing sort of the early innings the impact on the financials?

Ben, thanks for the question. I think over the long term, we're really bullish about the opportunities outside of gaming in the advertising space. We are primarily focused on the gaming market. It's what we know best. We think it's what's most valuable for our customers and our partners. But we are mindful of the opportunity over time.

As I think we've shared before, our first foray into non-gaming revenues is more associated with programmatic advertising. And we're excited about the opportunity in programmatic. We think we can create a more efficient, really [ apparent ] path for brands to bid on mobile gaming ad opportunities and to enrich that path with additional data that they have not had before to create better outcomes. Programmatic ads is something like a $700 billion in ad spend in 2026, is the projection. So there are real opportunities.

And we think that spend is going to move more from the traditional open web into other environments like CTV and retail media. And we think with the scale that we're operating in, combined with the privacy-safe way that we can help advertisers access the mobile customer, we think there's a real opportunity here. We made a really big hire in this space last month. We launched a product, we call the Audience Hub, which is kind of our first foray into helping brands of all types reach this new audience. And we've recently seen that campaigns powered by our Audience Hub are delivering meaningful lifts in engagement rates.

So we're pretty excited about that in non-gaming. And then we'll think about e-commerce potentially next, but it's not something we're -- that's really closed in for us.

The question on Runtime?

I'm sorry, go ahead, if you want to -- you want to reiterate? Or I can...

Yes, go ahead.

Listen, as I said, the Runtime opportunity is going to be meaningful for us. We think it's unique to Unity. And it is something that is -- it's not a science project, although I get it's a little bit of a science project, but it is an applied science project. And it's one that we're working really diligently on, and we're really, really pleased with the progress we see.

And we're very bullish on the idea at a high level that, one of the things that makes Unity really interesting, by the way, in all parts of our business is that kind of unique among both gaming platforms, but also app platforms, we are operating horizontally, tens of thousands, hundreds of thousands of applications that are connected by our Runtime, billions of consumers. And the opportunity to understand, help our customers -- our developer customers understand the game player customer, the app user customers better and to help make user acquisition where efficient, we think is an extraordinary one.

Your next question comes from the line of Eric Sheridan with Goldman Sachs.

Maybe ask one bigger picture one and then I'll bring it back to the P&L. When you think about the scope to apply greater and increased levels of compute capacity to your business over the next 3 to 5 years, how do you think about your line of sight into that capacity and the step-function changes that increased compute could actually lead to in terms of second and third derivative order effects of how the business could scale and grow in the years ahead?

And the second part would be, with that potential on the revenue side, how do you think about any offsetting impacts on margin as compute capacity also scales as well?

Thanks for the question, Eric. I think what's exciting about our business is that we see opportunities on all sides of that. As the cost of compute goes down and we become more efficient, despite the fact that we will do -- our business will grow, especially on the Grow side, we believe over time, that as a percentage of the cost of -- our cloud cost costs are going to continue to go down and the efficiency that will enable that, even though we'll be working with ever greater quantum of data and even though we'll be working on increasing more inference, that that ultimately is going to be a real positive for our business.

At the same time, that trend is also going to be, we think, long-term positive for our Create business, as we talked about, as the expansion of the number of creators who are building games and using Unity, who are increasingly using compute-intensive solutions to do that. again, as that efficiency continues to rise over time, we just -- we hope and expect that there will be no sort of friction to more and more people using our tools and platforms to build content, which we think is going to be great for our business.

Yes, Eric, I would just add on to that, which is to say that cloud cost for Unity today are the second largest cost in our business. You would have seen that in the third quarter, our cost of revenue would have increased, and that's really directly in line with the very significant growth that we experienced in our Grow business. We are not afraid of building our business where it is computationally intensive for a period of time. Because what we found is that, over time, we are able to make that consumption of compute much more efficient, much more effective.

The cloud providers are doing a great job of driving efficiencies over time, reducing unit prices to us, and our developers on our side are becoming much more effective and efficient in terms of the way that they are consuming compute, effectively commoditizing layers of compute on a very regular and recurring basis. So we're not afraid of getting more advanced in terms of the consumption that we use because we know that this is going to go down over time in terms of cost to serve.

Your next question comes from the line of Martin Yang with Oppenheimer.

I'm curious about your prepared remarks comment regarding China. Is there anything different that's happening in China where you see momentum, there are very unique aspect of the ecosystem, in automotive and mini apps, anything worth elaborating on in China for our business?

Yes, there's actually a lot to elaborate on there. So Martin, thank you for the question. China has been a real bright spot for us. And it's no accident. Unity is the only platform that works seamlessly with all of the Chinese platforms, including Open Harmony, which is increasingly becoming the standard for mobile in China. So we have a really important and growing business there. As I think you know, China is the largest market for gaming in the world, I think, at this point and is growing really, really quickly. And we're really well positioned there on the gaming side having been there for quite some time, and again, having worked really hard and well to ensure that our technology is compatible and will be compatible over the long term, lots of big-hit games in the Chinese market or made with Unity.

At the same time, on the industry side, Asia has been a real bright spot for us, particularly with respect to automotive, where the vast majority of the automakers in Asia are using Unity's technology for in-dash -- for their development of their in-dash experiences, for example. We've also had a lot of penetration in our industry team across more manufacturing businesses in China. Lots of work around visualization of factory floors and the like. So China has been and we hope will continue to be a real bright spot for our business.

Martin, I would just add to that. When you look at our Chinese revenue, which we do disclose, it's improved from 15% of revenue to 20% of revenue over the course of the past year. That's a pretty broad-based increase in terms of the revenue growth. So that is both impacting our Create business, which Matt outlined in detail. But what we're also seeing is publishers of Chinese games leverage Unity for global user acquisition. And as Unity Vector improves its efficacy, that is a global phenomena, and we are seeing that growth in China take place across both Grow and across Create.

