Unity reported Q2 2026 before the open on August 6. Revenue was $546M, up 24%. Free cash flow was $202M — a 36.96% margin. Adjusted EBITDA was $160M at a 29% margin against $90M a year ago. The GAAP net loss narrowed to $23M from $107M.
CEO Matt Bromberg called it "arguably the best quarter in Unity's history as a public company." On our numbers that is not hyperbole: the Rule of 40 score went from 29.77 to 60.9 in a single quarter.
The call, graded
We previewed this print on August 2 with a warning rather than a forecast: Unity was carrying the largest score improvement of any company we cover in the two sectors the metric is built for, and that score contained neither the 30.81% gross margin nor the $0.80 diluted loss per share from the same quarter that produced it.
| What we said | What the print says |
|---|---|
| The Q1 gross margin of 30.81% was a $227M impairment, not the business | Confirmed. Gross margin snapped back to 79.6% — the highest in two years. One quarter, fully reversed. |
| The score could not see the impairment | Still true, and this time that was the right read. The score ignored a non-recurring charge and kept describing the operating business correctly. |
| Biggest R40 improvement on the site | Extended, by a lot. 27.02 a year ago to 60.9 — up 33.9 points in four quarters. |
A metric that cannot see a $227M write-down is a metric that will mislead you the quarter a write-down actually matters. It did not mislead here. Both statements are true and neither cancels the other.
The score, recomputed
On the house definition — revenue growth plus free-cash-flow margin:
| Quarter | Revenue | Revenue YoY | FCF | FCF margin | R40 |
|---|---|---|---|---|---|
| 2025 Q2 | $441M | −1.78% | $127M | 28.80% | 27.02 |
| 2025 Q3 | $471M | +5.37% | $151M | 32.06% | 37.43 |
| 2025 Q4 | $503M | +10.07% | $119M | 23.66% | 33.72 |
| 2026 Q1 | $508M | +16.78% | $66M | 12.99% | 29.77 |
| 2026 Q2 | $546M | +23.9% | $202M | 36.96% | 60.9 |
Unity's free-cash-flow definition — operating cash flow less purchases of property and equipment — is the same as ours. There is no definitional gap on this ticker, unlike Datadog, which reported the same morning.
Which sets up the comparison of the day. Datadog grew 35.6% and printed a 27.28% cash margin for a score of 62.93. Unity grew 23.9% and printed a 36.96% cash margin for 60.9. A game engine two years into a turnaround converted a higher share of revenue into cash than the observability company the market pays 300x earnings for. Same morning, half a point apart, opposite routes.
The growth number is deliberately understated
Total revenue grew 24%. That is the smallest true number in the release.
| Line | Q2 2026 | Q2 2025 | YoY |
|---|---|---|---|
| Strategic Grow | $329M | $201M | +63% |
| Strategic Create | $157M | $151M | +5% |
| Total Strategic | $486M | $352M | +38% |
| Non-Strategic | $60M | $89M | −33% |
| Total | $546M | $441M | +24% |
The 14-point gap between strategic growth and total growth is revenue Unity is deliberately destroying. Non-Strategic is the ironSource Ads network, sunset April 30, 2026, plus the Supersonic publishing business, sold August 4, 2026 — two days before this release.
Score the strategic business on its own and you get 38.2 + 36.96 = 75.2. That is not our house number and we will not publish it as one — the house definition uses total revenue for every company, and a business that can reclassify its way to a better score is exactly what the discipline exists to prevent. But the direction of the distortion matters: for once the score is too low, and it will stay too low until the wind-down laps itself.
Q3 guidance makes the shape explicit. Strategic revenue of $540–550M, up 44–47%. Non-Strategic of $20M, against $89M a year ago. Implied total: roughly $560–570M, or +19–21% — a slower headline growth rate next quarter while the business underneath accelerates from 38% to 44–47%.
What the best quarter in company history still looks like
It is a loss. GAAP net loss of $23M, a −4% margin, in the quarter being described as the best ever.
The bridge from −$23M to $160M of adjusted EBITDA:
| Add-back | Q2 2026 | Q2 2025 |
|---|---|---|
| Amortization of intangible assets | $77.5M | $86.2M |
| Stock-based compensation | $75.6M | $101.4M |
| Restructuring and reorganization | $31.4M | $10.9M |
| Depreciation | $8.0M | $10.7M |
Two of those move in the right direction and one does not.
Stock-based compensation fell 25% — $75.6M against $101.4M — while revenue grew 24%. As a share of revenue that is 13.8%, down from 23.0%. In a sector where SBC generally grows with headcount and share price, an absolute decline of that size is unusual, and it is the single clearest evidence that the cost discipline is real. It is also the exact opposite of what Datadog did this morning, where SBC of $220M ran at 19.6% of revenue and was 40x GAAP operating income.
Amortization of intangibles, at $77.5M, is 3.4x the entire GAAP net loss. This is ironSource purchase accounting, and it is the main reason Unity stays GAAP-negative regardless of how the operating business performs. It runs off on a schedule, not on results.
Restructuring nearly tripled, to $31.4M from $10.9M. The wind-down is not free, and its cost lands in the same quarter as the praise.
What to watch
Two things, and they are not the ones in the headline.
The first is whether the 36.96% cash margin survives contact with a quarter that has no Supersonic in it. A publishing business carries working capital; selling it on August 4 removes both the revenue and its cash rhythm, and the Q3 guide gives an adjusted EBITDA range but no cash-flow figure.
The second is when the strategic and total lines converge. Non-Strategic guides to $20M in Q3 and effectively nothing after that. From Q4 onward the headline growth rate stops being a blend of a 44%-growing business and a dying one, and simply becomes the business. On this quarter's evidence that number is closer to 40% than to 24% — and the score that reads it will finally be measuring the company Unity has spent two years rebuilding.
Revenue, free cash flow, gross margin and diluted EPS through 2026 Q2 are from our stored series, back-filled this morning from the 8-K Exhibit 99.1 (accession 0001810806-26-000041). Rule of 40 uses the house definition — year-over-year revenue growth plus free-cash-flow margin, where free cash flow is operating cash flow less purchases of property and equipment, which matches Unity's own definition. The 2026 Q2 growth rate is computed against the $441M we store for 2025 Q2; the release's unrounded figures give +23.94%. Strategic and Non-Strategic splits, the Q3 guidance ranges, and the Supersonic and ironSource dates are Unity's own disclosures from the release.