Key Highlights
- First quarter revenue reached $508.2 million, a 16.8% increase from last year, surpassing analyst projections of $503.8 million
- Earnings per share (adjusted) of $0.23 fell short of the $0.24 Street expectation by one cent
- Strategic revenue jumped 35% year-over-year, totaling $432.4 million
- Adjusted EBITDA climbed to $138 million with margins at 27%, compared to 19% in the prior year period
- Shares rose 6.4% to close at $29.01 in post-earnings trading
Unity Software (NYSE: U) delivered first quarter fiscal 2026 financial results that exceeded revenue forecasts, propelling shares 6.4% higher to $29.01 in trading following Thursday’s announcement.
The company generated $508.2 million in quarterly revenue, reflecting a 16.8% year-over-year increase and beating the Street’s $503.8 million estimate. This marked a solid performance on the revenue front.
On the earnings side, adjusted EPS landed at $0.23, falling a penny short of analyst expectations of $0.24.
The standout metric that captured investor attention was Strategic Revenue, which exploded 35% year-over-year to reach $432.4 million. Breaking this down further, Strategic Grow Revenue climbed 49% while Strategic Create Revenue advanced 15%.
Adjusted EBITDA totaled $138 million with a corresponding 27% margin. This represents a significant improvement from $84 million and a 19% margin recorded in the first quarter of 2025. The expansion resulted from stronger revenue performance combined with enhanced operational efficiency.
Free cash flow generation hit $66 million, a substantial increase compared to merely $7 million in the same period last year. This represents notable progress in cash conversion.
GAAP Losses Expand Due to Asset Impairments
Looking at Generally Accepted Accounting Principles (GAAP) metrics, results appeared less favorable. The net loss ballooned to $347 million, or $0.80 per diluted share, versus a $78 million loss in Q1 2025.
The majority of this loss stemmed from $279 million in impairment charges related to winding down the ironSource Ads Network and the anticipated sale of the Supersonic game publishing division.
GAAP-based Operating Income registered at -$274.2 million, significantly trailing the analyst projection of $111.7 million.
Billings totaled $515.6 million, representing an 18.5% year-over-year gain. Across the trailing twelve months, billings have grown at an average annual rate of 8.7%, which has lagged behind industry competitors.
Second Quarter Outlook Exceeds Wall Street Expectations
For the second quarter, Unity projected revenue in the range of $505 million to $515 million. The midpoint of $510 million edges out the analyst consensus of $507.2 million.
Strategic Revenue for Q2 is expected to fall between $455 million and $465 million, suggesting year-over-year growth of 29% to 32%.
Adjusted EBITDA guidance ranges from $130 million to $135 million for the second quarter, with the $132.5 million midpoint exceeding the Street’s $131.1 million forecast.
“We are delivering exceptional revenue growth and margin expansion while executing on the most exciting product roadmap in Unity’s history,” said CEO Matt Bromberg.
Operating margin for the first quarter registered at -69.1%, declining from -29.4% in the comparable 2025 period, primarily due to the impairment write-downs.
Customer acquisition expenses continue to run high. Unity’s CAC payback period measured 115.5 months this quarter, indicating a highly competitive landscape where customer acquisition and retention require substantial investment.
Free cash flow margin came in at 13.1%, a decline from 23.6% in the previous quarter.
Wall Street analysts currently project revenue growth of 12.8% over the coming twelve months, trailing the broader software industry average.
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