We're also seeing that as Unity is delivering a quality product, our ability to enforce our intellectual property is resounding with clients. Customers understand that we're providing a high-quality product. They're paying for that high-quality product. And that's also resulting in strong growth in China and globally in Asia.

I have a follow-up on the publisher experience, because the Unity Engine in China is a bit different from the Unity Engine elsewhere. How do the publishers use Unity ads differently as they're on a different engine? Is there anything unique about their experience?

No. It's, from the ad perspective, it is pretty straightforward, and for all important intents and purposes, the same.

Your next question comes from the line of Tom Champion with Piper Sandler.

I just wanted to pick up on the last question related to China. It did look like a lot of the year-over-year growth on a dollar basis came from China. I'm just curious, Jarrod, maybe you said that was balanced across Create and Grow. But if we looked at growth on the Grow side on a geographic basis, would that look a little more balanced than maybe it does in aggregate? So that would be the first question.

And then, Jarrod, I'm wondering if you could just touch a little bit on capital allocation. It seems like you've got an awful lot of cash and really nice free cash flow generation here. What's kind of the thinking on capital allocation going forward?

Yes. Thank you for the question. I'll just make a brief comment and then I'll pass it over to Jarrod. The revenue growth in Create really has 3 principal drivers this -- in the third quarter. The first one was the impact, the ongoing impact of the price increases that we've had, which are beginning to roll through, now been a couple of quarters, so beginning to roll through the P&L and will continue to do so over the course of 2026. As you pointed out, growth in China is a meaningful piece. And then also more broadly, more generally outside of China, the growth in our industry business as well. And that -- it's really those that are driving the really positive results in Create.

Yes. I think that's absolutely right. And I think when you look at -- we did talk about a very large customer win in the second quarter. So that's important to sort of call out with respect to China.

You're correct on the capital side, Tom. I mean we've been doing a great job in terms of generating cash. Cash has gone up by just about $0.5 billion over the course of the past year. Some small component of that is from financing and the refinancing transaction we undertook in February, but the best majority of that is cash flow from operations and really high free cash flow conversion on EBITDA.

Look, from a business perspective, what we're doing right now is focusing very sharply. We think that there are product opportunities that are organic to our business that really require our full attention. We do have some refinancings prospectively that we will undertake and some converts that are coming due, but there's nothing we need to do in terms of additional capital raise to meet those obligations. And I think we are going to absolutely be keeping our eyes out for potential acquisition opportunities, but there's a very high threshold and a very high hurdle for us in consideration of the strong product opportunities and organic growth opportunities that we're seeing in front of us.

So thrilled with the cash generation. I'm going to be very savvy with respect to how we think about that capital so as not to distract us from what we think is an improving and really attractive organic growth opportunity in front of us.

Your final question comes from the line of Clark Lammin with BTIG.

We dug into a lot of sort of very specific things on the product side and sort of Unity specific. Maybe if we pull back and sort of talk about the mobile market for a second, I wanted to see if you guys could provide some perspective on the way that products like Vector and what some of your peers have released are really impacting the market and developer spend. It sounds like financing companies are stepping in to sort of provide more ubiquitous capital to the market. Are we in a phase right now where you think the market is improving, capturing momentum, and that's likely to continue into 2026? Maybe help us think about, I guess, the sort of systematic backdrop and how that's improving alongside the product work you're doing.

You bet. Thank you for the question, Clark. We're really bullish on the growth of the games business as a whole, not just the mobile business, which we feel really good about, and we think is going to grow, but also the business as a whole. And I know there has been certain kind of targeted spots of difficulty in this market. I believe that we are at a fascinating mode of kind of creative destruction in which the games business is resetting and reimagining itself, but it's going to do that in the context of growth.

And as I talked about upfront, the explosion of really amazing new games, which we're already seeing, which is going to accelerate markedly in the months and years ahead is going to put the importance of AI-driven discovery ever more in the forefront. So to the extent that we can help developers sort through and publishers sort through what is a difficult market from their perspective, because there's going to be so much more content and it's going to continue to be more and more competitive, it's a very competitive marketplace. So we think we have a role to play in helping our customers take advantage of that growing pot, by providing them better and more effective and more efficient tools both to acquire new customers but also to better manage the customers they have, which is why we're so excited about where we sit in the games industry right now.

Everybody is -- most of the other participants in the games industry are very vertically focused, on one kind of game or on one platform or one set of devices. We exist horizontally across all of them and are only interested is in doing everything we can to make sure the ecosystem is healthy and that developers can continue to build their businesses, and we're able to help them across the entire life cycle of their businesses, from prototyping games through operating those games in live service, figuring out how to optimize revenue engagement of the games that they're operating on an ongoing basis, and then helping them acquire new users.

And to the extent all of those activities become increasingly driven by AI and increasingly driven by an understanding of consumer behavior, the fact that the pieces of what we offer are tied tightly together around those 2 things is going to be really meaningful for us over time. And we're -- so we're really excited both about the growth of the market and the role we think we have to play in.

Okay. And if I may ask, I guess, just a very quick sort of Vector related follow-up. In prior quarters, you talked about sort of returns, dispersion between your customers and some experiencing sort of better performance than others. Has that narrowed of late? Or are you seeing sort of a tighter band right now and sort of higher relapse on average for all customers? Or is it sort of maybe moving in the other direction and we should think about growth being driven by a smaller handful maybe of larger customers that are leaning into this a lot more aggressively? I'm just curious, I guess, how that sort of evolved and what you've seen.

You bet. No, we are seeing broad-based improvement across all of our customer sets, small and big, geography, genre, the improvements are really quite broad-based.

This concludes the question-and-answer session. I will now turn the call back to Alex for closing remarks.

Thanks, everyone, for joining. We look forward to connecting throughout the quarter. Have a great day.

Ladies and gentlemen, thank you for joining us, and welcome to the Unity Technologies Q2 Earnings Call. [Operator Instructions]. I will now hand the conference over to Alex Giaimo, Head of Investor Relations. Alex, please go ahead.

