10-Q 1 unity-20220930.htm 10-Q unity-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 001-39497
UNITY SOFTWARE INC.
(Exact name of registrant as specified in its charter)
Delaware27-0334803
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
30 3rd Street
San Francisco, California 94103‑3104
(Address, including zip code, of principal executive offices)
(415) 539‑3162
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.000005 par valueUThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filerAccelerated filer
Nonaccelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes No x
As of November 2, 2022, there were 300,746,859 shares of the registrant’s common stock outstanding.



UNITY SOFTWARE INC.
FORM 10‑Q
For the Quarter Ended September 30, 2022
TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.




NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY
This Quarterly Report on Form 10‑Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical fact, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “toward,” “will,” “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our expectations regarding our financial performance, including revenue, cost of revenue, gross profit or gross margin, operating expenses, key metrics, and our ability to achieve or maintain future profitability;
our ability to effectively manage our growth;
anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;
our expectations regarding the demand for real-time 3D ("RT3D") content in gaming and other industries and our ability to increase revenue from these industries;
our expectations regarding the plans implemented or announced by Apple and Google with respect to access of advertising identifiers and related matters, and the potential impact on our financial performance;
our ability to maintain and expand our relationships with strategic partners;
our ability to continue to grow across all major global markets;
our estimated market opportunity and the effects of increased competition in the markets in which we operate or may enter, including by developing new products, features, and use cases;
our ability to identify, complete, and integrate acquisitions and mergers, like ironSource, that complement and expand the functionality of our platform;
our plans with respect to our stock repurchase program; and
the effects of industry trends and macroeconomic conditions, such as inflation and the COVID-19 pandemic.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10‑Q.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10‑Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. Readers are cautioned that these forward‑looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified, under “Part II—Other Information, Item 1A. Risk Factors” and summarized below.
We have a history of losses and may not achieve or sustain profitability in the future.



We have a limited history operating our business at its current scale, and as a result, our past results may not be indicative of future operating performance.
Our core value of putting our users first may cause us to forgo short-term gains and may not lead to the long-term benefits we expect.
Our business and operations have experienced recent rapid growth, which may not be indicative of our future growth. Our rapid growth also makes it difficult to evaluate our future prospects.
If we are unable to retain our existing customers and expand their use of our platform, our growth and operating results could be adversely affected, and we may be required to reconsider our growth strategy.
If we are unable to attract new customers, our business, financial condition and results of operations will be adversely affected.
We derive a significant portion of our revenue from our Operate Solutions. If we fail to attract and retain Operate Solutions customers, our business and results of operations would be adversely affected.
Operating system platform providers or application stores may change terms of service, policies or technical requirements to require us or our customers to change data collection and privacy practices, business models, operations, practices, advertising activities or application content, which could adversely impact our business.
If we are unable to further expand into new industries, or if our solutions for any new industry fail to achieve market acceptance, our growth and operating results could be adversely affected, and we may be required to reconsider our growth strategy.
Our business relies in part on strategic relationships with hardware, operating system, device, game console and other technology providers. If we are unable to maintain favorable terms and conditions and business relations with respect to our strategic relationships, our business could be harmed.
If we do not make our platform, including new versions or technology advancements, easier to use or properly train customers on how to use our platform, our ability to broaden the appeal of our platform and solutions and to increase our revenue could suffer.
Interruptions, performance problems, or defects associated with our platform may adversely affect our business, financial condition, and results of operations.
The markets in which we participate are competitive, and if we do not compete effectively, our business, financial condition, and results of operations could be harmed.
Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10‑Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10‑Q. While we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.



The forward-looking statements made in this Quarterly Report on Form 10‑Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10‑Q or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.
Additional Information
Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to "we," "us," "our," "our company," "Unity," and "Unity Technologies" refer to Unity Software Inc. and its consolidated subsidiaries. The Unity design logos, "Unity" and our other registered or common law trademarks, service marks, or trade names appearing in this Quarterly Report on Form 10-Q are the property of Unity Software Inc. or its affiliates. Other trade names, trademarks, and service marks used in this Quarterly Report on Form 10-Q are the property of their respective owners.
