Ladies and gentlemen, thank you for joining us and welcome to the Unity Technologies Q3 earnings call. After today's prepared remarks, we will host a question and answer session. 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. I will now hand the conference over to Alex Giaimo, Head of Investor Relations. Alex, please go ahead.

Morning, everyone. Thank you for joining and welcome to Unity's third 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 and similar items, all of which are subject to risks, uncertainties, and assumptions. You can find more information about these risks and uncertainties in the risk factor section of our filings at sec.gov. Actual results may differ, and we take no obligation to revise or update any forward-looking statements. During today's meeting, we will discuss non-GAAP measures. These non-GAAP financials 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. With that, I will turn it over to Matt.

Thank you, Alex. Good morning, and thank you to all of you for joining us this morning. It's a distinct privilege as always for us to share with you the work of our Unity colleagues from all over the world. Typically, we begin our remarks by offering a high level view of our performance. Today, let's get right into the numbers. Any superlatives we might offer are already deeply embedded in the math. In Q3, Unity delivered strategic revenue growth of 59% year over year and adjusted EBITDA growth Thank you. Thank you. supported by adjusted EBITDA margins, which have nearly doubled from where they were just a couple of years ago. And although these numbers do speak for themselves to a large degree, the progress at Unity remains deeply connected to the people that support and deliver it, the products that produce it, and the strategy that helps both us and our customers make sense of it. The Uni flywheel is just beginning to spin. and we expect the forces driving it to power our business well into the future. AI is making game creation more approachable and more efficient, leading to both more creators and more games being launched. More creators and more games drive more usage of our authoring and live operations platform. As the market becomes more crowded with new titles, The need for effective game discovery becomes more intense, propelling our advertising business forward. At the very center of the flywheel producing these results, this quarter sits Unity Vector. So let's take a moment to establish a common understanding of how Vector is contributing such enormous value. Vector revenue grew 126% year over year and 40% quarter over quarter. which was double our guidance for 20% quarterly growth. Vector performance continues to be driven by three pillars, constant optimization of our self-learning AI models, new customer-centric product releases, and unique high quality data. These pillars operate together as we scale, as our models continuously retrain on larger, higher quality data sets They unlock superior targeting precision. More precision enables a better return on advertising spend. Better return on advertising spend enables customers to acquire more players more profitably, which in turn fuels increased spend on our platform. And great new product releases, like our Day 28 Optimizer, allow more customers to use our improved models to better effect, which intensifies the entire cycle. especially as new customers learn of the positive impact we are having across the industry. And just to be especially clear, as it is often a topic of some speculation, Vector's accelerating growth is primarily a result of greater volume of installs and higher player values, not changes in take rate. And we love this because it means both that the underlying unit economics are healthy and that revenue continues to scale without impacting our customers' margins. While Vector continues to deliver extraordinary value, the flywheel is also accelerating at its very genesis, the game creation process itself. By opening Unity to coding agents and providing a command line interface, we've transformed our authoring platform into a fully programmable, agentic automation target. We are completely model agnostic and labeling our customers to avoid vendor lock-in and constantly optimize their token spend. And this is exactly where we want to be, at the center of AI-driven game development, connected to everyone, opening up the top of the funnel, and maximizing downstream activity on our authoring platform. Over the past quarter, we've experienced a very sharp increase in the use of coding agents on the Unity platform, and not surprisingly, As the power of the toolset becomes easier to access, engagement and satisfaction for existing users is greatly enhanced. But this dynamic attracts new users as well, and Uni's overall daily active user count is already up 25% just since early August. but opening up Unity Coding Agents is far from the only initiative we have that's aimed at growing the top of the funnel. At the beginning of October, we also announced our strategic partnership with Google and revealed Unity Spark, a breakthrough browser-based collaborative creation platform that will open game development to new creators all over the world, no prior coding experience required. By pairing intuitive creation tools directly with the rich library of artist-created content in the Unity Asset Store, Spark has the potential to unlock the game developer living inside millions of players, modders, and digital artists from around the world. Anyone with the talent and patience to iterate on the creation of a real gaming experience. We expect the partnership with Google to be impactful. We're aligned in wanting to provide an upgrade path for the more casual users of their playground creation product and looking forward to the opportunity to distribute Spark to the billions of users of Google's consumer products worldwide. Spark will be in close beta this year with a full launch in 2027 and we're excited about its potential to make a meaningful impact on our platform revenues in the years ahead. From our first day together a little over two years ago, Our team has believed that Unity possessed a generational opportunity and that we can become one of the most consequential companies of the AI era. Nearly 3 billion people play a Unity-powered game each month, and we are still just at the dawn of understanding how impactful our unique role in the content creation flywheel can be and where that opportunity will take us. I'll now pass the call over to Jarrod for a deeper discussion over financials. Jarrod?

