Thank you for joining us for the Unity Technologies Q2 Earnings Call. I will now turn it over to Alex Giaimo, Head of Investor Relations. Alex, the floor is yours.

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 Jarrod 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 Grow 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 three 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 three 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 stronger results to our partners translates directly into a willingness to scale spend with Unity. Remember that performance advertisers are not allocating budgets in the traditional sense nor are they necessarily pulling share from competitors. Performance advertisers consistently increase 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 Vector 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 that 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 6.2, 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 in Create, including another quarter of double-digit subscription growth in Q2. We're also seeing momentum around the continued adoption of Unity 6, the most stable and performant version of Unity 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 Unity 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 and 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, Monopoly Go! With Tencent, our expanded multiyear partnership will keep Unity at the core of some of the most popular multi-platform 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 OpenHarmony, a rapidly growing mobile operating system in that country. With Scopely, we're embarking on a new multiyear agreement that includes a long-term technical partnership across both Create and Grow, designed both to support the growth and operation of Scopely's games and to improve the Unity engine for all of our customers. On the platform side, we announced an exciting multifaceted partnership with Nintendo, who's experiencing tremendous success with the launch of the Switch 2. Our collaboration ensured that Unity 6 would be fully optimized on day one 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 operations 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 healthcare, Specto 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.

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, Create grew at 16% year-over-year in the second quarter. Nonstrategic Create 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. 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.

Nicole, I think we're ready for questions.

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 Grow 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 modular system and using it to improve select parts and in fact, maybe sometimes significant parts of our other ad products.

Great. And then in terms of just the rate of improvement with Vector, I mean it's been 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 runtime 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?

Thanks, Matt. Yes, Vector was a significant turning point for our business. We implemented a major upgrade to our capabilities by transitioning to a new neural network-based platform. This platform is more powerful, versatile, and scalable than our previous systems, allowing us to handle more data and more complex data types while responding in real time to data changes. These capabilities will continue to develop as the model learns because we can process a greater variety of features and identify critical signals within vast amounts of data. We believe this investment, which is still in its early stages, will yield ongoing benefits for many years. In fact, we're already observing improvements exceeding the 15% to 20% increases in installs and user value that we reported last quarter. While these changes are seen on a quarter-to-quarter basis, we believe this represents a long-term shift that will transform our business for years ahead.

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 mentioned and Matt highlighted, we are still in the early stages of our rollout. We have an exceptional team dedicated to improving and supporting the learning process for our AI. We anticipate ongoing investments that will yield enhancements in our current capabilities over time. Furthermore, as I mentioned earlier, we believe there is another significant opportunity ahead, linked to our unique advantages in the market due to our role as the operating system for games worldwide. The insights we gain from the billions of consumers using Made with Unity applications will strengthen our AI as we integrate this knowledge, leading to improved performance. We expect this to start becoming evident in 2026 and to continue growing for many years. This early stage of our transition is particularly exciting, as we are already witnessing improved performance and increased spending, all while still at the beginning of our development plans and yet to fully leverage our unique market position. This fuels our enthusiasm for the business.

Okay. I have a quick follow-up for Jarrod regarding the $12 million perpetual deal in Create. Can you explain what happened there? Why isn't that considered recurring? What did you observe that might indicate it’s an anomaly? Please provide some background context.

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 whereby 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 in Create. So we're feeling really good about the growth in 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 Ads 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 customer conversations are going in terms of including more data within your ad products?

Yes. Let me address the second question first, and then Jarrod will respond to your first question. The significance of the developer data framework is that it allows customers full control over what data is shared and how it is utilized, all in a highly automated manner that is seamlessly integrated into the product. The idea here is not to engage in numerous discussions globally, but much like other technology products, customers will find options and settings that let them manage their data sharing preferences and usage. While opinions may differ, extensive conversations are not necessary. The objective is to normalize this process, empowering our customers to interact with us in whichever way they choose.

And just to the second part of your question on the Grow guidance. We've guided for mid-single-digit sequential revenue growth in 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 and something that we are truly pleased about in this early stage of Vector's development.

And just to add, we're 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 enthusiasm about the direction of the business.

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

I 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 unique in 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 I would appreciate you if you could help us dimensionalize this.

Yes, we are observing widespread improvement across all the factors that show we are providing greater value to our advertising customers. The most straightforward indication of this is the continued increase in spending enthusiasm. Our models will keep getting better as we invest in their quality and efficiency while offering more unique data signals over time. We feel very confident about this process.

A quick follow-up. Is the take rate changing compared to Unity Ads?

No, Vasily, 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 Create element and other parts of the growth were 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 Grow 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 was cannibalizing ironSource 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 ironSource 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 are 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 demonstrably 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 provided.

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 is because I do think there's often this mental model that where folks 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.

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

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.

Are you mainly interested in the role AI will play in helping people create games, or would you like me to clarify your focus?

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 sift through that to maintain kind of optimal user experiences, if that makes sense.