Investors and others should note that we may announce material business and financial information using our investor relations website (www.investors.unity.com), our filings with the Securities and Exchange Commission, press releases, public conference calls, and public webcasts as means of complying with our disclosure obligations under Regulation FD. We encourage investors and others interested in our company to review the information that we make available.


Unity Software Inc.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
As of
September 30, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$1,239,337 $1,055,776 
Marketable securities446,766 681,323 
Accounts receivable, net316,337 340,491 
Prepaid expenses and other81,960 73,520 
Total current assets2,084,400 2,151,110 
Property and equipment, net112,458 106,106 
Goodwill1,657,863 1,620,127 
Intangible assets, net724,926 814,386 
Other assets147,514 149,617 
Total assets$4,727,161 $4,841,346 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$14,182 $14,009 
Accrued expenses and other221,931 233,976 
Publisher payables172,646 237,637 
Deferred revenue202,984 140,528 
Total current liabilities611,743 626,150 
Convertible notes1,706,403 1,703,035 
Long-term deferred revenue118,170 15,945 
Other long-term liabilities88,159 101,825 
Total liabilities2,524,475 2,446,955 
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.000005 par value:
Authorized shares - 1,000,000 and 1,000,000
Issued and outstanding shares - 300,588 and 292,592
2 2 
Additional paid-in capital4,179,621 3,729,874 
Accumulated other comprehensive loss(13,576)(3,858)
Accumulated deficit(1,963,361)(1,331,627)
Total stockholders' equity2,202,686 2,394,391 
Total liabilities and stockholders’ equity$4,727,161 $4,841,346 
See accompanying Notes to Condensed Consolidated Financial Statements.


Unity Software Inc.
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
Revenue$322,881 $286,328 $940,050 $794,662 
Cost of revenue111,903 63,517 302,572 179,976 
Gross profit210,978 222,811 637,478 614,686 
Operating expenses
Research and development248,380 178,413 685,380 486,644 
Sales and marketing109,639 97,425 314,486 242,106 
General and administrative92,585 73,723 246,065 272,772 
Total operating expenses450,604 349,561 1,245,931 1,001,522 
Loss from operations(239,626)(126,750)(608,453)(386,836)
Interest expense(1,135) (3,369)(600)
Interest income and other expense, net2,208 (64)91 1,571 
Loss before income taxes(238,553)(126,814)(611,731)(385,865)
Provision for (benefit from) Income taxes11,468 (11,662)20,003 (14,911)
Net loss(250,021)(115,152)(631,734)(370,954)
Basic and diluted net loss per share$(0.84)$(0.41)$(2.13)$(1.32)
Weighted-average shares used in computation of basic and diluted net loss per share299,062 283,714 296,768 280,080 
See accompanying Notes to Condensed Consolidated Financial Statements.
2


Unity Software Inc.
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
Net loss$(250,021)$(115,152)$(631,734)$(370,954)
Other comprehensive loss, net of taxes:
Change in foreign currency translation adjustment(3,858)(9)(4,205)41 
Change in unrealized losses on marketable securities206 72 (5,513)(34)
Other comprehensive income (loss)(3,652)63 (9,718)7 
Comprehensive loss(253,673)(115,089)(641,452)(370,947)
See accompanying Notes to Condensed Consolidated Financial Statements.
3


Unity Software Inc.
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Three Months Ended September 30, 2022
Accumulated
AdditionalOtherTotal
Common StockPaid-InComprehensiveAccumulatedStockholders'
SharesAmountCapitalLossDeficitEquity
Balance at June 30, 2022298,027,552 $2 $4,005,333 $(9,924)$(1,713,340)$2,282,071 
Issuance of common stock from employee equity plans857,179 — 18,766 — — 18,766 
Issuance of common stock for settlement of RSUs1,703,186 — — — — — 
Stock‑based compensation expense— — 154,479 — — 154,479 
Net loss— — 1,043 — (250,021)(248,978)
Other comprehensive loss— — — (3,652)— (3,652)
Balance at September 30, 2022300,587,917 $2 $4,179,621 $(13,576)$(1,963,361)$2,202,686 
Three Months Ended September 30, 2021
Accumulated
AdditionalOtherTotal
Common StockPaid-InComprehensiveAccumulatedStockholders'
SharesAmountCapitalLossDeficitEquity
Balance at June 30, 2021282,177,044 $2 $3,028,077 $(3,474)$(1,054,822)$1,969,783 
Issuance of common stock from employee equity plans2,764,097 — 15,091 — — 15,091 
Issuance of common stock for settlement of RSUs770,143 — — — — — 
Stock‑based compensation expense— — 97,317 — — 97,317 
Net loss— — — — (115,152)(115,152)
Other comprehensive income— — — 63 — 63 
Balance at September 30, 2021285,711,284 $2 $3,140,485 $(3,411)$(1,169,974)$1,967,102 
.
