What are the specific Q2 Vector sequential growth expectations? Why is runtime data sequencing powerful for conversion prediction? Is Unity committed to allowing third-party agents with Unity AI beta?

Matt Bromberg explained Vector's growth drivers (product, signal improvements, flywheel effect) and reiterated runtime data's value as real-time, sequential behavioral data for long-term quality enhancement, not immediate spikes. He did not provide specific Q2 sequential growth for Vector or directly address the third-party agent question. “The runtime data is a kind of signal of the value which is going to build over time and compound. As we've said many times, it's not something we expect immediate spikes around, but we think it will be steady, meaningful improvements of quality in the model and the data over time.”

Can you frame the composition of Vector growth (model enhancements vs. self-learning)? What other margin levers does Unity have beyond Vector's growth?

Matt Bromberg stated that Vector growth is multifaceted (model, product, data) but individual contributions are not delineated. Jarrod Yahes pointed to continued operating leverage in G&A/S&M, cost reductions from strategic actions (ironSource, Supersonic divestiture expected to add 200 bps to operating profit), and a focus on organic investment. “There's a couple of catalysts that I would call out separately. Firstly, with respect to some of the strategic actions that we announced, while the second quarter does start to see an impact of some of the revenues of those actions, the costs haven't come out of the business as of yet. That will take place over the back half of the year.”

Is improved conversion rates the single biggest driver of Vector growth, and can you frame current conversion rates versus best-in-class?

Matt Bromberg confirmed that improvements ultimately drive advertiser return and revenue. He noted that industry conversion rates are in the single digits, indicating 'almost infinite' headroom for improvement, highlighting the significant opportunity for growth. “One of the things to think about at a high level, just notionally is that industry conversion rates are in the single digits. So when you think about opportunities for improvement in our business and an improvement in the -- for everybody in the industry, they're almost infinite.”

Unity Software (U) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Information Technology· May 7, 2026

Source: earnings call transcript

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

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

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

Category	Target	Timeline	Confidence
Total Strategic Revenue	$455M-$465M high materiality	Q2 · FY26	High
Strategic Grow Revenue Growth	50%-52% year-over-year growth medium materiality	Q2 · FY26	High
Strategic Create Revenue Growth	11%-14% year-over-year growth medium materiality	Q2 · FY26	High
Adjusted EBITDA	$130M-$135M high materiality	Q2 · FY26	High
GAAP Net Income	Profitable high materiality	Q4 · FY26	High
Adjusted EBITDA Margins	Further improve in the back half of 2026 high materiality	H2 FY26	High
AI-focused R&D spend	Continue to climb medium materiality	Ongoing	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Strategic Grow Revenue upside driven by exceptional performance of Vector. Does not yet reflect runtime data impact.	$279M	49%	—	—
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%	$154M	15%	—	—

Product announcements

Product	Type	Timeline	Details
Unity AI	launch	Earlier this week
Unity Commerce Platform	launch	This quarter

Deals & partnerships

ironSource Ad Network Sunsetted and closed

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

Supersonic publishing business Selling the business

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

Risks & headwinds

Nonstrategic revenue impact Q2 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 system Q2 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 testing Short-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

Runtime data graduation to live production models

Q2 FY26

Current In offline testing

Target Graduated 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.

Find out whether U delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.