Unity Software Reports Q2 2026 Results: Full Earnings Call Transcript

Unity Software (NYSE: U ) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Unity Software reported a highly successful second quarter, with strategic revenue growth of 38% and adjusted EBITDA growth of 77%, achieving record margins. The company's Vector segment delivered a remarkable 23% quarter-over-quarter growth, driven by product enhancements and the incorporation of runtime data, reaching over a billion dollars in annual run rate. Unity announced the release of Unity 7, a significant upgrade aimed at enhancing game development collaboration and efficiency, set to launch in beta in Q4 2026.

The company formed a strategic partnership with Netflix to support its multiplatform games ecosystem, highlighting Unity's role in evolving gaming platforms. Unity's guidance for Q3 includes strategic revenue growth of 44% to 47% and adjusted EBITDA margins of 33%, with expectations to achieve GAAP net income profitability sooner than anticipated. Unity emphasized the importance of its AI-powered flywheel, which drives more games, platform usage, and discovery, boosting both Create and Vector businesses. Cash flow is strong, with $202 million in free cash flow in Q2, and Unity has moved from a net debt to a net cash position.

Full Transcript OPERATOR (Moderator) Ladies and gentlemen, thank you for joining us and welcome to the Unity Software Q2 earnings call. After today's prepared remarks, we will host a question and answer session. If you'd like to ask a question, please raise your hand. If you have dialed into today's call, please press star nine to raise your hand and star six to unmute.

I will now hand the conference over to Alex Diamo, Head of Investor Relations. Alex, please go ahead. Alex Diamo, Head of Investor Relations Thank you. Good morning, everyone.

Welcome to Unity's second quarter 2026 earnings call. Today I'm joined by our CEO, Matt Bromberg, and our CFO, Jared Gase. 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. 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. gov website.

And with that, I will turn it over to Matt. Matthew Bromberg, President and Chief Executive Officer Thank you, Alex. Good morning. And for everyone on the phone, thank you for joining us this morning as well.

It is, as always, a distinct privilege for us to be able to represent the fine work of the Unity team from around the world. Two years ago on this call, we told you that a rededication to our customers, needs more disciplined execution and sharply accelerated product velocity would transform our company. Although we were in a difficult moment, we believed we had everything we needed to bring Unity all the way back. And we did.

One year ago, we posited that Unity had hit an inflection point in that transformation and that our efforts would translate to a markedly improved and sustainable series of business results. And they did. Today, after what was arguably the best quarter in Unity's history as a public company, we're done looking backwards. The flywheel we've been constructing is spinning up and we expect it to power us into the ranks of the most consequential companies of the AI era.

And it will. Why? Because AI has already become the most crucial driver of our product velocity and quality and is also well on its way to becoming our most crucial driver of demand. To remind everyone how this AI-powered flywheel works at Unity: As game creation becomes more efficient, more games are being released.

More games drive more usage of our integrated authoring platform and also make new game discovery more challenging, accelerating our ad business. More games, more platform usage, more discovery. All driven by the unique understanding that we derive from the approximately 3 billion people each month playing a game on the Unity runtime, an understanding which we use in turn to help creators build better games, to help them acquire new users, and to help them operate successful live services. With that as an introduction, let's turn to this quarter's results, beginning with Vector.

In Performance Marketing, we only win when our customers win. Advertisers are laser focused on the direct return of their ad spend and our technology must empower them to hit and exceed their return targets at maximum scale. Through continuous product enhancement, higher quality data, and compounding model improvements, we are now driving significant gains for our customers across every campaign type, genre, geography, and platform, and it's having an exceptionally positive impact on our business results. 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, six quarters ago the Unity Vector product didn't exist. It is now at substantially over a billion dollars in annual run rate, two quarters earlier than expected, and yet we still consider ourselves to be in the very early stages of product development. Our astounding performance is fueling a 63% year over year increase in our Strategic Grow business, with our third quarter outlook pointing to an even stronger 70% growth rate.

