--- title: "U (Trans): Q2 guide did not factor in potential boost from Runtime data" type: "Topics" locale: "en" url: "https://longbridge.com/en/topics/40529679.md" description: "Below is Dolphin Research's 1Q26 earnings call Trans for $Unity Software(U.US).For our take on the results, cf. 'Under the Shadow of the AI Disruption Narrative, Unity Is Steadily Climbing Out.'I. Core takeaways — 1) Guidance: Q2 Strategic revenue guided to $455-465 mn (+29%-32% YoY), incl. Strategic Grow up 50%-52% YoY..." datetime: "2026-05-07T16:11:29.000Z" locales: - [en](https://longbridge.com/en/topics/40529679.md) - [zh-CN](https://longbridge.com/zh-CN/topics/40529679.md) - [zh-HK](https://longbridge.com/zh-HK/topics/40529679.md) author: "[Dolphin Research](https://longbridge.com/en/news/dolphin.md)" --- # U (Trans): Q2 guide did not factor in potential boost from Runtime data **Dolphin Research summary of** $Unity Software(U.US) **Q1 FY26 earnings call; for the earnings take, see '**[**Unity Steadily Climbing Out of the Hole Amid AI Disruption Fears**](https://longbridge.cn/topics/40528998?channel=SH000001&invite-code=355628&app_id=longbridge&utm_source=longbridge_app_share&locale=zh-CN&share_track_id=6a13e78c-5522-49bb-990a-997e242345cb)**'** **I. Key takeaways from the print** 1\. **Outlook**: Q2 strategic revenue guided to $455–465 mn (+29%–32% YoY). Within that, strategic Grow up 50%–52% YoY and strategic Create up 11%–14% YoY (ex last year’s large-customer comp). Q2 Adj. EBITDA guided to $130–135 mn (+44%–49% YoY). Management expects margin to improve further in 2H to a record high. 2\. **GAAP profitability pulled forward**: Now targeting positive GAAP net income in Q4 2026. The three drivers are an 800 bps improvement in Adj. EBITDA margin, SBC down 20% YoY to ~15% of revenue, and a sharp decline in M&A amortization (Q1 $117 mn → Q4 $55 mn; full-year 2027 below $25 mn). These shifts underpin the new GAAP breakeven timeline. 3\. **Key metrics**: Q1 strategic revenue $279 mn (+49% YoY). Adj. EBITDA $138 mn (+65% YoY), margin 27%. Adj. GPM 82%–83%. LTM FCF $463 mn (+50% YoY). 4\. **Capital allocation**: Cash balance $2.15 bn and rising. The $558 mn convertible due Nov 2026 will be repaid in cash to de-lever. High M&A bar; priority is organic investment in the AI product roadmap. 5\. **Strategic actions**: Shuttered the ironSource ad network (completed Apr 30) and selling the Supersonic publishing biz. These are expected to add 200+ bps to OPM. From Q2, guidance focuses on strategic revenue; non-strategic revenue is ~$50 mn in Q2 and ~$45 mn in Q3. ![表格描述已自动生成](https://pub.pbkrs.com/uploads/2026/15cd01b5f42b62c8eae3d7954da60861?x-oss-process=style/lg) **II. Earnings call details** **2.1 Management highlights** 1\. **Vector (AI prediction engine)** a. Delivered 15% QoQ growth for the fourth straight quarter; Q1 revenue rose 80% YoY, above internal expectations. b. Runtime data will enter production models for the first time this quarter. Offline tests are encouraging, and the developer data framework opt-in rate exceeds 90%. c. Vector has expanded from the core of Ads into the neural hub across Create and Grow. Unity AI is the first engine-side product powered by Vector. 2\. **Unity AI (engine-integrated AI agents)** a. Public beta goes live this week, tuned for Unity workflows with full project context (scene hierarchy, packages, code, assets, performance controls). b. Converts image pixels into Unity scenes (mesh upscaling plus textures), materially speeding up game production. c. One week post launch, 70% of adopters were still active on Day 5. d. New pricing blends agent connections, seats, and consumption, aligned with a human-plus-agent model. 3\. **Create** a. Q1 strategic revenue $154 mn (+15% YoY), marking the fourth consecutive quarter of mid-teens growth. b. Drivers: annual price increases, strong China demand, and non-gaming verticals (e.g., auto HMI). c. Since Unity 6 launched, user-reported issues fell 22%. Unity retains ~70% share in mobile game creation. 4\. **Unity Commerce Platform** a. Planned to launch this quarter with Voodoo Games and SciPlay as initial partners. b. Provides a unified native console to manage catalog, pricing, and global payments across mobile/Web/PC. 5\. **Industry trends and growth** a. 90% of game developers already use AI; new mobile app launches are up 60% YoY. b. Made-with-Unity games rose 12% QoQ; new Unity registrations increased 20% QoQ, the fastest since 2020. c. AI lowers the creation barrier and is spawning a large 'prosumer' class. The company will build product lines for both pros and prosumers. 6\. **Costs and margins** a. Adj. S&M declined YoY both in dollars and as a % of revenue, with capital reallocated to R&D. b. Adj. R&D rose 9% YoY; AI-related R&D was up 17% YoY, including AI hiring and cloud inference/training costs. c. Supersonic divestiture should add at least 200 bps to OP margin. The ironSource shutdown costs roll off in 2H. **2.2 Q&A** **Q: Versus cutting-edge LLM demos for game creation, where does Unity AI have an edge?