Yes. We are very excited about the rapid integration of AI into our future. We've discussed Vector and our AI investments that are driving our growth business. On the creative side, the AI opportunity is immense. Unity's greatest strength lies in its extensibility and openness; we serve as a hub for those creating interactive content, regardless of the tools they use or where their 3D assets come from. We will act as the platform orchestration layer for AI-driven interactive content creation moving forward. Our awareness of the project context will provide us with unique insights that help our customers develop games more quickly and efficiently, allowing them to focus on innovation and creativity by alleviating some of the tedious aspects of content creation. Furthermore, when customers seek to expand their games and acquire new users, our runtime distribution will enable us to enhance our AI capabilities, facilitating more efficient and effective user acquisition. We are extremely enthusiastic about how the world is evolving around us, and we look forward to leveraging our core capabilities to benefit our customers over time.

Perfect. That's helpful, Matt. And maybe, Jarrod, I think the Vector point has kind of been hammered home here as well, too. But as we think about kind of the performance improvements on the Grow 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 and 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 in Grow.

It's a great point. I want to emphasize that what's truly exciting about our opportunity is that even while making aggressive investments necessary for future growth, we are witnessing significant improvements in our margins. This is not always the case. However, by making tough decisions and focusing on what matters most to our business, along with effective execution from our global teams, we are gaining the necessary momentum, which is really exciting.

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

Just a couple of follow-ups on Grow. I wanted to ask on bringing Vector to the other parts of the Unity 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 eventually make that change or bring it over?

Thank you for your question. The integration will be a gradual and ongoing process. The Vector technology is highly modular, which presents opportunities to enhance our other businesses. We are already investing in this area and beginning to see some positive effects, and this will be a continuous journey for years to come. The idea of incorporating AI-driven performance enhancements into our data-focused products will remain a consistent theme for us. It's not about reaching a specific moment to launch; rather, it's about an ongoing process of improvement. What excites us is that, following the Vector launch, we have more capacity to explore additional opportunities within our business. This includes investing more in AI to enhance the creation experience and further develop our advertising products, while also disseminating these benefits throughout the company. The Vector launch has indeed opened up more opportunities, and this process will continue consistently.

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, 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 Vector from here? So basically, any continued model improvements would be upside to the guide potentially? Or just kind of wanted 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 six weeks in and have 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 six 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 weighting the risk of future opportunities, but we're also considering the fact that we are 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?

It's important to remember that we've only recently rolled out the system. The short answer is yes, many customers are experiencing improvements, and these are happening across different genres and locations. However, some customers have yet to see these improvements or have reached a point where they're not achieving the scale they desire. Advertisers aim for limitless scale, and we aim to provide that, but it requires ongoing work in enhancing our systems and fine-tuning our approach with each customer. This daily effort is often overlooked. We have dedicated teams for each customer, and each customer has a unique narrative. We enhance our systems' capabilities and collaborate with customers across different genres and regions to optimize their returns. Additionally, the overall market environment is constantly evolving, which is just part of our business. We feel optimistic about the situation, and there are certainly opportunities ahead.

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 in 3Q. Were you 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, it was our goal in 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 build, 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-based net expansion get back to 100. The changes in the composition of the Create revenue base and the new Vector model, I just wondering how you could characterize DB&E across the 2 businesses. And when we look at the upside potential, are you thinking 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 improvements in that metric is really going to come from customer spend increases in 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 of mediation with other growth features like the DSP is unlocking more potential in inventory and sales?

Yes, Richard, thank you for the question. We believe we are in a unique position in this marketplace because we provide operating systems for games globally. It’s not that we think mediation isn’t useful; rather, we believe we don’t need to excel in mediation to succeed and expand our business. We already have first-party relationships with billions of players and creators of those games. I'm not entirely convinced that the future of mediation should involve locking customers into it through their user acquisition practices. We'll have to observe how that evolves over time. Right now, our main focus is on delivering value in user acquisition. Enhancing value in user acquisition is essential for achieving positive outcomes. We will continue to enhance the value and utility of our platform and proceed from there.

Can you provide an update on the timeline for deeper integrations or games that incorporate your SDK elements in your partnerships with Tencent and Scopely, given their significance in the mobile gaming industry?

I won't provide details about specific customers or timelines, but I want to emphasize that our discussions with companies like Nintendo highlight a significant shift in how we can showcase the full value of our platform. For the first time, we're engaging in high-level strategic conversations that focus on helping our partners expand their user bases and develop games more effectively and efficiently. This connection between user growth and game development is something we've mentioned previously. Our ability to foster these broader relationships marks a new phase in our strategy and execution, allowing us to leverage our position as a vital platform in the ecosystem. Over the years, Unity has held this promise, but we haven't fully tapped into it yet. Each customer is unique, so I won't get into specifics, but generally, the optimization process is not overly lengthy. It involves daily collaboration with customers to enhance returns. The more we exchange information and data, the greater the opportunity for optimization. This is an ongoing process, and as we continuously improve, we will be in a strong position.

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 Unity Ad and Network? Do you see pretty consistent sequential run rate increase for Unity Ads in the second quarter? And has that trend continued in July and August to date?

Sure, Martin. This is Jarrod. 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 ongoing momentum. And more importantly, we understand that we have a really robust product roadmap and enhancement roadmap 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 and 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 roadmap in front of us and pleased with what we're setting ourselves up for next year.

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.