See accompanying Notes to Condensed Consolidated Financial Statements.
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Unity Software Inc.
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED
(In thousands, except share data)
(Unaudited)
Nine Months Ended September 30, 2022
Accumulated
AdditionalOtherTotal
Common StockPaid‑InComprehensiveAccumulatedStockholders’
SharesAmountCapitalLossDeficitEquity
Balance at December 31, 2021292,592,356 $2 $3,729,874 $(3,858)$(1,331,627)$2,394,391 
Issuance of common stock from employee equity plans4,103,922 — 56,484 — — 56,484 
Issuance of common stock for settlement of RSUs3,722,318 — — — — — 
Common stock issued in connection with acquisitions169,321 — 16,072 — — 16,072 
Stock‑based compensation expense— — 376,148 — — 376,148 
Net loss— — 1,043 — (631,734)(630,691)
Other comprehensive loss— — — (9,718)— (9,718)
Balance at September 30, 2022300,587,917 $2 $4,179,621 $(13,576)$(1,963,361)$2,202,686 
Nine Months Ended September 30, 2021
Accumulated
AdditionalOtherTotal
Common StockPaid-InComprehensiveAccumulatedStockholders'
SharesAmountCapitalLossDeficitEquity
Balance at December 31, 2020273,537,218 $2 $2,838,057 $(3,418)$(797,498)$2,037,143 
Cumulative effect of accounting change— — — — (1,522)(1,522)
Issuance of common stock from employee equity plans9,596,079 — 53,150 — — 53,150 
Issuance of common stock for settlement of RSUs2,577,987 — — — — — 
Stock‑based compensation expense— — 249,278 — — 249,278 
Net loss— — — — (370,954)(370,954)
Other comprehensive income— — — 7 — 7 
Balance at September 30, 2021285,711,284 $2 $3,140,485 $(3,411)$(1,169,974)$1,967,102 
See accompanying Notes to Condensed Consolidated Financial Statements.
5


Unity Software Inc.
UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20222021
Operating activities
Net loss$(631,734)$(370,954)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization127,598 39,222 
Stock-based compensation expense376,148 249,278 
Other9,386 11,004 
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net21,258 (26,336)
Prepaid expenses and other(8,499)(4,821)
Other assets25,898 (16,713)
Accounts payable974 (183)
Accrued expenses and other(6,643)39,443 
Publisher payables(64,991)16,417 
Other long-term liabilities(27,506)(18,072)
Deferred revenue167,741 9,775 
Net cash used in operating activities(10,370)(71,940)
Investing activities
Purchases of marketable securities(150,911)(295,859)
Proceeds from principal repayments on marketable securities58,883 14,853 
Maturities of marketable securities315,776 229,800 
Purchases of non-marketable investments(15,000)(4,600)
Sales of non-marketable investments1,000  
Purchases of property and equipment(42,344)(27,959)
Business acquisitions, net of cash acquired, and other(25,840)(425,198)
Net cash provided by (used in) investing activities141,564 (508,963)
Financing activities
Proceeds from issuance of common stock from employee equity plans56,484 53,150 
Net cash provided by financing activities56,484 53,150 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash(4,185)58 
Increase (decrease) in cash, cash equivalents, and restricted cash183,493 (527,695)
Cash and restricted cash, beginning of period1,066,599 1,293,947 
Cash, cash equivalents, and restricted cash, end of period$1,250,092 $766,252 
Supplemental disclosure of cash flow information:
Cash paid for interest$ $110 
Cash paid for income taxes, net of refunds$21,818 $6,889 
Cash paid for operating leases$19,031 $23,248 
Supplemental disclosures of non‑cash investing and financing activities:
Accrued property and equipment$4,349 $7,138 
Assets acquired under operating lease$11,575 $19,061 
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Unity Software Inc.