Thanks, Nicole. Good morning, everyone. Welcome to Unity's Second Quarter 2025 Earnings Call. I'm joined this morning by Matt Bromberg, our CEO; and Jerry Yahes, our CFO.

Before we begin, I'd like to note this conference call includes forward-looking statements, including statements about goals, business outlook, industry trends, expectations for future financial performance and similar items, which are subject to risks, uncertainties and assumptions that could cause actual results to differ from those expressed in these forward-looking statements. We undertake no obligation to update any of our forward-looking statements. For more information about factors that may cause actual results to differ, please refer to the risks described in our most recent Form 10-K particularly in the section entitled Risk Factors as updated by additional filings we make with the SEC from time to time. Today's call will include both GAAP and non-GAAP financial measures.

Non-GAAP financial measures are in addition to and not substitute for or superior to GAAP results. A full reconciliation of GAAP to non-GAAP financial results is available in our earnings release which can be found on our Investor Relations website and on the sec.gov website. With that, I'll pass it over to Matt.

Thank you, Alex, and good morning, everybody. On behalf of everyone at Unity from across the globe, I'd like to thank each of you for joining us today. It's a distinct pleasure and a privilege for me to showcase our team's progress each quarter. After a full year leading this company, my enthusiasm about the opportunity we have in front of us has never been more profound. We believe that the second quarter of 2025 will be remembered as an inflection point, where accelerated product innovation and enhanced delivery of customer value came together to spark demonstrable sustainable growth, led by the full emergence of Unity Vector, which has far exceeded our expectations at this early stage of its development.

Strength in the second quarter across both grow and create helped drive results that once again exceeded expectations, substantially beating the high end of our guidance for both revenue and adjusted EBITDA. Let's begin in the Growth segment. To fully understand our enthusiasm, it helps to narrow the focus a little bit. Vector led performance inside the Unity ad network sparked 15% sequential revenue growth in the second quarter, growth which we are seeing continue into the third quarter as well. You'll recall, we anticipated some softness across our other ad products during Q2, driven in part by redeployment of technical and go-to-market resources towards the launch of Vector. And that dynamic did indeed temper the impact of the Unity Ad Networks growth on the overall ad segment revenue in Q2.

However, we're anticipating that the third quarter will evidence a very different trajectory for 3 primary reasons: First, we're now seeing clear stabilization outside of the Unity ad network as product enhancements and greater operating discipline bring results back into line and we begin to spread our AI-driven capabilities across our broader ad portfolio; second, the Unity ad network now comprises approximately half of total grow revenue. And we expect that percentage to continue to increase. As a consequence, our fastest-growing product should have a greater impact on overall results in the quarters ahead; and finally, we're seeing continued increases in the value that vectors bring to our customers as we continue to invest in the development of the quality of our AI.

Last quarter, we talked about the 15% to 20% lift we are seeing in both the volume and quality of new users delivered through Unity Vector. In the second quarter, those results continue to climb. We now believe that the combined impact of these 3 factors should drive mid-single-digit sequential growth across the total combined growth segment in the third quarter of this year. It's worth taking a moment to understand precisely how delivering strong results to our partners translates directly into a willingness to scale spend with Unity. Remember that performance advertisers are not allocating budget in the traditional sense nor are they necessarily pulling share from competitors. Performance advertisers consistently increased spend up to the limit of their return requirements all the way across the efficient frontier.

We are already working with 85 of the top 100 mobile games in the world. And as we strive to deliver better returns, we expect our partners will continue to invest in growth and our business will grow alongside. We also anticipate that sector will move from strength to strength in the years ahead as the quality and efficiency of the AI that powers our performance engine continues to improve. And we continue to extend Vector's capabilities to enhance some of the other ad products in our portfolio. The increasing confidence we have in the future of our business is actually partially derived from the fact that we've not yet tapped into our biggest competitive advantage. The deep consumer understanding, we possess by virtue of Unity's position as the operating system for games globally.

Unity is the leading provider of the software used to build, distribute and run gaming applications used by billions of consumers worldwide. 70% of the top mobile games in the world are built on Unity. In our advertising business, this unique vantage point will provide our Vector AI engine access to new and highly differentiated behavioral data will provide a significant potential future catalyst for enhanced performance and growth. We anticipate seeing the impact of our work in this area beginning in 2026 and extending well into the future. As excited as we are today about Unity we're equally sure that this is just the beginning. The foundation for this next generation of Unity is being launched this summer with the release of Unity 6.2, which includes the introduction of the developer data framework.

The developer data framework is a unified system featuring privacy dashboards that allow developers to control how data is collected, shared and used in the production and operation of the interactive applications they build with Unity. This launch marks a critical step to ensure transparency, safety and privacy as we improve the quality and utility of the tools that game developers use to build and grow their audiences. Since we're discussing Unity UT6 [indiscernible]. Let's take the opportunity now to transition to discussion of our Create segment, where a transformation in the way we build and support our software is now well underway. Our rededication to quality, stability and improving the developer experience is catalyzing strong financial results and create, including another quarter of double-digit subscription growth in Q2.

We're also seeing momentum around the continued adoption of UT6, the most stable and performant version of Unit we've ever shipped, which has now registered more than 6.6 million downloads up 50% from last quarter. The transition we're making from Unit 6 from prior versions is taking place quickly and far more smoothly than at any previous point in our history. The beta feedback we received for the Unity AI and 6.2, which is still in very early stages of development, has been both positive and extraordinarily helpful. With Vector now successfully underway, you'll see us substantially ramping our ambitions for the role AI will play in the core Unity content creation experience. Within the financial parameters we've already established we're making significantly increased investments in talent and product in this area and expect to be talking about it much more in the quarters ahead.