Thanks, Matt, and good morning, everyone. Unity delivered an incredible third quarter with strategic revenue of $597 million, representing growth of 59% year-over-year. Adjusted EBITDA dramatically exceeded our expectations, growing more than 2x the rate of revenue growth, or 134% year-over-year. Strategic Grow is our largest and fastest growing business with revenue of 432 million, up 90% year over year, and now represents 69% of total revenues. Growth accelerated dramatically, both quarter on quarter and year over year, driven by Unity Vector. Vector continues to deliver robust, compounding performance gains as model optimization, coupled with unique data and product enhancements, drove improved performance for our customers. Vector's growth was broad-based across customers, operating systems, campaign types, and geographies. Our third quarter vector outperformance was powered by highly effective model updates, major advancements in infrastructure efficiency, and continued robust momentum in our day 28 ROAS product. Encouragingly, we saw significant new advertiser interest and onboarding. In fact, Vector grew the number of advertiser accounts 27% quarter-on-quarter in the third quarter. In Create, strategic revenue was $165 million, up 11% year-over-year, driven by ARPU growth and strength in China. Profitability was at record levels in the third quarter. Adjusted EBITDA was 257 million with 41% margins, up 1800 basis points year over year. Operating leverage combined with disciplined expense management were the keys to robust margin expansion. Adjusted gross margins improved in the third quarter by 200 basis points sequentially. This is primarily as a result of leverage and cloud costs that sit in cost of goods sold. Additionally, adjusted R&D, sales and marketing, and G&A expenses all came down materially as a percentage of revenue. Operating leverage was further amplified by rigorous ongoing expense discipline. Adjusted R&D, sales and marketing, and G&A were all flat to down in dollar terms from the second quarter as well. The third quarter benefited from the strategic actions we took in the first half of the year. Notably, adjusted sales and marketing came down $22 million sequentially and now represents 12% of revenue. This cost reduction was driven primarily by the sale of Supersonic and demonstrates how sharp focus is yielding dramatically faster revenue growth and contributing to materially higher levels of profitability. We are also extraordinarily pleased to report Unity's first quarter of GAAP profitability, delivering $122 million in net income in the third quarter, combined with a 20% net margin. This is our first quarter of GAAP profitability since IPO, and a clear indication of the health and trajectory of our business. Beyond the clear financial milestone this represents, GAAP profitability unlocks significant potential advantages, including Perspective eligibility for major equity indices, a broader institutional investor base, and long-term credit rating upside potential. The Q3 gap profitability is a further sign of the fundamentally different level of operating discipline we are applying at Unity. We expect amortization expenses and stock comp expense as a percentage of revenue to continue to fall and operating leverage to continue to increase. In order to help investors bridge the Unity's net income margins, I note the following modeling assumptions. In the fourth quarter, we expect amortization expenses to step down to $50 million from the $77 million we recognized in the third quarter. Looking ahead to 2027, we anticipate a further step down of amortization expense to $15 million per quarter. And for 2027, we expect stock comp expense of $75 million per quarter and an effective tax rate of 5% to 10%. Free cash flow in the third quarter was a record $220 million, resulting in an ending cash balance of $2.65 billion. We remain disciplined from a capital allocation standpoint and expect to pay off the convertible debt coming due on November 15th with cash on the balance sheet. Our significant cash generation provides us with tremendous flexibility as we think through investments in our product roadmap, potential M&A, and returning capital to shareholders. With that, let's turn to guidance for the fourth quarter. For the fourth quarter, we're guiding to total strategic revenue $683 million to $691 million, implying year-over-year revenue growth of 65% to 67%. This represents a further acceleration from the record growth rates we saw in the third quarter and would constitute Unity's seventh consecutive quarter of accelerating revenue growth. In strategic growth, we expect year-over-year revenue growth of 105% to 107%. And our guidance assumes 21% to 23% sequential growth rates for Unity Vector. In Strategic Create, for the fourth quarter, we expect 4% to 6% year-over-year revenue growth. For the full year 2026, Strategic Create is expected to grow by 9% year-over-year, and we expect similar levels of annual growth going forward, driven primarily by improvements in ARPU. Beyond our current business, we expect Unity Spark to tap into a new audience with the potential to drive downstream revenue across both Create and Grow, reinforcing the Unity flywheel. While we have not yet announced Spark pricing, our plan includes a mix of freemium and paid subscriptions, consumption-based revenues, and advertising. And lastly, we expect $5 million in non-strategic grow revenue in the fourth quarter going to zero in 2027. We're guiding the fourth quarter adjusted EBITDA of 290 million to 295 million, representing 132% to 136% growth year over year, and a 42% adjusted EBITDA margin. Our margins have continued to reach record highs, with guidance implying another 100 basis points of margin expansion next quarter. Unity is delivering extraordinarily financial results across its entire business. And although we are very pleased, we are not satisfied. The Unity flywheel has started to spin, and we're confident in our team's ability to execute on the clear opportunities ahead of us in the months and years ahead. With that, I'd like to thank you for joining us on Unity's third quarter 2026 conference call. I'll now turn the call over to Alex so that we can take your questions.