The below table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the total of the same amounts shown on the condensed consolidated statements of cash flows (in thousands):
As of September 30,
20222021
Cash and cash equivalents$1,239,337 $755,429 
Restricted cash, included in other assets10,755 10,823 
Total cash, cash equivalents, and restricted cash$1,250,092 $766,252 
See accompanying Notes to Condensed Consolidated Financial Statements.
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Unity Software Inc.
UNITY SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies
Basis of Presentation and Consolidation
We prepared the accompanying unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. The condensed consolidated financial statements include the accounts of Unity Software Inc., its wholly owned subsidiaries, and entities consolidated under the voting interest model. We have eliminated all intercompany balances and transactions. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In our opinion, all adjustments, which include normal recurring adjustments necessary for a fair presentation, have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year or other periods. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our 2021 Annual Report on Form 10-K.
Beginning in the second quarter of 2022, we further condensed our Consolidated Balance Sheet and Statements of Cash Flows. Prior period amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on the previously reported total assets, liabilities, stockholders' equity, or net loss.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material to our financial position and results of operations.
2. Revenue
The following table presents our revenue disaggregated by source, which also have similar economic characteristics (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Create Solutions$128,629 $83,743 $365,918 $226,744 
Operate Solutions171,699 185,021 514,218 514,515 
Strategic Partnerships and Other22,553 17,564 59,914 53,403 
Total revenue$322,881 $286,328 $940,050 $794,662 
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Unity Software Inc.
The following table presents our revenue disaggregated by geography, based on the invoice address of our customers (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
United States$80,272 $68,668 $223,986 $188,240 
Greater China (1)
44,341 43,717 130,471 122,157 
EMEA (2)
112,012 107,135 329,159 298,497 
APAC (3)
76,969 57,303 228,730 156,887 
Other Americas (4)
9,287 9,505 27,704 28,881 
Total revenue$322,881 $286,328 $940,050 $794,662 
(1)    Greater China includes China, Hong Kong, and Taiwan.
(2)    Europe, the Middle East, and Africa ("EMEA")
(3)    Asia-Pacific, excluding Greater China ("APAC")
(4)    Canada and Latin America ("Other Americas")
Accounts Receivable, Net
Accounts receivable are recorded at the original invoiced amount, net of allowances for uncollectible amounts. We estimate losses on uncollectible amounts based on expected losses, including our historical experience of actual losses. The estimated losses on uncollectible amounts are recorded in general and administrative expense on our condensed consolidated statement of operations. As of September 30, 2022 and December 31, 2021, the allowance for uncollectible amounts was $6.7 million and $5.4 million, respectively.
We record unbilled receivables within accounts receivable, net, when revenue is earned in advance of customer billing schedules. Unbilled receivables totaled $30.5 million and $28.3 million as of September 30, 2022 and December 31, 2021, respectively.
Sales Commissions
Sales commissions that have a benefit beyond one year are capitalized and amortized on a straight line method over the expected period of benefit, which is generally three years. As of September 30, 2022, capitalized commissions, net of amortization, included in prepaid expenses and other and other assets were $8.8 million and $5.6 million, respectively. During the three and nine months ended September 30, 2022, we recorded amortization costs of $2.4 million and $6.9 million in sales and marketing expenses, as compared to $1.6 million and $3.8 million during the three and nine months ended September 30, 2021, respectively.
Contract Liabilities and Remaining Performance Obligations
Contract liabilities (deferred revenue) relate to payments received in advance of performance under the contract. Revenue recognized during the nine months ended September 30, 2022 that was included in the deferred revenue balances at January 1, 2022 was $124.8 million.
Additionally, we have performance obligations associated with commitments in customer contracts to perform in the future that have not yet been recognized in our consolidated financial statements. For contracts with original terms that exceed one year, those commitments not yet recognized were $580.7 million as of September 30, 2022 and relate primarily to Create Solutions subscriptions, Enterprise Support, and Strategic Partnerships. These commitments generally extend over the next 1 to 5 years and we expect to recognize approximately 40% of the balance as revenue over the next 12 months.