Just as data from applications that are distributed on the Unity run time have the potential to provide a long-term competitive advantage in our ad business. Data from applications developed in Unity will enable our AI to transform the content creation experience leveraging our awareness of each product, in each project to predict the needs of each developer, transforming the way content is built and powering the future of our Create business. As Unity reconnects with its customers and community and fully embraces the role it plays as the operating system for games, the opportunities available for partnerships in Create also move into new territory. This quarter, we were proud to announce major multiyear partnerships with Tencent, one of the largest developers and publishers of games in the world and Scopely creator of one of the world's top grossing mobile games on Monopoly Go.

With Tencent, our expanded multiyear partnership will keep Unity at the core of some of the most popular multiplatform titles in the world for many years to come. It also highlights the continued strength of our business in China. The largest market for games in the world. We are the only company we know of, able to support development seamlessly across the entire ecosystem in China, including with open Harmony, a rapidly growing mobile operating system in that country. With scope, we're embarking on a new multiyear agreement that includes a long-term technical partnership across both Create+Grow designed both to support the growth and operation of scope lease games as well as to improve the Unity engine for all of our customers. On the platform side, we announced an exciting multifaceted partnership with Nintendo, who is experiencing tremendous success with the launch of the Switch 2.

Our collaboration ensured that Unity 6 will be fully optimized on day 1 for the release of the Switch 2 so that Unity could play a foundational role in the growth and support of Nintendo's ambitions for third-party game development, commerce and live service operation on their platform. These new partnerships are not built around selling seats. Rather, our goal is to create new business opportunities for our partners by leveraging our platform and portfolio of products in new ways. And finally, on industry. We remain extremely excited about the momentum we are seeing outside of gaming, which once again was our fastest-growing subscription business, increasing sequentially for the tenth straight quarter.

In automotive this quarter, we announced a deepening of our relationship with BMW, who uses Unity Asset Manager to power its groundbreaking 3D asset management platform globally. Unity's 3D technology has also been integrated into the Mercedes-Benz operating system to enhance the in-car experience of the new Mercedes-Benz CLA. In health care, [ Specta ] Medical is redefining presurgical planning and patient communication through immersive 3D visualization tools built on Unity. The use cases continue to expand and we're more confident than ever in the long-term growth opportunity across a broad range of categories and applications.

I'd like to thank all of our teams globally for their relentless effort as we transform Unity and earn our customers' trust each day and express our continued gratitude for the support of our partners and our community worldwide. We believe Unity is just one of a few companies in the world poised to benefit from the incredible opportunities that abound at the intersection of AI, digital content creation, digital advertising and interactive entertainment and all of us here are dedicated to making that future a reality. Thank you again for your time and attention this morning. With that, I'll pass it over to Jarrod for an overview of our financial performance. Jarrod?

Thank you so much, Matt, and good morning, everyone. I'm pleased to report that Unity exceeded the top end of our guidance on all measures in the second quarter. Revenue exceeded the top end of our guidance by $16 million with adjusted EBITDA coming in $15 million above the top end of our guidance. Grow revenue in the second quarter was $287 million, down 4% year-over-year and up 1% sequentially, with revenue upside compared to our guidance, driven by strong performance from the Unity ad network, where we are seeing significantly better results than expected at this early stage from Vector. As expected, the growth of the Unity ad network was partially offset by declines in other ad products. In Create, revenue was $154 million, up 2%, both year-over-year and sequentially, reflecting strength in our subscription business, which once again delivered double-digit year-over-year growth in the quarter. I'd also like to remind investors that we lapped $21 million in nonstrategic create revenues as compared to the second quarter of 2024.

Adjusting for the nonstrategic revenue grew at 16% year-over-year in the second quarter. Nonstrategic revenue in Q2 2025 was minimal, and we expect it to remain so moving forward. Turning from revenue to non-GAAP profitability. Adjusted EBITDA for the quarter was $90 million, representing 21% margins. Adjusted EBITDA exceeded the high end of our guidance, driven by continued operating leverage in the model from faster revenue growth, combined with tight controls around headcount costs and cloud spend. Our aggressive stance on improving efficiency is also allowing us to simultaneously invest behind high-impact initiatives such as driving an aggressive road map around Unity Vector and incorporating AI throughout the editor experience.

We continue to see opportunities for further margin expansion and operating leverage over time, particularly as we scale and grow our ads business. Unity had record free cash flow in the second quarter, coming in at $127 million and representing an improvement of $47 million year-over-year. partially driven by larger restructuring payments we incurred last year. The dramatic uptick in free cash flow from the first quarter was driven by strong profitability combined with the timing of publisher payments, which were concentrated in the first quarter. In terms of our balance sheet, cash at the end of the quarter was $1.7 billion and convertible debt was $2.2 billion. With our strong free cash flow profile and modest leverage. We have an extremely flexible capital structure that allows us to invest against our key initiatives to drive accelerated organic growth for shareholders.

With that, I'd now like to turn to guidance for the third quarter. We're expecting total third quarter revenues of $440 million to $450 million and adjusted EBITDA of $90 million to $95 million. In grow, we expect mid-single-digit sequential revenue growth driven by continued performance in the Unity ad network where the strong momentum has continued into Q3. And Outside of the Unity ad network, we are seeing stabilization and expect sequentially steady revenues from Q2 to Q3. As Matt mentioned, the Unity ad network now represents about half of total grow revenue and we expect that percentage to grow over time. In create, we are forecasting a slight sequential decline from Q2 to Q3 due to the impact of a large customer win in Q2.

I would note that excluding the impact of this deal, our strategic create revenue is expected to be up in the third quarter from both Q1 and Q2 as well as up high single digits on a year-over-year basis. Our adjusted EBITDA guidance factors in the deliberate controls we're implementing around G&A and R&D spend, including efficiencies we're driving around cloud spend. Unity is also just starting to benefit from improved operating leverage supported by adjusted gross margins of 83%. The return to revenue growth with high adjusted gross margins combined with a lean operating structure, should result in expanded operating margins over time, even taking into account aggressive investments in Unity Vector, AI and other high potential R&D investments.

With that, I'd like to thank you for joining us on Unity's Second Quarter 2025 Conference Call. Let me turn the call over to Alex so that we can take your questions.