Thanks, Jared. Operator, we're now ready for questions.

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 now. 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. Benjamin Black with Deutsche Bank Your line is open. Please go ahead.

Great, good morning, and thank you for taking the questions. So just, I just want to vector, right, 40% growth sequentially, nearly twice the guide that you provided last quarter. So just digging a little bit more into the driver of that outperformance, you know, was there, you know, maybe one particularly big unlock that you identified? And I guess as, you know, we look ahead to 27, how should we think about the durability of those trends? And then a second question would be more so on The runtime data that you have, right? You know, if you think about maybe the opportunity to eventually help developers, you know, retain and monetize existing players rather than just acquire new ones, you know, how large could that opportunity become relative to UAs, to user acquisition? And, you know, which investments would you need to sort of unlock that opportunity? Thank you.

Hey, Ben, thanks so much for the question. So a couple of things. Just to break down to its simplest elements. Vector is an AI prediction engine. So what we're doing is we're doing a better job of predicting which consumers are going to like which games. We're doing a better job of valuing those consumers and then matching them with the publisher of the corresponding game. It is really that simple. There is no one silver bullet in this business as we've discussed before. As I mentioned in my introductory remarks, we think of this business around three major pillars. Continuous product enhancement. We talked a little bit about the day 28 product, but that's just one of very many enhancements we make in a typical quarter. And we have lots of product enhancements coming up and a really long roadmap. So that's product enhancement. Continued access to very high quality and ever higher quality data sets and run times a piece of that, which we'll get to in a second. And then also continuous compounding model improvements. Every day we optimize and retrain and we take into account both the impact of the product enhancements that have happened and changes in data. And that's a consistent process that we expect to continue to run well into the future. Keep in mind, Vector is still very much in its infancy. We're seven quarters into this. We have just started. So we don't think about durability in that sense. We think we're just at the outset. And now every quarter is not going to be a 40% quarter, but we're very confident about the healthy levels of growth going forward. And as you all have heard me say many, many times before, the way this business operates is we have incremental solid growth and then occasional step change functions. You've probably heard me say that a thousand times. We know the step change functions are going to happen. You just don't always know exactly when. All of this ultimately is driven by a massive and growing marketing inside mobile games, right? Mobile game advertising opportunity is at least $40 billion and it's growing double digits. So there are really healthy underlying drivers here as well. And then finally, I would just, I'd point you to the flywheel we keep talking about. This is critical as you think about the nature of the world and the nature of our business going forward. We are not an ad network. We are an authoring platform. As a consequence, we participate in all phases of this business. And as game creation becomes more efficient and more games get released and more developers make more games, Our authoring platform has an opportunity to help publishers deploy and monetize and grow those experiences at scale. And the more games that enter the marketplace, and we've seen that go parabolic, drives the premium of attention. It's harder and harder to find what you want to play, and then having robust Data set, as we do, of consumer behavioral understanding helps target those ads. So the whole thing feeds on itself and grows. Now to your second part of your question. The opportunities that are provided by us being an authoring platform, a full authoring platform, The, Alexander Joseph Giaimo How much money can I go out and spend to drive top line by getting installs, right? We spend all our time thinking about that and we assume the LTV, right? We say, well, given a certain LTV, how much advertising spend, how much return can I get? And we talk about that. What we don't talk a lot about is what game publishers spend 99% of their time talking about, which is how do I drive LTV up How do I get engagement up? Because monetization is a downstream output of engagement. So how do I drive engagement and LTV up such that when it comes time for me to go into the market to find new installs, I can spend more. And each one of the customers I derive and benefit will spend more when they're in my game. And that's where we also have the opportunity to drive value because that game is being built on a platform and it is connected to our runtime. And the runtime provides feedback to the publisher at scale in real time on the behavior of the players inside that game, what they're bored with, what they're interested in, what they'd like to spend. That is a critical and crucial advantage we have. It is a unique advantage That exists nowhere else. That is a critical part of our future. And it's a long-term tactical and strategic mode. We will get more and more sophisticated over time in how we derive value from the runtime. I think the other thing that this conversation often loses is folks think about runtime as sort of a static opportunity. And you think about it just based on coverage. What percentage of the runtime are you getting? That's important, but it's not the whole story because we will get better and better at understanding consumer behavior based on that runtime over time. And just the last point I'd make, because I did mention the opt-in, Our opt-in around runtime newly created projects remains over 90%. Of the top 1,000 spenders on Vector, 30% are now sharing runtime data with us, and we expect this number to grow over time.