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Unity Software Inc.
3. Financial Instruments
Restricted cash, cash equivalents, and marketable securities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value.
Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities.
Level 2—Valuations based on quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration.
Level 3—Valuations based on unobservable inputs reflecting our own assumptions used to measure assets and liabilities at fair value. These valuations require significant judgment.
The following table summarizes, by major security type, our restricted cash, cash equivalents, and marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):
September 30, 2022December 31, 2021
Amortized CostUnrealized GainsUnrealized LossesFair ValueFair Value
Level 1:
Restricted cash and cash equivalents:
Restricted cash$10,755 $— $— $10,755 $10,823 
Money market funds163,683 — — 163,683 73,138 
Total restricted cash and cash equivalents$174,438 $— $— $174,438 $83,961 
Level 2:
Marketable securities:
Commercial paper$96,383 $ $ $96,383 $59,792 
Asset-backed securities    40,942 
Corporate bonds177,516  (3,675)173,841 237,402 
U.S. treasury securities126,546  (1,896)124,650 272,300 
Supranational bonds52,803  (911)51,892 70,887 
Total marketable securities$453,248 $ $(6,482)$446,766 $681,323 
We did not recognize any credit losses related to our available-for-sale debt securities during the three and nine months ended September 30, 2022 and 2021.
The following table summarizes the amortized cost and fair value of our marketable securities as of September 30, 2022, by contractual years to maturity (in thousands):
Amortized CostFair Value
Due within one year$425,618 $420,261 
Due between one and two years27,630 26,505 
Total$453,248 $446,766 
There were no material realized or unrealized gains or losses, either individually or in the aggregate, during the three and nine months ended September 30, 2022 and 2021.
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Unity Software Inc.
Nonrecurring Fair Value Measurements
We hold equity investments in certain unconsolidated entities without a readily determinable fair value. These strategic investments represent less than a 20% ownership interest in each of the entities, and we do not have significant influence over or control of the entities. We measure these investments at cost less any impairment, adjusted for observable price changes, if any. As of September 30, 2022, the equity investments totaled $15.6 million.
4. Investment in Unity China
In August 2022, we formed a company in China ("Unity China") to perform research and development activities and to facilitate commercialization in the Greater China region. Upon formation, we agreed to sell to third-party investors an ownership interest of approximately 20.5% in Unity China that we valued at approximately $100.0 million. As of September 30, 2022, shares in Unity China had been issued to the investors, but we had not yet received the cash consideration. Accordingly, the receivable associated with the outstanding shares are netted on our condensed consolidated balance sheet as of September 30, 2022. The results of Unity China for the three months ended September 30, 2022 were not material.
5. Acquisitions
Completed acquisition
MindKick, Inc.
On January 28, 2022, we completed the purchase of MindKick, Inc. ("MindKick") for a total purchase consideration of approximately $46.6 million. This amount was payable in a combination of approximately $26.7 million in cash and the issuance of 169,321 shares of common stock valued at approximately $16.1 million. An additional 42,330 shares of common stock subject to a service-based vesting condition were granted to certain employees of Mindkick; these shares of common stock are accounted for outside of the business combination and will be recognized as post-combination expense. MindKick provides 2D game creation tools and game templates with the goal of providing consumers the ability to create, play, and share their own 2D games on mobile. Prior to the completion of the acquisition, we held a minority investment in MindKick that we accounted for using the equity method of accounting. In circumstances where a business combination is achieved in stages, previously-held equity interests are remeasured at fair value. The remeasured fair value assigned to the previously-held equity interest in MindKick of $3.7 million approximates cost, and therefore, no gain or loss was recognized. The identifiable assets and liabilities acquired are primarily $37.0 million in goodwill, $7.5 million in intangible assets, $2.8 million in cash, and ($0.7 million) in other net assets and liabilities. The transaction costs associated with the acquisition are not material. The revenue and earnings of the acquired business have been included in our results since the acquisition date and are not material to our consolidated results.
