Unity Software Inc. · Q2 2026 call

Today, after what was arguably the best quarter in Unity's history as a public company, we're done looking backwards.

Our expectations for growth in Vector in Q2 were a robust 12% to 13% growth quarter-over-quarter. Instead, our team delivered nearly double that, racking up 23% quarter-over-quarter growth and establishing an accelerated momentum that has carried over to elevated results in Q3.

Keep in mind, 6 quarters ago, the Unity Vector product didn't exist. It is now at substantially over $1 billion in annual run rate, 2 quarters earlier than expected.

We don't know of many companies at our scale growing revenue at this velocity, while simultaneously expanding margins 800 basis points year-over-year.

Towards the end of the second quarter, we began for the first time in our history to unlock this advantage by incorporating signals from our runtime directly into our Vector AI models. While this effort remains very early, the results are extremely encouraging, and we gain more and more confidence each day that runtime represents a deep and sustainable competitive advantage for Unity.

Of note, the sunsetting of the ironSource Ad Network had a negligible positive impact on Vector growth in the quarter with only $3 million in Q2 Vector revenue growth from ironSource customers as a result of the shutdown.

Unity had $202 million in free cash flow in the second quarter, an increase of 59% year-over-year. This brings our cash balance to $2.36 billion with Unity flipping from a net debt position to a net cash position this quarter.

Our near-term capital plans center around delevering our balance sheet, and we expect to pay off our 2026 convert in November.

Outside of cash expenses, the disciplined approach we're taking to equity resulted in stock comp expense down 25% year-on-year. Stock comp expense was 14% of revenues for the quarter, its lowest level ever.

we made a strategic investment in mobile measurement leader, AppsFlyer, along with investment partners, Meta, Google and Moloco. […] we're pleased to report that we closed on August 4, the sale of Supersonic to Tripledot Studios. […] during the quarter, we substantially completed the closure of our ironSource Ad Network effective April 30.

For the third quarter, we're guiding to strategic revenue of $540 million to $550 million, implying year-over-year revenue growth of 44% to 47%. This represents a material acceleration from the growth rates we saw in the second quarter.

we're pleased to report that we're pulling forward our expectation for achieving GAAP net income profitability from the fourth quarter of 2026 to the third quarter of 2026.

Every major participant in this world has an approach. If you're Meta, you own your apps. If you're us, you have access to the 3 billion people playing with Unity game, and that's going to put us in a really good spot over the long term.

I don't know there's any analytical value for anyone to single out the impact of runtime data. Our performance, as we've noted, is the sum of the impact of all the product enhancements, the higher quality data and the compounding model improvements.

We don't care how people access the Unity UI, the application itself. The application layer is just the surface piece. What's really important is we drive as many people as possible into our full integrated authoring platform, which helps creators deploy and monetize and grow their experiences at scale.

So what we did effectively was rearchitect Unity so that a team of both creators and coding agents could work together side by side across every stage of game development together using Unity. Previously, that was not possible.

I would also note that I believe the wait between Unity 5 and Unity 6 was something like 7 years. We were closer to 18 months, and that's going to continue to accelerate.

It is like exciting for us to take a step back for a moment and think that 2 years ago, Vector wasn't even a thing. 6 quarters ago, it wasn't a thing. It's now by far our biggest and fastest-growing business, significantly more than $1 billion on a run rate. […] A couple of years ago, our adjusted EBITDA margins were in the low 20s. We're now approaching 30%. And as Jarrod noted, we expect to be GAAP profitable for the first time ever.

There are continued efficiencies we can find in our business. We will have continued rapid revenue growth, and we continue to look for ways to structure our business so that we continue to invest in high-growth activities by making choices and prioritizing the things that we do, which is the most critical piece of a well-operated business. That's as true in lean times as it is in good times. In fact, it's even more true when things are going well. That's when folks have the inclination to want to start doing everything. We are not going to fall into that trap.

We've experienced 200 basis points of margin expansion each quarter since the first quarter of 2025. And based on the strategic actions we've recently executed, we're looking at 400 basis points of operating margin expansion of EBITDA margin expansion in the third quarter alone.

I am a fond of saying creation is the new consumption. What I mean by that is we believe that tens of millions of new folks will begin creating interactive entertainment just as they today create linear video.

it's not as if the issue for us is we've got to ramp up some big new sales force to ring doorbells to try to get folks to try Vector. It is much more of what I describe as an optimization and account management function