[Operator Instructions]. Your first question comes from the line of Matthew Cost with Morgan Stanley.

Is there a potential to expand the strength that you have on the Unity ad side to the other products that grow I guess, is there anything preventing you from taking the technology that's driving the stronger performance at Unity ads and just deploying it across the rest of the growth portfolio? And then I have one follow-up.

Matt, thanks for the question. Unity Vector is a highly modular system, and there is nothing that prevents us from taking that -- taking that modular system and using it to improve select parts and in fact, maybe sometimes significant parts of our other end products.

Great. And then in terms of just the rate of improvement with vector. I mean it's been a sort of a fast deployment over the course of the year. I think it was in May that you rolled it out across Unity Ad. Vector was fully rolled out there. But vector itself. What is the pace of improvement that we can expect from Vector over time? It seems like we're not even necessarily going to see the benefits of run time data until 2026. So I mean how much low-hanging fruit is there left to drive these sequential improvements just in the performance of the model.

Yes. Listen, Vector was a really important inflection point for our business, and we implemented what was effectively a generational upgrade of our capabilities, and we move them to a brand-new neural network-based platform it's more powerful, it's more versatile, it's more scalable than our old systems, which means that it can handle more data, can handle more complex types of data and it can respond in real-time to changes in data. So these are capabilities that will continue to grow as the model continues to learn. Because we can process more features, both dense and spares, and we can find important signals and what would otherwise be a vast sea of noise for us. So we expect that this investment, which, to your point, is really a [indiscernible] beginning will continue to provide lift for us for years.

And indeed, even in the immediate term, we are already seeing lifts above the 15% to 20% improvements that we saw in installs and user value last quarter. But again, these are -- and these are quarter-to-quarter moves. But to your point, this is a long-term shift that we think is going to transform our business for many years to come.

Your next question comes from the line of Brent Thill with Jefferies.

Matthew, on grow, maybe if you could just characterize the next steps you're going to take in the evolution of the product. What areas -- are you pleased with what areas would you like to see more improvement. How do you characterize the next chapter, if you will, over the next few months for the rollout of the solution?

Yes. As we've indicated and Matt pointed out, we are still very, very early in the process of rolling Vector out. And we have what we think is an extraordinary team investing in improvements and aiding the learning process for AI. And again, very, very early for us. So what the future looks like is we continue to invest, and we're going to continue to see improvements over time in the existing in our existing capabilities. And then to your point, as I noted in my preparatory remarks, we really believe there's also another inflection point for us that sits out in the future where some of the natural structural advantages that we have in the marketplace having to do with our position as operating system for games globally as those insights into consumer behavior, on the billions or billions of consumers that are using made with Unity applications, as we begin to bring that insight into our AI, we're going to see enhanced performance.

And as we indicated, we expect to see that beginning in 2016 and then continuing out for many, many years to come. But in a way, this is what's so exciting for us very, very early on to a major transition, merely seeing enhance preference, enhanced spend and still at the very beginning of a technical development road map and not yet having taken advantage of some of the unique position that we have in the marketplace. So that's sort of what accounts for our great enthusiasm in the business.

Okay. And just a quick follow-up maybe for Jarrod. Just on the perpetual deal in Create, can you just describe what happened there why that's not recurring? What you saw there that maybe just doesn't is an anomaly. Give us a sense of the color that the background.

Sure. So we're excited about some of the larger partnerships that we signed during the quarter. Matt mentioned several of them, namely Tencent, Scopely. There are several others that we didn't mention by name. Those contracts are fairly far-reaching. They touch multiple parts of our business. And there are some elements of those contracts, where by virtue of the way that they are structured. There is an upfront recognition of the revenue component of them. with the majority of that revenue being a traditional SaaS-based subscription revenue that continues to benefit the business over time.

We felt necessary to call out as one component of one of the contracts. It is less than the totality of the contract by far. It's a small component of it, just because it did positively benefit the second quarter and wouldn't continue on into the third quarter. As I mentioned, the Create business continues to see strength on strength, double-digit subscription revenue growth, 16% growth year-over-year of the strategic revenue increase. So we're feeling really good about the growth and create with and without this particular element of one of the contracts.

Your next question comes from the line of Andrew Boone with Citizens.

I wanted to go to grow guidance. You guys talked about an improvement in the non Unity ad portion of the business in terms of kind of stabilization there. If I think about kind of mid-single-digit growth. Does that imply that Vector gains or Unity ad gains are slowing as I think about 3Q compared to 2Q. Can you guys just break that apart? And then, Matt, as I think about the data potential of you guys incorporating more data in the data framework that's coming out with 6.2, can you just help us understand how whole customer conversations are going in to members of including more data within your ad products.

Yes. Let me take the second one first, and then Jarrod will take your first question. The importance of the developer data framework. Andrew, is the interaction around what data is shared and how we use it and is we're putting that control completely in the hands of customers, and we're doing it in a highly automated fashion in a way that's deeply integrated into the product. So the sort of mental model you want to have here is not lots and lots of conversations with folks all over the world, but rather just as with every other technology product that customers interact with in the world, there are toggles and menus where you could control what data you share with us and how we use it.

And folks will have different protections about that. But conversation is not really required. And that's really the goal here. It's just to completely normalize this, to put control into the hands of our customers and allow them to work with us in whatever way they'd like -- and just to the second part of your question on the growth guidance, we've guided for mid-single-digit sequential revenue growth and grow comparing Q2 to the third quarter and we do expect stabilization in the non-vector part of our ad business, which as we talked about, is about 50% of the business. So if half the business is basically going to be stable from Q2 to Q3, and the aggregate of that business is going to grow mid-single digits, let's call it 5%. What that implies is that there's double-digit growth that we are set up for sequentially in the Unity ad network.

What's exciting about that is we're seeing 10% or more sequential growth on top of the 15% sequential growth we saw the preceding quarter or at least 25% growth inside of a couple of quarters. That's really exciting for us is something that we are truly pleased about in this early stage of Vector's development.