Subsequent event acquisition
On November 7, 2022, we completed the acquisition of ironSource Ltd. ("ironSource"), a leading business platform for the app economy. The purchase consideration for this acquisition was approximately $2.8 billion exchanged in shares of our common stock. In connection with the completion of the acquisition of ironSource on November 7, 2022, we completed the sale and issuance of $1.0 billion in aggregate principal amount of our 2.0% convertible senior notes due in 2027 (the "2027 Notes") to Silver Lake Alpine II, L.P., Silver Lake Partners VI, L.P. and Sequoia Capital Fund, L.P., certain affiliates of members of our board of directors. The proceeds from the issuance and sale of the 2027 Notes are expected to be used to partially fund a plan to repurchase of up to $2.5 billion of shares of our common stock pursuant to our previously announced stock repurchase program. The initial accounting for the acquisition has not yet been completed.
6. Leases
We have operating leases for offices, which have remaining lease terms of up to 9.3 years, some of which include options to extend the lease with renewal terms from one year to five years. Some leases include an option to terminate the lease for up to five years from the lease commencement date.
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Unity Software Inc.
Components of lease expense were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Operating lease expense$6,550 $7,285 $22,334 $21,993 
Variable lease expense1,292 1,173 4,130 3,619 
Sublease income (93) (279)
Total lease expense$7,842 $8,365 $26,464 $25,333 
Supplemental balance sheet information related to leases was as follows (in thousands, except weighted-average figures):
As of
ClassificationSeptember 30, 2022December 31, 2021
Operating lease assetsOther assets$89,517 $98,393 
Current operating lease liabilitiesAccrued expenses and other$23,582 $23,729 
Long-term operating lease liabilitiesOther long-term liabilities81,048 92,539 
Total operating lease liabilities$104,630 $116,268 
As of September 30, 2022, our operating leases had a weighted-average remaining lease term of 5.5 years and a weighted-average discount rate of 4.3%.
As of September 30, 2022, our lease liabilities were as follows (in thousands):
Operating Leases (1)
Gross lease liabilities117,624 
Less: imputed interest(12,994)
Present value of lease liabilities$104,630 
(1)    Excludes future minimum payments for leases which have not yet commenced as of September 30, 2022.
As of September 30, 2022, we had entered into leases that have not yet commenced with future minimum lease payments of $47.2 million that are not yet reflected on our condensed consolidated balance sheet. These operating leases will commence in 2022 and 2023 with lease terms of 3.3 to 10.3 years.
7. Borrowings
Convertible Notes
In November 2021, we issued an aggregate of $1.7 billion principal amount of 0% Convertible Senior Notes due 2026 (the "2026 Notes"). Proceeds from the issuance of the 2026 Notes were $1.7 billion, net of debt issuance costs and cash used to purchase the capped call transactions ("Capped Call Transactions") discussed below. The debt issuance costs are amortized to interest expense using the straight-line method, which approximates the effective interest method.
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Unity Software Inc.
The 2026 Notes are general unsecured obligations which do not bear regular interest and for which the principal balance will not accrete. We may elect for special interest to accrue on the 2026 Notes as the sole remedy for any failure by us to comply with certain reporting requirements for the first 365 days after the occurrence of such failure pursuant to an indenture dated as of November 19, 2021 (the "Indenture"). Holders of the 2026 Notes may receive special interest under specified circumstances as outlined in the Indenture. Special interest will accrue for any failure by us to comply with certain reporting requirements during the six-month period beginning on, and including, the date that is six months after the last date of original issuance of the 2026 Notes. Special interest will also accrue if, and for so long as: the restrictive legend on the 2026 Notes has not been removed, the 2026 Notes are assigned a restricted CUSIP number or the 2026 Notes are not otherwise freely tradeable by holders other than our affiliates as of the de-legending deadline date set forth in the Indenture, until the restrictive legend has been removed from the 2026 Notes, the 2026 Notes are assigned an unrestricted CUSIP number and the 2026 Notes are freely tradable. Special interest, if any, will be payable semiannually in arrears on November 15 and May 15 of each year, which began on May 15, 2022 (if and to the extent that special interest is then payable on the 2026 Notes). The 2026 Notes will mature on November 15, 2026 unless earlier converted, redeemed, or repurchased.
The 2026 Notes are convertible into cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election, at an initial conversion rate of 3.2392 shares of common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of approximately $308.72 per share of our common stock. The conversion rate is subject to customary adjustments for certain events as described in the Indenture governing the 2026 Notes.