** A: Unity AI is an integrated agent tuned for game development and Unity-specific use cases. General-purpose coding agents are powerful but lack Unity engine context and the project’s own context, which matters a lot when shipping real cross-platform games. Our differentiation lies in the full project context — it sees packages, assets, and code as a unified system — and Unity-specific tuning — it understands platform adaptation and asset pipeline integration. After just one week, 70% of adopters were still active on Day 5, signaling we are on the right track. This high retention stems from better performance via our context engineering. Compared with generic models, it is more efficient and cheaper, requires fewer prompts, and is faster. More exciting, Vector is now the core of everything — Unity AI is the first engine-side product powered by Vector. That means the personalized AI system underpinning Grow is also enabling Create. We are confident we can combine best-in-class tools, monetization, and distribution with the latest in AI, which is why registrations and game creation are hitting new highs. **Q: Feedback from Unity Commerce Platform partners? How big could it be financially?** A: We are thrilled to launch Commerce with flagship clients like SciPlay and Voodoo. Commerce creates value across data, economics, and operational tooling to optimize merchandising and webshops. It is a classic case where Create-side value enhances the entire Unity platform, including Vector. Unity is well positioned to help developers solve real-world problems — accept in-app payments economically, minimize engineering overhead, and maximize data value. **Q: Any specific QoQ growth expectations for Vector in Q2? Why is 'serialized' runtime data important? Will Unity favor first-party vs. third-party agents?** A: Vector grows through a compounding flywheel: product improvements → easier use and better returns → more spend → more data and demand → retraining → better signals and ROAS → repeat. We have delivered 15% QoQ growth for four straight quarters, broad-based across regions, genres, and platforms. Q2 guidance does not yet include runtime data contributions. A concrete product example: last quarter’s Day-28 ROAS product drove an 80% incremental uplift and improved ROAS by 37% vs. Day-7 benchmarks. On runtime data, we are very excited by the offline results and expect to go into production models this quarter. Runtime data is a real-time, serialized behavioral signal — it is not delayed, and it is ordered, letting us understand not just what users do but in what sequence. If you think about daily behavior, order matters to infer intent. Signals from inside the game, combined with the game’s runtime context on Unity, differ from click, conversion, or postback data and form a new signal class. Opt-in rates exceed 90% for the developer data framework, and more live games are integrating. We are excited about its impact in 2H26 and beyond, though these signals compound over time rather than spike instantly. **Q: Within strategic Grow, how do model, product, and data/signals each contribute?** A: Strategic Grow is up over 50% YoY, with about 80% coming from the Vector-powered Unity Ad Network. Growth reflects model upgrades, product enhancements, and stronger data/signals. We do not break out single-quarter mix, and the most distinctive element — runtime data — is not yet included. **Q: Beyond revenue-driven operating leverage, what else expands margins?** A: We are disciplined on margin expansion. We have seen sustained leverage in G&A and Sales, which should continue as we automate internal ops and customer service. Two clear 2H catalysts: first, ironSource shutdown and strategy-reset costs roll off in 2H (Q2 already has lower revenue but still carries costs). Second, after the Supersonic divestiture, given its lower profitability, we expect at least 200 bps OPM uplift. **Q: Any differences in Vector’s performance across regions?** A: No. Vector growth is broad and balanced across all regions, genres, and platforms, with no notable differences. We expect the same for runtime data. **Q: What does AI mean for Create’s commercial opportunity — for pros vs. hobbyists? Timing of the M&A amortization step-down? SBC trend?