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    Earnings call· Mar 2026(Q1 FY26)

    Unity Software Q1 FY26 earnings call U

    May 7, 2026 Source

    Executive summary

    Unity Software Inc. Q1 FY26 — Strong Growth and Path to GAAP Profitability

    Unity delivered a strong Q1 FY26, marked by robust strategic revenue growth and significant adjusted EBITDA margin expansion, positioning the company for GAAP profitability by Q4 2026. The company is leveraging AI, particularly through its Vector system and new Unity AI product, to drive both advertising performance and content creation efficiency. Strategic exits of non-core businesses are expected to further streamline operations and enhance profitability in the latter half of the year.

    Highlights

    5

    • Strategic revenue grew 35% year-over-year to $433 million.

    • Adjusted EBITDA margin reached 27%, up 800 basis points year-over-year, and adjusted EBITDA grew 65% year-over-year to $138 million.

    • Vector revenue was 80% larger than a year ago, achieving 15% sequential growth for the fourth consecutive quarter.

    • New Unity sign-ups increased 20% quarter-over-quarter, the fastest growth since 2020.

    • Create strategic revenue grew 15% year-over-year for the fourth consecutive quarter, driven by price increases and non-gaming industry strength.

    Concerns

    2

    • Q2 adjusted EBITDA margin is guided slightly lower quarter-over-quarter due to costs from strategic actions (ironSource Ad Network exit) still being in the system.

    • Nonstrategic revenues in Grow are expected to be $50 million in Q2 and $45 million in Q3, impacting total revenue.

    Guidance & targets

    7
    CategoryTargetConfidence
    Total Strategic Revenue
    $455M-$465M
    high materiality
    High
    Strategic Grow Revenue Growth
    50%-52% year-over-year growth
    medium materiality
    High
    Strategic Create Revenue Growth
    11%-14% year-over-year growth
    medium materiality
    High
    Adjusted EBITDA
    $130M-$135M
    high materiality
    High
    GAAP Net Income
    Profitable
    high materiality
    High
    Adjusted EBITDA Margins
    Further improve in the back half of 2026
    high materiality
    High
    AI-focused R&D spend
    Continue to climb
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Strategic Grow
    Revenue upside driven by exceptional performance of Vector. Does not yet reflect runtime data impact.
    		$279M49%——
    Strategic Create
    Consistency with 4 straight quarters of mid-teens year-over-year growth. Driven by annual price increases, strength in China, and non-gaming industry business. User-reported issues down 22% since Unity 6 launch.
    Market share in mobile game creation: 70%
    		$154M15%——

    Operational metrics

    16
    Adjusted EBITDA
    $138MUp 65% YoY
    Q1 FY26

    Best in over 2 years.

    Adjusted EBITDA margin
    27%Up 800 bps YoY
    Q1 FY26

    Improved 800 basis points year-over-year.

    Adjusted gross margins
    82%-83%
    Q1 FY26

    Inclusive of cloud costs.

    Stock-based compensation
    $76MDown 20% YoY
    Q1 FY26

    Down to 15% as a percentage of revenue.

    M&A amortization
    $117M
    Q1 FY26

    Expected to drop to $80M in Q2/Q3, $55M in Q4, and sub-$25M in FY27.

    Cash and investments balance
    $2.15B
    Q1 FY26

    Continues to increase each quarter due to robust free cash flow.

    Adjusted sales and marketing
    DeclinedYoY
    Q1 FY26

    Declined year-over-year and as a percentage of revenues.

    Adjusted G&A
    DeclinedYoY
    Q1 FY26

    Declined year-over-year and as a percentage of revenues.

    Adjusted R&D spend
    Up 9%YoY
    Q1 FY26

    Redeployed capital into R&D.

    AI-focused R&D spend
    Up 17%YoY
    Q1 FY26

    Expected to continue to climb.

    Operating profit improvement from Supersonic divestiture
    At least 200 bps
    Post-divestiture

    Expected upon divestiture of the Supersonic business.

    Vector revenue growth
    80% largerYoY
    Q1 FY26 vs prior year

    Astonishing result for a young product.

    Vector sequential growth
    15%QoQ
    Q1 FY26

    Fourth consecutive quarter of 15% sequential growth.

    User-reported issues (Unity 6)
    Down 22%
    Since launch

    Improved satisfaction from customers.

    Developer data framework opt-in rates
    Over 90%
    Ongoing

    Adoption rates continue to scale, enhancing unique competitive position.

    Day 28 ROAS product incremental lift
    80%
    Ongoing

    For campaigns, showing a 37% ROAS improvement versus old Day 7 benchmarks.

    Industry KPIs

    5
    MetricValueDetails
    Revenue growth$433MUSD
    Pricing model mixEvolving
    Customer account countUp 20%%
    Operating FCF margin rule of 4027%%
    Ai product adoption monetization70%%

    Product announcements

    2
    ProductTypeDetails
    Unity AIlaunch
    Unity Commerce Platformlaunch

    Deals & partnerships

    2
    ironSource Ad NetworkSunsetted and closed

    Strategic decision to sunset the ironSource Ad Network, with closure on April 30.

