U Unity Technologies 10-Q 2026-09-30 section summaries

Unity Software (U) — Q3 and first nine months of 2026

Dollar amounts in millions except per-share data and share counts.

Consolidated results

Q3 gross margin expanded to 81.9% from 74.4%. Cost of revenue declined in Q3, but rose sharply for 9M, principally reflecting a $227 million impairment recorded in Q1. Q3 operating expenses fell 14.1%; sales and marketing declined to $103.471 from $165.869 and G&A to $54.321 from $65.913, while R&D rose to $251.148 from $244.357. Unity’s 9M loss narrowed, although the period included substantial impairment and restructuring charges.

Revenue by solution

Create growth was 8.3% in Q3 versus 5.0% for 9M; Grow grew 43.6% in Q3 versus 34.5% for 9M. Grow was the main driver of revenue growth, with its pace moderating in the year-to-date comparison. Unity reports one operating segment, software solutions.

Cash flow and balance sheet

Operating cash flow increased despite the GAAP net loss, supported in part by noncash charges, including $270.506 million of intangible-asset impairment. Cash and cash equivalents on the September 30 balance sheet were $2,646.439 million. The decline in intangible assets reflects impairment and the Supersonic sale. Accounts receivable, net, rose to $833.522 million from $643.611 million; the allowance for uncollectible amounts declined to $9.3 million from $10.9 million.

Business, strategic actions and obligations

In March 2026, Unity announced it would sunset the ironSource Ads Network, effective April 30, and exit its Supersonic game-publishing business. Q1 impairment charges totaled approximately $279 million, including $227 million in cost of revenue and $47 million in sales and marketing; approximately $271 million reduced intangible assets ($225 million of developed technology and $46 million of customer relationships). Unity shortened the estimated lives of certain developed-technology assets from two to three years to one to two years. That estimate change reduced Q3 operating income by about $3 million and net income by about $2 million; for 9M, it reduced operating income by about $6 million and increased net loss by about $4 million.

Unity completed the Supersonic sale on August 4 for $38.0 million net of direct expenses, subject to post-close adjustments, and recorded a $4.5 million gain. 9M restructuring and separation charges were about $51 million, mainly related to the planned closure of Unity France; $24 million remained accrued at quarter-end.

At September 30, remaining performance obligations on contracts with original terms over one year were $597 million, primarily Create subscriptions, Enterprise Support and Strategic Partnerships. Unity expects to recognize $292 million (49%) over the next 12 months; commitments generally extend one to five years. During 9M, $200 million of revenue was recognized from opening deferred-revenue balances.

Debt, liquidity and dilution

Unity had $2.248 billion of unsecured convertible-note principal outstanding: $557.724 million of 0% 2026 Notes, $1.000 billion of 2% 2027 Notes and $690 million of 0% 2030 Notes. Their net carrying amount was $2.238445 billion after $9.279 million of unamortized issuance costs. Combined note interest and debt-cost amortization was $6.0 million in Q3 2026 versus $6.1 million, and $18.1 million for 9M versus $18.0 million. The 2026 Notes became holder-convertible in August 2026; the 2030 Notes were not convertible at quarter-end. Capped calls cover approximately 5.6 million shares for the 2026 Notes and 19.1 million for the 2030 Notes, intended to reduce dilution.

Total non-cancelable commitments were $3.872433 billion, including $2.277724 billion of convertible-note principal and interest, $1.390256 billion of purchase commitments (mostly data-center hosting), $104.453 million of operating leases and a $100 million commitment to acquire AppsFlyer shares, with completion expected by the end of 2027 subject to conditions and adjustments.

Common shares outstanding increased to 443.800 million at September 30 from 432.860 million at December 31, 2025. Stock-based compensation expense was $64.033 million in Q3 versus $91.968 million, and $221.146 million for 9M versus $292.362 million. At quarter-end, 9.481 million options and 25.061 million unvested RSUs/PVUs/PSUs were outstanding. Diluted weighted-average shares in Q3 were 498.165 million, including potential shares from convertible notes and awards; 9M diluted shares equaled basic shares at 437.930 million because potential shares were antidilutive.