Your next question comes from the line of Matthew Cost with Morgan Stanley. Your line is open. Please go ahead.

Great. Thanks for taking the question. Matt, just following up on the point you made in the prepared remarks around most of the growth for Grow and Vector coming from gross spend and delivering better real estate customers as opposed to take rate. How do you think about those two drivers of ad revenue growth philosophically? And is there an opportunity for take rate to go up over time? That's the first question. Second question is just on Spark and the partnership with Playground.

I guess

It sort of ran against the narrative that was out there in the market that basically any of these frontier labs have abilities that basically negate the need for a traditional game engine like Unity. What can Unity do? I guess if you could rebut that point. What can Unity do that tools native to a playground can't do? Thank you.

Good morning, Matt. Thank you very much for the question. On your take rate question, I'll just observe at a high level, and Jarrod, you can jump in afterwards if you'd like, that we just don't think about take rate. We think about maximizing the value of players so that we can deliver more installs to customers. We don't manage it. It's not a lever that we use. And really, it's no more complicated than that. On Spark, yeah, thank you for the question. We're really excited about Spark. And we believe Spark is going to be highly differentiated in the market because it is designed in a fundamentally different way than some of the other things, some of the other products we're seeing out there. And the fundamental difference is we have no interest in the very casual end of this market. Unity has grown and our DNA comes from professional game developers making high quality games that can be distributed across any platform. The insight that we have into how games get made and how a high quality game is built and how we can use tools to help those products be built and then to provide continuous feedback over time from performance of those games based on the runtime. These are unique assets that we have and that's what we're leaning into. Nobody in the world knows more about how to make video games than we do. We've been doing it for 20 years. And so our goal is not to help people make super casual things that they can share and that people will pay for, you know, will play for 10 or 20 or 30 seconds and you send it to a friend. And I'm not denigrating that. It's just not what we're about. Spark is a note code browser-based collaborative, and that's super easy. The, Alexander Joseph Giaimo couldn't build art or level designers who had other weaknesses in their skill set. And so the idea is to create real high quality work and to connect that to the unit ecosystem. We don't see anybody else in this space doing that. And we think we're perfectly positioned to deliver something really meaningful. And the last thing I'd say about it, which is really just a reiteration of a point I made earlier, is that opening up the top of the funnel so that more and more creators can use our authoring platform is at the very heart of our strategy. So when we announced it at Unite Seoul a few months ago that we were opening up the Unity platform to coding agents, that was one big step. And we talked about how that's driving both usage and engagement on our platform and also new users. Spark is another really significant effort with a significant and major partnership to help us gain proper distribution that we think will open the platform to millions of new people to create real and distribute real things. And that's how we're thinking about it.