    Supersonic publishing businessSelling the business

    Strategic decision to sell the Supersonic publishing business. Expect $45M in nonstrategic revenue in Q3 until exit is complete.

    Risks & headwinds

    3
    Nonstrategic revenue impactQ2 and Q3 FY26

    $50M in Q2 FY26, $45M in Q3 FY26

    Mitigation: Strategic decision to exit these businesses for long-term focus and profitability.

    Costs of strategic actions remaining in systemQ2 FY26

    Costs of ironSource Ad Network exit

    Mitigation: Costs are expected to leave the system over the back half of 2026, leading to margin improvement.

    Cloud costs during investment and testingShort-term

    Can bump up

    Mitigation: Prioritizing investment in AI for future revenue growth; long-term operating leverage expected as business scales.

    What to watch in Q2 FY26

    5

    Runtime data graduation to live production models

    Q2 FY26
    CurrentIn offline testing
    TargetGraduated to live production models

    Why it matters

    Expected to provide a significant future catalyst for Vector growth and sustainable competitive advantage.

    Most notably, later this quarter, we'll see💬 Unity's runtime data graduate to our live production models for the first time. Our conviction remains high that real-time sequential behavioral data will provide a significant future catalyst for growth.

    Q&A highlights

    5

    How does Unity AI differentiate from generic AI tools for game creation, and what is the potential financial impact of the Unity Commerce Platform?

    Matt Bromberg highlighted Unity AI's differentiation through project context and Unity-specific tuning, leading to better performance and efficiency. Jarrod Yahes emphasized the Commerce Platform's value proposition for developers (IP acceptance, reduced overhead) and its potential to benefit the entire Unity platform, including Vector, but did not quantify financial impact.

    “Unity AI is an integrated agent that's tuned specifically for game development and for use of Unity. General -- as I kind of talked about in the opening, general purpose coding agents are really powerful, but what they lack is Unity engine-specific context as well as the context of the project you're building itself.”

    asked by Matthew Cost · answered by Matthew Bromberg

    2 min read6 chapters

    Detailed Narrative

    01

    AI-Driven Growth & Product Development

    Unity's internal AI system, Vector, is now central to product development across both its Create and Grow segments. The company launched Unity AI, an integrated agent specifically tuned for Unity workflows, into public beta, demonstrating strong early attachment rates with 70% of users continuing to engage after five days. This tool leverages full project context and Unity-specific tuning to accelerate game development, transforming image data into production-ready formats and enhancing efficiency for creators.

    02

    Vector's Impact and Future

    Vector, initially known for its advertising capabilities, has evolved into a personalization AI designed to understand player preferences in games. It has driven 15% sequential growth in strategic Grow revenue for four consecutive quarters. A key upcoming development is the graduation of runtime data to live production models in Q2, which is expected to provide a significant, sustainable competitive advantage through real-time, sequential behavioral data from within games, supported by over 90% developer opt-in rates.

    03

    Create Segment Strength & Evolution

    The Create segment reported 15% year-over-year strategic revenue growth for the fourth straight quarter, fueled by annual price increases, strong performance in China, and growth in its non-gaming industry business, particularly in areas like auto HMI. Product quality improvements, including a 22% reduction in user-reported issues since Unity 6, have enhanced customer satisfaction. The company is adapting its business model for AI products, with new pricing for Unity AI based on agent connections and seats, designed to scale with usage and value created.

    04

    Path to GAAP Profitability Accelerated

    Unity has significantly pulled forward📎 its forecast for GAAP net income profitability, now expecting to achieve it by the fourth quarter of 2026. This acceleration is attributed to an 800 basis point expansion in adjusted EBITDA margins, a 20% year-over-year reduction in stock-based compensation (now 15% of revenue), and a substantial decrease in M&A amortization, which is projected to fall from $117 million in Q1 to less than $25 million for the full year 2027.

    05

    Unity Commerce Platform Launch

    The Unity Commerce Platform is on track for launch this quarter, with key partners like Voodoo games and SciPlay already committed. This platform aims to simplify global business operations for developers by offering a single native dashboard to manage catalogs and pricing across mobile, web, and PC, thereby reducing the overhead associated with juggling multiple SDKs and payout systems and providing a turnkey solution for global payments.

    06

    Strategic Actions and Margin Outlook

    Unity is executing strategic decisions to exit nonstrategic businesses, including the ironSource Ad Network (closed April 30) and the Supersonic publishing business (in divestiture process). The ironSource exit means Q2 will include only one month of its revenue. The divestiture of Supersonic is expected to improve operating profit by at least 200 basis points. These actions, combined with continued operating leverage, are anticipated to drive further improvements in adjusted EBITDA margins in the second half of 2026.

    AI-generated summary of the company’s earnings call. Not investment advice.