Overall company EBITDA margins are approaching 30% for the first time ever. 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. In the second quarter alone, the Vector team successfully executed over 20 major updates, advancing the capabilities and intelligence of our AI prediction platform, bringing new runtime data online, and transforming how we identify, understand, and value gamer attention. This incredible rate of change enabled Unity to optimize real-time bidding precision for our advertisers to a degree that was formerly impossible.

One of the most impactful updates in Q2 has been our Day 28 Return on Advertising Spend capability for both in-app advertising and hybrid campaigns, a companion to the in-app purchase product that was released in the first quarter. As the name suggests, Day 28 ROAS enables our partners to measure their return over a longer period than our standard 7-day ROAS product. Initially released at the end of Q1, the full rollout has now seen Day 28 campaign spend growing nearly 3x from the first quarter. Over 25% of our advertising base has adopted this new campaign strategy and the demand is scaling rapidly as a result of our delivery.

Extremely strong performance in Q2 also contains another transformational milestone. We are speaking, of course, about the first incorporation of runtime data into the Vector platform. As we have emphasized many times, there are currently over 3 billion consumers each month playing a Made with Unity game, and the connection with those billions of players through our runtime has been an untapped capability that we have long believed should deliver unique value across our platform. 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. Let's transition now to the Create business. The future of game creation no longer belongs only to those who can marshal the most resources, but rather to those who can best use the technology to amplify the resources they have.

Two weeks ago at our Unite conference in Seoul, we announced the release of Unity 7, a new generation of our software designed for this future—an open, collaborative platform where developers, artists, producers, and coding agents work together across the full development life cycle. We've made our MCP free and opened our API, which enables developers to use the command line and coding agents to control Unity directly from inside their own workflows. What this all means is that you no longer have to know all the intricacies of our application to access the power of our full authoring platform.

What's even more exciting is that this platform, including the downstream revenue-enabling services—Vector, our commerce solutions, and our live game operation services—are all now configured automatically on day one. There are no instructions, there are no SDKs, there is no engineering time required. Remember what I referenced slightly earlier? Remember our flywheel?

More games, more platform usage, more discovery, all driven by runtime and Vector AI. We believe Unity 7, which will launch in beta in Q4 of 2026 and the full release in Q1 of 2027, holds the potential to be the most exciting and impactful release in our history in that it points the way to a fundamentally different future, one where the top of the funnel gets bigger and bigger to accommodate the increased interest in the creation of interactive entertainment. Before leaving Create, I did want to highlight a new partnership Unity consummated in Q2 with Netflix.

We're so thrilled about it and I want to highlight it because it exemplifies the kind of innovation we live to help support. The partnership calls for us to comprehensively support the Netflix multiplatform games ecosystem with the Unity engine in the years ahead. Netflix has launched something potentially revolutionary, presenting a social game experience for consumers on the biggest screen in the house instantly, without asking them to download, register, or buy anything, with the potential to add an entirely new engagement path for their customers. This is the kind of advancement that Unity exists to support.

Consumer habits are changing, distribution platforms are evolving and will continue to evolve, but Unity's role remains straightforward and constant: make it easier for studios to build great games and get them in the hands of players wherever they are. We're proud that Netflix has chosen to do that work with us. Thank you again very much for taking the time to be with us this morning. We are incredibly proud of Unity's performance in Q2.

The continued acceleration of Vector, coupled with our robust product roadmap in Create, has us more excited than we've ever been about our future. I'll now pass the call over to Jared for a deeper discussion of our financial results. Jared Gase, Chief Financial Officer Thanks, Matt, and good morning, everyone. Unity delivered a truly exceptional second quarter, with strategic revenue growth of 38% and adjusted EBITDA growth of 77% along with record margins.

Strategic Grow revenue was $329 million, up 63% year over year. Growth accelerated both quarter on quarter and year over year, based on tremendous momentum in Unity Vector. 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.