Your next question comes from the line of Vasily Karisiov with Cannonball. Your line is open. Please go ahead.

Good morning. My question is for Jarrod. Jarrod, the magnitude of the beat within unity vector was quite, you know, big and surprising, I would say. Given that, is there any change to your guidance philosophy or was this quarter just some anomaly? Can you help us understand this? Thank you.

Thanks for the question, Vasily. And your observation is correct. I mean, the magnitude of the B was quite significant as compared to our guidance. The philosophy has remained pretty consistent since Matt and I joined. We go into the quarter. We look at a variety of inputs. We look at the run rates. We look at the seasonality. We look at the expected upcoming model enhancements and product releases. In certain quarters, the third quarter being a prime example of that, There are unforeseen step changes in growth. So this was a significant unforeseen step change in the growth that we experienced. Our objective is always to meet and exceed our guidance, but the magnitude of these beats can be outsized in certain circumstances. We're gonna continue to provide guidance based on what we see at the time. And if there are unexpected, unforecast performance gains, those will be significant excesses above our guidance Thank you.

Your next question comes from the line of Alec Brandolo with Wells Fargo. Your line is open. Please go ahead.

Yeah, hey, thank you so much. I appreciate the opportunity to ask a question. You know, maybe ask a two-parter. I think over the last two months, there's definitely been an inflection in and around AI in the gaming category. You know, you're calling it out on this call. I think Roblox spoke to it on their call. Some really prominent people in gaming and tech have been writing about it over the last few weeks. Two questions. One, what do you think changed with regards to the capabilities of the implementation that is enabling greater efficacy in the games category now, as opposed to maybe a year or two ago when we all discovered that quad code was going to be great? and then maybe secondly, I think we're all sitting here wondering, well, where does it show up in the numbers? Does it show up first in Create? Does it show up in Grow because you have more potential advertisers now? Any thoughts on where we see the benefit of this inflection in AI in Unity's financials would be great as well. Thank you.

Good morning, Alec. Thank you very much for the question. You know, I think that the quality of the models and the quality and kind of dimensionality of the harnesses that folks are learning to build to get the most out of those models are increasing. The quality of the compute is increasing and we're just gonna continue to see efficacy rise in everything that's touching AI. But AI is really at this point particularly most advanced and most impactful in coding agents. And so that's where you're seeing the impact there. So that's no surprise to us. I think as we think about our own business, what I'm really trying to express with the flywheel metaphor is that we see this trend driving all of our business. Every piece of it, we see it as the single most important trend that will drive more creators to be able to make more and better games, which will lead to a greater intensity for the need for discovery, which, yes, drives our ad business, but importantly, as I noted, because we're a full authoring platform, The product enhancements that we can offer through our authoring platform to game publishers to help them manage and personalize the experiences that they are offering their players agentically. Those opportunities are extraordinary. And back to the first question about the sort of left side of the equation, if you will, in which how do you drive engagement and greater monetization by improving gameplay experience. The combination of a kind of AI infused runtime driven, vector driven authoring platform, which helps game publishers create more engaging experiences, which create value in dollar terms. Those opportunities are absolutely there for us and absolutely there for publishers and will also drive our business going forward. And that's sort of why we chose this metaphor of a flywheel. It's not sort of too much of a cliche, but it accurately describes how we see this thing spinning and continuing to pick up pace and continue to accelerate. And we think it'll drive not only our own business, but also the entire industry forward. As much impact as this has had already, both in our own business, as you can see from our results this quarter and in previous quarters, but also as much impact as you're seeing, as you rightly point out, in our industry, we are just at the dawn of this. There will be brand new game experiences that are enabled. This is going to drive substantial growth in the video game market over time. and it will be a little bit bumpy in the beginning as it relates to as developers get comfortable with these tools as we continue to build out our tools to help them and it will create some dislocation among developers as you are seeing but make no mistake this is going to drive our industry forward many many years into the future We're really excited about it, and we are already seeing all of these, the beginnings of all these impacts in our business.

Your next question comes from the line of Brent Thill with Jefferies. Your line is open. Please go ahead.

Great. Thanks, Madeline. I know you mentioned you're not thinking about durability, but can you think about the predictability and visibility you have in the next quarters, given the success you just saw?

