Unity Software (U) Q1 2025 earnings summary

Executive summary

• Q1 2025 revenue was $435 million, down 6% year-over-year, but exceeded internal expectations for both revenue and adjusted EBITDA due to accelerated transformation, cost control, and product innovation.

• Net loss narrowed to $77.9 million from $291.5 million in Q1 2024, reflecting lower operating expenses after workforce reductions and improved net loss margin to (18)%.

• Adjusted EBITDA reached $84 million (19% margin), up from $79 million (17% margin) in Q1 2024, driven by cost control and higher-than-expected revenue.

• Early completion of Unity Ad network migration to the new AI platform, Vector, ahead of schedule, delivered significant performance improvements and drove customer spend.

• Expansion beyond gaming continued, with new customers in healthcare, industrial, and infrastructure sectors.

Financial highlights

• Gross profit was $321 million, with gross margin rising to 74% GAAP and 82% adjusted year-over-year.

• Q1 2025 revenue exceeded guidance by $20 million; adjusted EBITDA surpassed guidance by $19 million.

• Free cash flow was $7.3 million, a $22 million improvement year-over-year, and net cash provided by operating activities was $13 million.

• Adjusted EPS was $0.24, compared to $0.28 in Q1 2024; stock compensation expense reduced by nearly $45 million year-over-year.

• Cash and equivalents at quarter-end were $1.5 billion; debt at $2.2 billion; accumulated deficit was $3.8 billion.

Outlook and guidance

• Q2 2025 revenue expected between $415 million and $425 million; adjusted EBITDA between $70 million and $75 million.

• Grow segment to see steady sequential revenue, with Vector's performance offsetting declines in legacy ad products.

• Create segment to maintain subscription momentum, with a slight sequential decline due to runoff in non-strategic revenues.

• Non-strategic revenue expected to trail off after Q2, becoming less than 2% of total revenue.

• Management anticipates continued GAAP operating losses due to ongoing investments in R&D and sales.