And just to add, we are not expecting to break that number out every quarter as we go forward. But we thought it was important to do it this quarter just so you could understand the drivers of what we're seeing and understand our enthusing about the direction of the business.

Your next question comes from the line of Vasily Karasyov with Cannonball.

Wanted to follow up on what you said earlier on the call here. I think you mentioned that you see a strong growth in installs. So can you help us understand what it is that you're seeing Unity Vector doing differently? Is it finding more impressions? Is it finding impressions that are underpriced? Are you seeing more installs per 1,000 impressions bought. So would appreciate you if you could help us dimensionalize this.

Yes. So the short answer is yes. Which is to say, we are seeing broad-based improvement against all of the drivers that indicate we're delivering more value to add customers. And again, the best way to gauge that is just to gauge continued increased enthusiasm on spend. And it's really that simple. These -- our models will continue to improve as we continue to invest in the quality and efficiency of the models. And as we continue to provide more and unique data signals over time. That's a kind of process that we feel really comfortable with.

Quick follow-up. Is the take rate changing compared to Unity ads?

No, as we're not seeing sort of material shifts in the way we're thinking about take rate and installs. We're seeing broad-based growth in installs and value per customer. with no significant changes in the margin profile of the business to generate net revenue.

Your next question comes from the line of Tom Champion with Piper Sandler.

This is Jim on for Tom. Curious on the China piece. It looks like the revenue by geo, there was sort of a big sequential step-up in China spend. Is this vector related or something else?

Let me take the first part of that, and Jarrod, you can jump in on the second part. We're really excited about the opportunities we have in China, as I mentioned. And the vast majority of that activity is really related to improvements in our core create business where we've expanded our relationships with some major customers in that space. and where the utility of the Unity engine and its ability to work across all the platforms in China are really kind of starting to take root to help us grow that business.

Yes. And Jim, I would just add to that, that our business in China was up about $20 million sequentially, which is truly very exciting. Some component of that growth was due to growth in the element and other parts of the growth was due to growth in grow. And so we are seeing broad-based growth in China across both the platform side of our business as well as the advertising side of our business.

Great. That is helpful. And just a point of clarification on the 49% for Unity ads. Is this solely the DSP?

Not exactly sure what you mean, Jim, but this is the entire Unity ad network component of the Grow business. The other portion of the growth business that is not related to the Unity ad network is the piece where we are later to introduce vector, and that comprises a number of different ad products. So I think the Unity ad network is really the DSP side that you're referring to.

Your next question comes from the line of Alec Brondolo with Wells Fargo.

Maybe I'll say, I think the debate on the stock this morning is the extent to which the better Unity ad network growth in the second quarter what's cannibalizing Ironshore spend as opposed to incremental to kind of like Unity corporate or the business overall. And so maybe any thoughts on that concept kind of incrementality relative to cannibalization would be helpful. And perhaps a sense check on your level of confidence that as iron source or the non-vector portion of grow revenue starts to stabilize, we won't see a deceleration or deterioration in the improvement in the rate of growth of the Unity ad network. That would be super helpful.

Yes. I'll take a piece of that and Jarrod, if you have anything else to add, let me know. So we're quite clear that the cannibalization that there is really no meaningful cannibalization impact at all. It's important to understand that our ad products operate in a big, broad competitive marketplace with some of the largest, most sophisticated companies competing every day. It is not Unity against Unity. So spend flows to where the return is. And we estimate that the cannibalization of our other ad network to Unity is less than 10%. So that's just mostly not what's happening. What's happening is that as we continue to increase the value we provide to customers, they will continue to spend and that will drive growth.

I don't think there are any natural structural barriers to that continuing. All we need to do is continue to improve the quality of the AI we use to deliver that value, which we'll do and we'll continue to grow the quality and base of the data that's port.

Alex, I think we've done some detailed analysis around this, and it really supports the number that Matt put out there with respect to cannibalization. I think the other proof point I would look to is as you look to the third quarter, we're seeing ongoing continued significant growth in the Unity ad network and stabilization in some of the non-vector ad elements. And so it's really starting to come through for us, and we're really excited about what we're seeing.

Yes. And just to add, again, part of the reason in my prepared remarks where I spent a little bit of time trying to explain the dynamic with customers. Because I do think there's often this mental model that where folks thinking are thinking about share shifts and cannibalization and other things. And I just don't think that's the best way to understand the dynamics in our business.

Perfect. The 10% data point is really helpful.

Your next question comes from the line of Dylan Becker with William Blair.

Appreciate it here. Maybe Matt, since you called out kind of the content creation side of the equation, I wonder how your view on kind of like the strategic importance of the Create platform evolves around kind of the proliferation of content, particularly in kind of managing quality and relevance and kind of reducing friction around that kind of user and publisher experience, if that makes sense.

So are you interested mostly in sort of the role that AI is going to play and create in terms of helping folks make games? Or are you more interested in the -- but just maybe just clarify from the...

Yes. No, in this kind of proliferation of content, right, the strategic importance that Unity can play in that ecosystem of kind of helping publishers navigate and shift through that to maintain kind of optimal user experiences, if that makes sense.

Yes. I mean, look, one of the things that we're really excited about is how much AI and how quickly I has moved to the center of our future. We've talked a lot about Vector and we talked a lot about how our investments in are driving our grow business. On the create side, the opportunity is also really -- is really enormous. Because remember, as I've said before, Unity's greatest strength is its extensibility and openness. We're the assembly point for folks who create interactive content. We're agnostic as to which tools they use and where 3D assets come from. We're going to be the platform the orchestration layer for AI-led interactive content creation going forward. And the fact that we are context aware of the project, the fact that we're the platform where the project is being built it's going to give us unique insights that will allow our customers both to make games more quickly and efficiently and to be able to apply much more innovation and have much more time to create because we're going to take away over time some of the drudgery and complexity of content creation.