Unity China has a 20.5% third-party interest; its results are consolidated and the redeemable noncontrolling interest is recorded as temporary equity. That balance was $273.279 million at September 30, 2026, and Unity may be required to repurchase the interest under certain conditions.

Other risks and items

Unity maintains a full valuation allowance against deferred tax assets in the U.S. federal, U.S. state and certain foreign jurisdictions, primarily due to its history of losses. Gross unrecognized tax benefits were $187.8 million at September 30, of which $36.2 million would affect the effective tax rate if recognized. Unity also cited ordinary-course legal matters and acknowledged that material adverse outcomes remain possible, though management did not believe pending matters would have a material adverse effect based on currently available information.

In October 2026, Unity entered into and completed a $100 million purchase of a minority equity interest in a private company; accounting treatment was still under evaluation.

Unity Q3 and nine-month 2026 results

Unity’s Q3 revenue and GAAP profitability improved sharply, led by Unity Ads Network and Unity Vector. For the first nine months, revenue and adjusted earnings grew, and the GAAP net loss narrowed; however, impairment and restructuring charges associated with portfolio exits remained significant.

Revenue by solution

Create Solutions’ Q3 growth reflected higher subscription revenue, partly offset by lower cloud and hosting revenue following the 2025 portfolio reset. The prior-year comparison included a one-time $12M term license in Q2 2025. Grow Solutions’ growth was driven by Unity Ads Network, particularly Unity Vector, partly offset by lower ironSource Ads Network revenue. Revenue from non-strategic portfolio businesses fell to approximately $161M for 9M 2026 from $299M.

Consolidated results

Q3 cost of revenue declined, while nine-month cost of revenue increased substantially, principally reflecting impairment charges. Lower Q3 amortization following impairment and reduced Supersonic user-acquisition costs helped lower costs; higher advertising direct and hosting costs partly offset those effects. R&D expense increased with hosting investment for Unity Vector.

Adjusted results and per-share measures

Adjusted measures exclude items including stock compensation, intangible amortization and impairment, restructuring, and other specified items; Q3 adjusted EBITDA included a $4.521M gain-on-sale adjustment. The difference between GAAP and adjusted earnings is material. Stock-based compensation was $63.076M in Q3 2026 versus $91.561M, and $215.521M for 9M versus $288.312M.

Portfolio actions and other drivers

Unity announced the ironSource Ads Network sunset and Supersonic publishing exit in Q1 2026. The ironSource sunset was substantially completed in Q2, and Supersonic was sold on August 4, 2026, for $38.0M net proceeds, generating a $4.5M gain. Unity expects Grow Solutions to consist primarily of Unity Ads Network by year-end 2026.

The exits contributed to $278.666M of 9M intangible-asset impairment expense; approximately $227M was recorded in cost of revenue and $47M in sales and marketing. Restructuring and other charges were $50.772M for 9M, primarily tied to the planned closure of Unity France and largely within R&D. Adjusted measures also exclude $271.642M of 9M intangible amortization, compared with $297.213M a year earlier, and $215.521M of stock compensation. Q3 net interest and other income was $24.325M versus $14.448M, helped by interest income and foreign-exchange gains. For 9M it was $45.730M versus $92.396M, reflecting a $42.7M convertible-debt repurchase gain in Q1 2025 and a $15.0M equity-investment impairment in Q1 2026. Interest expense was $6.043M in Q3 and $18.095M for 9M.

Cash flow and liquidity

Operating cash generation primarily reflected noncash adjustments, including impairment, depreciation and amortization, and stock compensation; working-capital changes contributed less. Unity noted that cash flows can fluctuate with seasonality and the timing of billings, collections and publisher payments. Investing cash flow mainly reflected asset-sale proceeds, partly offset by capital expenditures; financing cash flow primarily reflected employee equity-plan share issuance.