In Create, strategic revenue was $157 million, up 14% year over year when excluding the impact of a one-time revenue item in the prior year. Create momentum continues to be driven by ARPU growth, supported by price increases and minimum annual customer commitments, as well as strong growth in China. Ultimately, these results are the direct outcome of products that deliver the innovation and performance our customers demand, steadily enhancing Unity Software's core value proposition and shifting from revenue to profitability. Adjusted EBITDA in Q2 was $160 million.

Adjusted EBITDA margins were 29%, with margins expanding 800 basis points year over year. Rapid revenue growth, high gross margins, and disciplined cost management resulted in significant operating leverage. This operating leverage is the primary reason why adjusted EBITDA grew 77% year over year, more than two times the growth rate of strategic revenues. We experienced operating leverage across all major expense lines in the second quarter.

In addition, adjusted sales and marketing and adjusted G&A were down not only in percentage terms but in dollar terms. We're making strong progress in optimizing our cost structure and simplifying our business, and using that freed-up capital to reward high-growth businesses like Vector while aggressively investing in our product roadmap. Rapid growth in adjusted EBITDA is converting into exceptional free cash flow. Unity had $202 million in free cash flow in the second quarter, an increase of 59% year over year.

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. Longer term, the record cash generation we are experiencing, combined with a delevered balance sheet, opens up tremendous flexibility from a capital allocation standpoint. 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. Before moving on to guidance, I'd like to provide three recent strategic updates. Firstly, during the quarter we made a strategic investment in mobile measurement leader AppsFlyer, along with investment partners Meta, Google, and Moloco. This was a unique opportunity to invest in a market-leading asset while simultaneously allowing AppsFlyer to preserve competition, choice, and innovation in the mobile attribution and measurement ecosystem.

Secondly, we're pleased to report that we closed on August 4th the sale of Supersonic to Tripledot Studios. With this transaction, Supersonic finds an outstanding home with Tripledot, one of the largest and most successful mobile game publishers in the world. And lastly, during the quarter we substantially completed the closure of our ironSource ad network, effective April 30th. The sale of Supersonic and the sunset of the ironSource ad network will benefit our margins in the second half of the year.

With these actions, Unity becomes a more focused company positioned for faster revenue growth and dramatically higher levels of profitability. With that, let's now turn to our guidance for the third quarter. 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.

In Strategic Grow, we expect year-over-year revenue growth of 68% to 70%, driven by continued exceptional performance in Unity Vector. Our guidance assumes 19% to 21% sequential growth rates for Unity Vector. In Strategic Create, we expect 7% to 10% year-over-year revenue growth, driven by continued ARPU growth and strength in China. And we expect $20 million in non-strategic revenue in the third quarter, driven primarily by the July contribution of Supersonic.

We're guiding the third quarter adjusted EBITDA of $185 million to $190 million, implying adjusted EBITDA margins of 33% and adjusted EBITDA growth of 69% to 74%. The third quarter is expected to be our sixth straight quarter of adjusted EBITDA margin expansion, with margins up 400 basis points from the second quarter alone and up 1,000 basis points year on year. Expected margin expansion is a function of additional operating leverage amplified by cost reductions enabled by our strategic actions, resulting in a structurally more profitable business.

Lastly, 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. In closing, we are incredibly pleased with Unity's second quarter financial results and outlook for the third quarter. Unity has now entered a new chapter: structurally faster revenue growth combined with enhanced profitability, powered by a flywheel of more games, more platform usage, and more discovery, all driven by runtime and Vector AI. With that, I'd like to thank you for joining us on Unity's second quarter 2026 conference call.

I'd now like to turn the call over to Alex so that we can take your questions. Alex Diamo, Head of Investor Relations Thank you, Jared. Operator, we're ready for questions. OPERATOR (Moderator) We will now begin the question-and-answer session.

Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand. If you have dialed into today's call, please press Star-9 to raise your hand and Star-6 to unmute. Please stand by while we compile the Q&A roster.

Your first question comes from the line of Matthew Cost with Morgan Stanley. Your line is open. Please go ahead. Matthew Cost, Analyst at Morgan Stanley Morning, everyone.

Thanks for taking the questions.