Yeah, and just to make sure I didn't speak, you know, it's not that I think durability is bad. I think durability is good, and we expect there to be a tremendous amount of durability. I'm just not worried about it. And I'm not worried about it because I can see every day the roadmap that our team has in front of it and that we're executing against. And we got it to 20% and delivered 40%, We enhanced that guide and pushed it up to 23. We did that because we see progress in front of us. We see opportunity. And because part of what we're seeing as we gain scale in this business is that success begets success. And so as we have effectively, to my eye, an endless product enhancement roadmap, Our ability to optimize models against those inputs gets better and better and more efficient. Our infrastructure use gets more efficient, which enables better optimization. And the long-term strategic mode that we have around understanding the 3 billion consumers who play a made-with-unity game to drive all of it is just, as I've said, I believe a generational opportunity. And And again, I would just, I'd add, because I know it is, it's sometimes hard to keep in mind, this is a product which is seven quarters into its lifespan. So when I say, you know, we feel like we're just at the beginning, we really do. I mean, we see tremendous opportunity in continuing to build out and drive this.

You know, just to add to what Matt said, Brent, Matt made a comment that success begets success. and one of the things we mentioned in our prepared remarks was that there was a 27% increase in new advertisers advertising on Vector in the quarter. And that 27% is not a year-on-year increase in new advertisers. That's a quarter-on-quarter sequential increase in one single quarter in new advertisers. What I'd also add is that 90% of the growth that we experienced in the quarter was from existing advertisers. And so those new advertisers who came on board have just started to spend with us. And we expect that that's a growth talent that we'll get. It's just another example of that virtuous cycle that takes place when you're delivering ROAS to customers. New customers come on board, they test, they experiment, they spend. When they see those results validated, they spend more. And so we're really pleased to see that the existing customers are driving the significant majority of the growth We're also very excited to see a large number of new advertisers come to us, test and experiment, and see the value that Vector can provide.

Your next question comes from the line of Clark Lampin with BTIG. Your line is open. Please go ahead. Clark, a reminder to kindly unmute yourself by pressing star six.

Thank you. Continuing my string of technical problems during Q&A on these calls. Matt, you made an interesting comment around. Yeah, one of these days, I guess, maybe next quarter. Matt, you made, you know, as I read it, I think a fairly constructive comment. comment around the pipeline in answering Ben's initial question. And I think Grow Leadership may have teased one or two of these products recently during a podcast, but I'm curious if you'd be willing to maybe number one, share a little bit more detail around what's in development, what you think can be impactful. And I guess second, From our perspective, how we should think about contributing, you know, I guess not to come back to this point, you know, on durability, but how this could contribute eventually, I guess, to the durability of what we're seeing is really elevated vector growth right now in 2027 and beyond. Hope the question makes sense. Thank you, guys.

Yeah, thank you, Clark. It makes sense. You know, I hesitate to to read out the list of product enhancements that we have planned, both because there are competitive issues associated with it, and obviously we want to communicate with customers before we roll them out, before we talk about them publicly, but also because I don't know that there's any analytical probity in anchoring on any one of them. In a given quarter, we might have six, depending on the quarter, ten, significant changes to the product. And I, you know, again, if we think about the day 28 offering, which is, you know, now about a quarter old, that is a kind of, we view as a fundamental table stakes product, right? You can't expect to be a player at scale without a product like that. And it was just, you know, it just took us, because the product is so new, it took us a while to get there. But the point is that there are still There's still a really long list of fundamental changes like that that are there for us and that are going to be as impactful as day 28 has been. And we're just excited at a high level about the opportunity to partner with with publishers to help drive their business. We are deep, committed participants in this industry. It matters to us that we do well. It's partially why we're so excited about being able to deliver all this value. And again, I think being just at the very start of this. And so I just, you know, to your point, I think the best thing, the best way to think about our business is to think about flywheel, to think about our ability to optimize both sides of that equation, and to think about the long-term durable value of 3 billion consumers playing games and us getting ever enhanced sense of what that in-game behavior is and how we can help publishers create better products as a consequence of being connected to those players. That's why when I start to talk about the business, I lean less around, hey, let me read you out a list of Stuff we're going to do next quarter. And I'm pulling the camera back just slightly to focus you on the scale and size of the opportunity. Not because I'm trying to be obtuse, but because I want you to see what we see. An enormous marketplace of billions of players worldwide who love to play, will always love to play, At the dawn of an era which is about to give them play experiences that are going to blow their minds. Play experiences that are driven by consumer behavior and AI and the genius of the humans who create those experiences. And we're sitting right in the middle of that opportunity, and we couldn't be more excited about it.