And at the same time, when it comes time for customers to then reach out and grow those games and to find new customers. The fact that the game is being distributed in our run time is going to give us a unique capability to power our AI to enable folks to acquire new users more efficiently and more effectively. We just -- we're extraordinarily excited about sort of how the world is developing around us. And we're really excited to see how having made some investments in core capabilities at the company, we're able to bring those capabilities to bear for our customers over time.

And maybe, Jarrod, I think you had a vector point has kind of been hammered home here as well, too. But as we think about kind of the performance improvements on the growth side of the business, understanding the opportunity to reinvest and really kind of double down on some of those initiatives. But how should we be kind of thinking about the incremental flow through from a margin perspective within the growth side.

Yes. So we spoke about this a little bit in our prepared remarks, but the company is blessed with very high contribution margins. Our adjusted gross margin in the business is 83%. With the incremental contribution margins probably higher than that. We expect fully and are beginning to see meaningful operating leverage in our business. And we've done some of the hard work of getting the cost structure to the right place to make ourselves more efficient, more effective in the way we run and operate the business. to really prepare ourselves for benefiting from that operating leverage as we return to growth. So we're excited about that.

We think there's a lot of potential for upside in the margin structure of the business. And I think we're doing the right things to make sure the cost structure is lean and mean to benefit from the return to revenue growth that we're starting to experience and grow.

Yes, I think it's a great point. And I would just add and amplify that part of what's really exciting about the way the opportunity is laying out for us is that despite making really aggressive investments in everything that we feel like we need to invest in to create future growth. we're seeing substantial and sharp improvement in margins as we go. And that's not always the case. But to Jarrod's point, a combination of making really tough choices and prioritizing what is important to us as a business and some quality execution of our teams around the world are enabling us to have a little bit of have our cake needed to, and that's really exciting.

Your next question comes from the line of Bernard McTernan with Needham.

Great. Just a couple of follow-ups on grow. Wanted to ask on bringing vector to the other parts of the U&D ad network and just simply like when will you know it's the right time to do so? And what do you need to see or what are you looking to see to and eventually make that change from bring it over.

That's going to be -- Ben, thanks for your question. That's going to be a gradual and constant process. As I said, the Vector technology is highly modularized. And so we're going to see opportunities to use it to improve our other businesses. We see some now we're already investing and starting to see some of the impact, and that will be a process that's ongoing for many years. The idea of bringing AI inflected performance enhancements to data-driven products, just that concept, that's going to be a theme for us forever. So the mental model is not one where it's like, hey, we're going to -- there's going to be some day where we see this opportunity, and then we're going to hit it, and it's going to begin and end.

It's going to be a process of constant improvement. But what is exciting for us is that as we get past the vector launch, it is providing some additional bandwidth for us to start to look at other opportunities across our business to invest more in using AI to drive the creation experience on the creative side, to continue to invest in other ad products and sort of pick our heads up and start to kind of spread some of that goodness throughout the whole company. So the launch of Vector has provided some additional bandwidth there, but that's going to be a constant thing.

Bernie, one thing I would add is it's not just using what we've learned in vector and the other ad products. that will enable us to get those products back to growth. Each of those products has a right to win in their own individual place. And there are a series of operational improvements, go-to-market changes, R&D innovations where we think that those products each have great potential opportunity. So it's not just the application of machine learning and AI to those products but there are road maps for clear returns back to growth for each of those products that we're now, as Matt mentioned, able to return our attention to reinvigorate the growth in those areas.

Understood. And just one more, if I could. Understood the guidance on the sequential increase on new adds. Just wanted to level set just given this is new, like, are we assuming no additional improvement in the Invecture from here? So basically, any continued model improvements would be upside to the guide potentially? Or just kind of want to understand the guidance methodology given this is still relatively new.

So Bernie, I think we have the benefit of having been through the month of August as we provide this guide. And we're partly there and we're seeing the benefit that we received also in the month of July. So we're probably 6 weeks in and how that experience. We really like what we're seeing. We're looking at the run rates. We are continuing to make improvements each and every day. And right now, we're guiding based on what we see with 6 weeks into the quarter, but we are consistently being surprised, and we're really thrilled with what we're seeing. But I would also note that we are early. We are early in this journey. And so we are appropriately waiting the risk of future opportunities, but we're also considering the fact that we're early in this journey and we don't want to get too far ahead of our skis in terms of the way we're thinking about the future quarterly growth of the vector in the Unity ad network.

Your next question comes from the line of Chris Kuntarich with UBS.

Can you talk a bit about the scalability of ad spend on Vector. We've heard in our checks about the strong performance improvement. But we've also heard a bit of pushback on vector on the scalability side of things. So is there an opportunity to invest in product to improve ease of spend?

Listen, just to echo the point that Jarrod just made, it's important to remember that we are just a very few short weeks into having rolled out the system. And the answer -- the short answer to your question is yes. While we're -- and let's be clear, while we're really pleased with the results we're seeing, we also see nothing but work ahead of us. I mean, we are just scratching the service here. So yes, many customers are seeing lifts. And yes, those lifts are being seen across genres and across geographies, but there are also some customers that have not yet seen those lists or where those lifts have hit a point of dimensioning returns where they can't get the scale they want. Every advertiser wants infinite scale at their return requirements.

And we want to deliver those but that's work that needs to be done, both in the quality of our systems and the fine-tuning that we do with each customer in terms of how we manage those accounts. And that's the day-to-day work of our lives and that's part of what these channel checks that you guys are all doing don't really capture. It's -- each customer has -- we have a team on each customer. We're working with each customer and each customer has its own story, we deliver better capabilities across our systems and then we work with each customer and you gene in each geography to try to optimize those returns. But that is a -- and by the way, the macro environment is changing every day as well, right? So this is just what it is to be in this business, and we're feeling really good about it, but there's -- yes, there's nothing but opportunity.