At September 30, 2026, cash and cash equivalents were $2.6B, held primarily for working capital and invested mainly in time deposits and government money-market funds. Unity said available liquidity should cover working capital, capital expenditures and cash repayment of the 2026 Notes at their November 2026 maturity for at least 12 months. It also reported a $4.4B accumulated deficit and a history of operating losses, and warned that growth initiatives, acquisitions and strategic investments could increase funding needs. Future financing could be unavailable or costly.

Unity issued $690M aggregate principal of 2030 Notes in Q1 2025 to fund repurchases of 2026 Notes. Of the $1.7B aggregate principal originally issued for the 2026 Notes, it repurchased $688M aggregate principal in Q1 2025 for $642M, following a March 2024 repurchase of $480M aggregate principal for $415M. Unity had also issued $1.0B aggregate principal of 2027 Notes. Other material cash commitments include operating leases, hosting-service contracts and the commitment to acquire AppsFlyer shares. Unity cited hosting costs, product mix, foreign-currency fluctuations, geographic earnings mix and tax/deferred-tax valuation changes as risks; deferred-tax assets include a valuation allowance.

Unity reported that its market-risk exposures had not changed materially from those disclosed in its FY2025 Form 10-K, filed February 11, 2026. The section provided no updated quantitative market-risk metrics or additional risk developments.

Item 4 — Controls and Procedures

As of September 30, 2026, management, including the CEO and CFO, concluded that the company’s disclosure controls and procedures were effective at a reasonable level to ensure required information was recorded, processed, summarized, and reported on time, and communicated to management for disclosure decisions.

During the quarter, there were no changes in internal control over financial reporting that materially affected, or were reasonably likely to materially affect, those controls.

Risk Factors

Unity reported no material changes to its previously disclosed risks other than the risks described in this section. The section provides no financial results or quantified estimates of potential impacts.

• Product and technology execution: Growth and customer retention depend on timely platform updates, differentiated features, successful new products, and adapting to customer preferences and competitors. Falling behind could weaken Unity’s competitiveness and harm revenue; meeting new technology and customer demands may also require additional spending. Unity identifies AI as a technology that could affect how customers use its solutions and their functionality. Inadequate progress in AI capabilities or data infrastructure could harm the business. Other risks include delayed or unsuccessful releases, vulnerabilities or errors, lower-priced or more efficient competitors, and failure to support new operating systems, gaming platforms, or devices.

• Unity Spark: Unity announced Unity Spark in October 2026, a browser-based, AI-powered game-creation tool it plans to integrate with Google’s Playground platform. A closed beta is expected later in 2026. The tool’s timing, features, availability, commercial success, revenue generation, and profitability remain uncertain.

• Third-party dependence and concentration: Unity relies on partners for technology, advertising, attribution, mediation, development, and revenue-sharing services. Partner failures, outages, inaccurate ad attribution, data misuse, fraud, or failure to meet obligations could disrupt operations, reduce advertising revenue, or damage Unity’s reputation. The majority of Grow Solutions revenue is mediated through MAX, a platform operated by or affiliated with competing advertising networks. Unity’s access to MAX depends on a header bidding agreement (HBA) with AppLovin. Termination or degradation of that access could significantly harm Unity’s business and financial results. Alternatives may not be available on commercially reasonable terms, and transitioning could interrupt operations.

• AppLovin dispute: On September 27, 2026, AppLovin filed an arbitration claim alleging, among other things, breach of the HBA and unlawful or unfair conduct related to Unity’s Ad Quality SDK. AppLovin also sought provisional court relief to restrict Unity’s collection and use of data it claims is proprietary; the court denied that request on October 1, 2026. Unity denies the allegations, filed counterclaims that include unfair competition, and intends to defend itself and pursue its claims. The outcome is uncertain. An adverse ruling or worsening relationship could change MAX terms, restrict Unity’s use of advertising-related data or technology, suspend or degrade MAX access, and lead to significant expenses. The dispute could also divert management attention and harm Unity’s reputation.