I don't know if I have a vote, but the podcasts are great. Thank you. I'm not going to stop.

Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead.

Thanks so much for taking the question. Maybe building on some of the comments around the Google partnership, maybe just two if I could. One, how should we be thinking about the unit economics of that partnership, especially on the compute side of the equation and what that might mean in terms of incremental margins for your business if it scales beyond closed beta into much wider release? And based on what I read on the closed beta, how are we thinking about some of the frictions that have to be removed from closed beta to something wider in 2027 to broaden out the potential for distribution of creations made through the partnership. Thanks so much.

Now, let me offer a couple of introductory remarks, and then Jarrod, I'm sure, will follow up. Yeah, thank you, Eric. There's a lot in there. So we're going to be in beta very shortly, and We haven't announced the pricing and the model of Spark, but it is going to be a mixture of subscription and advertising and some kind of a la carte purchasing. And so, you know, I was going to imagine a model in which you begin to play, you begin to build, it's free, and then at some point, You may hit a wall in which we ask you to engage with us in some way. But that's just a very high level idea. Those levers will all be tweaked as we're at beta, as we see the number of, the amount of compute that folks need to create great experiences and where the best and most optimal is the most satisfying way to engage those creators. So we will figure that out over time. As it relates to that, the friction you described around distribution, I really appreciate you asking that because it's something we probably don't talk that much about. That friction is quite literally one of the founding reasons that Unity exists. We are the only engine in the world that can allow you to build once and then seamlessly, in a high-performance way, distribute that experience across 25 plus platforms. Consoles, high-powered mobile phones, low-powered mobile phones, the web, what have you. That is at the heart of the value proposition of beauty. It has always been at the heart. And so we feel really good about that being a really good example of an opportunity we have to deliver a seamless experience to folks that many others will struggle to deliver at the quality that we will deliver.

A couple of things I would add to that, Eric, just on Unity Spark and the monetization model. As Matt laid out, we do expect to start with a freemium model. There will be a daily allocation. We're going to encourage people to create the experiences of their dreams. There are opportunities for consumption-based revenue streams on top of that, as well as advertising opportunities. Those advertising opportunities are going to be outside of mediated ecosystem, effectively allowing us a pathway for owned and operated ad inventory, which is a new tremendous opportunity for Unity that we're extremely excited about. There are two levers for monetization that I'm not quite sure everyone understands. The first is that we have the unique ability to use data in the creation process to optimize token costs. Every prompt that is undertaken, every query that is undertaken is ingested by us and can be used to train models, fine tune and optimize those models In order to decrease the cost of creation going forward. So that's a virtuous cycle that taken at scale is going to allow us to create the most cost effective creation model that should exist out there. The second piece that I would point out is The Unity Asset Store is the largest asset store of its type. It is a unique and extraordinarily valuable asset. To the extent that there are assets, and these are artist created assets that exist on the Unity Asset Store, that are owned and operated assets that are used as part of the consumption process, that is 100% flow through margin to Unity. So that's an extremely attractive opportunity for Unity. We may use that for consumption-based revenues. We may use that to upsell from a freemium to a subscription product. And moreover, to the extent that there are artist-owned assets that are sold, that's also incremental flow through margin for Unity. So I think our ability to optimize token costs in a unique fashion, our ability to leverage the asset store with a combination model of freemium, consumption-based, and advertising really makes this an extraordinarily attractive opportunity for us as we think about scaling and growing Spark in the years to come.

Yeah, that's really well said. I would just add one more piece in case it's not clear that although we're really absolutely thrilled and excited to be Your next question comes from the line of Dylan Becker with William Blair. Your line is open. Please go ahead.