Got it. Very helpful. And maybe just one follow-up. Can you just talk a bit about the pacing throughout 2Q? I just want to make sure I understand the 15% sequential growth in 2Q and now you're trending to double-digit growth quarter-to-date and in 3Q were through the months of April, May and June, trending to that 15% sequential growth? Or was there accelerating spend dynamics as you move throughout the quarter?

Let me just say at a high level. Again, we -- it was our goal and sort of getting a little bit granular this quarter and talking about this is what we want to provide as much transparency as we could about what we're seeing, so you guys would understand the overall trajectory of the business. What I don't think would be helpful would be to like to break this down any further. And as I said, we're not going to be delivering this level of detail going forward because I don't think it's particularly helpful. I think the most important thing to understand is that, yes, we're very early in this. We're seeing very good early returns.

We're seeing those returns built and we expect that we have effectively unlimited runway to continue to build on those returns. And beyond that, I think just our general guidance is what we would lean back on.

Your next question comes from the line of Parker Lane with Stifel.

Jarrod, nice to see dollar base net expansion get back to 100. The changes in the composition of the Cree revenue base and the new vector model. I was just wondering if you could characterize D&E across the 2 businesses. And when we look at the upside potential, are you taking something in line with what we saw towards the end of '22 in the data sheet? Or is there potentially a higher upside at a steady state?

Yes. So we are pleased with what we're seeing in terms of net revenue retention, which is the disclosure we've made. We've seen it go up quarter-on-quarter for the last several quarters. That's really a function of the underlying business health being there, both in create and grow because that metric is ultimately an output that comes from improvements in ARPU for our existing create customers as well as improvements in spend for our grow revenue business. As you think about the future potential for upside, the scale of our grow business is such that improvement in that metric is really going to come from customer spend increases and grow. The pace of price improvements in Create is going to be modest and stable.

We expect to be able to give our customers predictability and stability. And so you would expect that the improvements in that metric will largely be driven by meaningful improvements in our grow business and meaningful improvements in customer spend through our platform.

Your next question comes from the line of Richard Kramer with Arete.

Matt, one of the big questions or debates with investors seems to be over the strategic importance of mediation and collecting signal on ad pricing and inventory. Can you talk about that as part of your Unity Grow offering and whether you see deeper integration and mediation with other growth features like the DSP is unlocking more potential in inventory and sales.

Richard, thank you for the question. We believe that we are uniquely positioned in this marketplace as I've described, by virtue of being -- providing the operating systems for games globally. So it's not our contention that mediation isn't helpful. It's just that -- it's our contention that we don't need to win a mediation in order to prosper and grow the business. We have first-party relationships with billions of customers already. I'm sorry, billions of players of end users already as well as with the creators of those games. And by the way, I'm not at all sure that the future of that of mediation ought to be a system which locks customers in to mediation by virtue of their user acquisition.

We'll have to see how that plays out over time. But what we're focused on now mostly is continuing to deliver value and user acquisition, providing more value and user acquisition is sort of the path through which all goodness takes place. and we're going to continue to build out the value and usefulness of our platform, and we'll take it from there.

Okay. And then maybe just a very quick follow-up. Mentioning partnerships with the likes of Tencent and Scopely. There are obviously huge names in mobile gaming and gaming generally for Tencent. Can you give us a sense of the time line when these sort of partnerships are likely to yield actual deeper integrations or games which build in all of your SDK elements and how you see those progressing because they're obviously both of them are really leading lights in the industry.

Yes. I won't comment specifically about those customers and the titles related to those customers. But let me back and just speak slightly a little bit more general. What the announcements there and as well as the conversation we're having around Nintendo is really meant to point out is that -- for the first time, I think maybe in our history, we've been able to begin to package the full value of our platform for customers and have really high-level strategic conversations about how we can partner to both help them grow out -- to help them grow their user base as well as build games more effectively and more efficiently.

And there are deep connections between those two things, as we've talked about this morning, and we've talked about many times before. So our ability to bring those to bear with customers. And these broad relationships it marks a change in our strategy and our ability to execute, which will enable us to take advantage increasingly of our of our position as a platform as a meaningful platform in this ecosystem. And that's the piece, I think, that over the years has promised that Unity has always had, but we haven't been able to access because each customer is different, again, I won't go so much into the details there, but generally, these are -- the process is not an incredibly lengthy one. It's a process of optimization. So as I referred to in a question we had a couple of questions ago, when you work with customers at an individual level every day to enhance returns. And the more connected you are at the a level of information and data exchange, the more opportunity there is to optimize. But that is something that takes place over time and you work on it every day. All that needs to do is get better and better every day, and you're going to be in a really good shape.

Your final question comes from the line of Martin Yang with Oppenheimer.

First, on Grow. Can you talk about maybe intra-quarter trajectory of Vector's benefit for the ad network? Do you see pretty consistent sequential run rate increase for the ads in the second quarter? And has that trend continued in July and August to date.

Sure, Martina. This is Jarrod. Let me take that. We are extremely pleased with the 15% sequential growth we experienced in the second quarter. I would remind investors that we did not have all components of Unity Vector fully rolled out over the course of the second quarter. So that's really exciting. We saw strength on strength. So I think each month was better than the last over the course of the second quarter. That strength has continued in the month of July and into August which really what gives us the confidence to talk about mid-single-digit sequential growth in our overall grow business in the third quarter. We're really pleased with what we're seeing. We're pleased with the early momentum.

And more importantly, we understand that we have a really robust product road map and enhancement road map ahead of us. There's a lot of investments and improvements yet to come followed by the introduction of some of the unique data that we have in data assets that we expect to avail of that should positively impact our business in 2026. So we're really pleased with where we are Pleased with the investment road map in front of us. I'm pleased with what we're setting ourselves up for, for next year.

This concludes the question-and-answer session. I will now turn the call back to Alex for closing remarks.

Yes. We want to thank everyone for joining this morning. We look forward to catching up with everyone throughout the quarter. Have a great day.