** A: The past two years have been a product journey. Step one was ensuring core pro users have a stable, performant toolchain, a roadmap aligned to needs, on-time delivery, and restored trust. We have made clear progress — reported issues are down 20%+ and should keep improving. Looking ahead, two growth paths excite us. First, AI helps pros build faster — much of the pain in game dev is rebuilding common systems in same-genre titles, while devs want to get to differentiation sooner. Productivity tools accelerate that, yielding better games, more games, and more tool usage. Over time, our tools will fuse leading neural capabilities with Unity’s strengths in systems, distribution, and monetization — a strong outcome for pros. Second, we are equally excited about a new creator class that will ultimately dwarf pros. Hundreds of millions who make linear videos on social platforms will add interactivity to boost engagement. With 20 years of insight into gamers and game-building, our context engineering makes our products outperform generic AI. We will build dedicated offerings for pros and prosumers. On M&A amortization: Q1 was $117 mn, Q2 and Q3 are ~ $80 mn each, and Q4 drops to $55 mn. Full-year 2027 is below $25 mn — a major step-down. Together with lower SBC and better profitability, this supports GAAP profitability in Q4. On SBC: $76 mn this quarter, down 20% YoY, with the revenue ratio down from ~30% to ~15% — nearly halved YoY. We expect SBC dollars to stay relatively stable, with the ratio falling as revenue grows. **Q: As AI usage rises on the platform, how will Create’s biz. model evolve? Any update on non-gaming Create?** A: AI products are productivity tools, and pricing should scale with usage and value created, not penalize efficiency. Clients ultimately care about outcomes, not inputs, and our model is evolving accordingly. Existing enterprise contracts use minimum commitments rather than pure seat-based pricing, which naturally suits a shift to consumption. Unity AI pricing already reflects this — it includes consumption and considers concurrency, as humans and agents will use our software together. As long as context engineering delivers differentiated value and better performance, we are confident the model shift can create a new growth curve. On non-gaming Create, growth has accelerated for several quarters and remains strong. We lead in auto HMI and other scenarios needing high-fidelity, interactive, multi-platform content — Unity’s sweet spot. We will not disclose a separate revenue figure. **Q: Is conversion improvement the main driver for Vector? How far is current conversion from best-in-class?** A: Growth is multifaceted — better signals, model optimization, product upgrades, and higher advertiser returns. All paths flow into better advertiser ROAS, which drives revenue. At a high level, industry-wide conversion is still in the single digits. The headroom is enormous for us and the industry, which is why this is so exciting. **Q: With runtime data going live and more model experiments in 2H, how do you see cloud costs and contribution margins? Any minimum contribution margin guardrails?** A: Our Adj. GPM remains 82%–83%, with cloud as the largest component. During investment and testing, cloud costs can tick up in a given quarter, then benefit from operating leverage as revenue scales. We see significant leverage in cloud long term — larger peers run lower cloud cost as a % of revenue than Unity. We avoid committing to a specific GPM target to preserve flexibility for AI and Vector investment. Between optimizing cloud and accelerating revenue growth, we lean toward growth, confident that scale will improve cloud efficiency. **Q: Why is the Q2 margin guide slightly lower QoQ?** A: Two reasons. We continue to invest heavily in cloud. The larger factor is the strategic reset: Q2 revenue is lower (ironSource contributes two fewer months), but associated costs are still in the system and roll off in 2H. So it is a timing issue on operating leverage that improves in the back half. **Q: Results from runtime data testing? When will it contribute materially?** A: Offline results are very encouraging, and we expect to move into production models this quarter. These signals accumulate and compound over time rather than deliver an immediate spike. We view them as a durable, long-term quality lift and a defensible moat. **Q: Client feedback on Day-28 ROAS? What is next on the Vector roadmap beyond runtime data? With cash building, what are capital allocation priorities?** A: Day-28 ROAS delivered an 80% incremental uplift and a 37% ROAS improvement vs. Day-7 baselines. Next, Vector will advance along two tracks: feature enhancements like Day-28 to give clients more flexibility and insight to scale spend, and greater automation so clients can buy and measure more automatically, improving conversion and scale. On capital allocation: cash was $2.15 bn at Q1-end; LTM FCF $463 mn (+50% YoY; last year $308 mn). We plan to repay the Nov 2026 converts in cash. Beyond that, the focus is organic growth and the AI roadmap, with a high M&A bar. We will deploy cash prudently and avoid distracting product teams, to execute on the strong organic opportunity ahead. **Risk disclosure and statements:**[**Dolphin Research disclaimer and general disclosure**](https://support.longbridge.global/topics/misc/dolphin-disclaimer) ### Related Stocks - [U.US](https://longbridge.com/en/quote/U.US.md)