Hey, gentlemen, appreciate it. Maybe two quick ones. And I think he kind of called this out, Matt, to start with you. But you said top of funnel usage from daily users is up 25%. And Jarrod, I think you said new advertisers on the platform is up 27%. It's probably too early to tie those two together. But maybe of that new daily user cohort, what are you seeing from a propensity to turn on monetization after they've kind of started to toy around with the idea of creation? and then, yeah, I'll start there again. I'll do that and then I'll ask a follow-up, thanks.

Okay, thanks, Bill. Sorry to interrupt. Yeah, those are two separate numbers, so I wouldn't daisy chain them together, but I would say this, and this is a really important concept, so I'm pleased that you asked the question. What are the really interesting downstream impacts of shifting into a world in which the authoring platform is, where games are being built around the command line interface, around the prompt, is that in the past, if you were building a game with Unity, you would, of course, download Unity and you'd do all sorts of things. You'd learn Unity and you'd begin building games. When it came time to partner with an ad network, or decide, hey, I'd like to sell ads in my game or, gee, I need to buy some installs, right? You then go back on the internet and do some research. You say, oh, there's Vector. I'm going to go get out and download that SDK. Let me download the documentation around it. Let me install that on Unity. And let me go down the road and figure out how that works. So that was the old world. In the new world, you say, hey, I want to build a game. Great, we're going to build it on Unity. All the Unity services, including Vector and others, are bound instantly at the moment of creation without you downloading or reading or any of the friction that used to happen in the old model, including, by the way, downloading Unity. So part of the reason we're so excited about this new model The new metaphor of creation is that because we offer a full platform of services and having those integrated in that first instance is going to be of enormous value, both to the creator and over time to you. And so we do see those dynamics already playing out, absolutely see them playing out in our business already. But it's just going to become more intense because we're at such an early stage.

Got it. Okay, perfect. That's helpful, Matt. Thank you. And then going back to kind of the asset store piece as well too, if Spark obviously helps accelerate collaboration, bringing more creators into the ecosystem, democratizes development, as we've talked about, I guess just how you're thinking about the asset store as helping kind of balance that mix between quality of content as well as volume of content. Thanks.

Yeah. It's really important to us that we respect and do everything we can to respect and enhance the human element of game creation. And there is a meaningful and significant backlash against AI-created art. And the issues associated with it are not just sort of psychological or political, if you will, but also have to do with the sort of genericization that happens when, you know, sort of models give you the median of what things look like. And part of their consumer reaction that you see, and part of the reason why there really aren't, at least to my knowledge, any particularly that are so obviously tied to this kind of genericized art and experience is that my consumers don't react well to it. So all those things are really important to us. And we're a company that was built on the centrality and the importance and dignity of the creator. What the Unity Asset Store allows us to do uniquely, because as Jarrod pointed out earlier, it is by far the largest source of artist-created art in the world, and we're going to be able to integrate it directly and deeply into Spark just as it's integrated into the current Unity ecosystem. We think what we'll do is help creators build better, more appealing product. Remember that the whole point here is to create great games. Opportunities that happen downstream for creators and for Unity and for everybody in the ecosystem happen as a consequence of building incredible experiences that consumers love. That's the thing that we want to be a part of. And if we can bring unique assets like our asset store into that process, then we feel really good about it.

Your final question comes from the line of Bernard McTernan with Needham. Your line is open. Please go ahead.

Great. Thanks for taking the question. Matt, you mentioned a couple of times in the call, 3 billion consumers you have supply. Basically, I wanted to ask, do you have enough supply to keep the strong growth going? Are you seeing any impact on Thank you. Thank you. Thank you.

The number of creators that are coming to our platform and the intensity of the use of our platform and the growth of the platform are all up into the right for us. So all of the dynamics that I've described are creating meaningful growth for Unity. And that was the anchor that I mentioned in my prepared remarks around Our DAU, our creator DAU being on 25% just since August, which is when we opened Unity to coding agents. We expect that dynamic to accelerate and to Jarrod's earlier points and to some of the earlier questions around Spark, the idea of bringing completely new set of potentially millions of new creators into that ecosystem through Unity Spark We think will be meaningful. And we think in the future we can satisfy both our professional audience and an audience of creators that are going to create new and different things that is, you know, 10 or 20 or 30 times as large as the audience of professional creators. They're going to create different things, it's going to be a different experience, but it's going to be a bigger experience, and we're going to be at the center of all of it.

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

Thanks, everyone. Have a great day.