We may not redeem the 2026 Notes prior to November 20, 2024. We may redeem for cash all or any portion of the 2026 Notes, at our option, on or after November 20, 2024 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during a 30-trading day window (including the last day of such period). On any such date, the redemption price shall equal 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid special interest, if any. If we redeem less than all the outstanding 2026 Notes, at least $150.0 million aggregate principal amount of 2026 Notes must be outstanding and not subject to redemption as of, and after giving effect to, delivery of the relevant notice of redemption. No sinking fund is provided for the convertible notes, which means that we are not required to redeem or retire them periodically.
Holders of the 2026 Notes may convert all or a portion of their 2026 Notes at their option at any time prior to the close of business on the business day prior to August 15, 2026, in multiples of $1,000 principal amounts, only under the following circumstances:
during any calendar quarter if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30-trading day window is greater than or equal to 130% of the applicable conversion price of the 2026 Notes on each such trading day;
during the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of the 2026 Notes for each trading day of that ten consecutive trading day period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate of the 2026 Notes on each such trading day;
if we call such 2026 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2026 Notes called (or deemed called) for redemption; or
on the occurrence of specified corporate events set forth in the Indenture.
On or after August 15, 2026, the 2026 Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances.
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Unity Software Inc.
In connection with a make-whole fundamental change, as defined in the Indenture, or in connection with certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, in each case as described in the Indenture, we will increase the conversion rate for a holder of the 2026 Notes who elects to convert its 2026 Notes in connection with such a corporate event or during the related redemption period in certain circumstances. Additionally, in the event of a fundamental change, subject to certain limitations described in the Indenture, holders of the 2026 Notes may require us to repurchase all or a portion of the 2026 Notes at a price equal to 100% of the principal amount of 2026 Notes to be repurchased, plus any accrued and unpaid special interest, if any.
We accounted for the issuance of the 2026 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.
As of
September 30, 2022
Convertible note:
Principal$1,725,000 
Unamortized debt issuance cost(18,597)
Net carrying amount$1,706,403 
Interest expense related to the amortization of debt issuance costs was $1.1 million and $3.4 million for the three and nine months ended September 30, 2022, respectively.
As of September 30, 2022, the if-converted value of the 2026 Notes did not exceed the principal amount. The sale price for conversion was not satisfied and the 2026 Notes were not eligible for conversion as of September 30, 2022.
Capped Call Transactions
In connection with the pricing of the 2026 Notes, we entered into the Capped Call Transactions with certain counterparties at a net cost of $48.1 million with call options totaling approximately 5.6 million of our common shares, and expiration dates beginning on September 18, 2026 and ending on November 12, 2026. The strike price of the Capped Call Transactions is $308.72, and the cap price is initially $343.02 per share of our common stock and is subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Call Transactions are freestanding and are considered separately exercisable from the 2026 Notes.
The Capped Call Transactions are intended to reduce potential dilution to our common stock upon any conversion of the 2026 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2026 Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price described above. The cost of the Capped Call Transactions was recorded as a reduction of our additional paid-in capital on our consolidated balance sheets. The Capped Call Transactions will not be remeasured as long as they continue to meet the conditions for equity classification. As of September 30, 2022, the Capped Call Transactions were not in the money.
8. Commitments and Contingencies
The following table summarizes our contractual commitments as of September 30, 2022 (in thousands):
TotalRemainder of 20222023‑20242025‑2026Thereafter
Operating leases (1)
$117,624 $7,189 $50,310 $29,216 $30,909 
Purchase commitments (2)
892,719 43,343 403,498 416,453 29,425 
Convertible notes (3)
1,725,000   1,725,000  
Total$2,735,343 $50,532 $453,808 $2,170,669 $60,334 
(1)    The operating lease obligations consist of obligations for real estate.
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Unity Software Inc.
)2)    The substantial majority of our purchase commitments are related to agreements with our data center hosting providers..
(3)    Convertible notes due 2026. See Note 7, "Borrowings," of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
We expect to meet our remaining commitments.
Legal Matters
In the normal course of business, we are subject to various legal matters. We accrue a liability when management believes both that it is probable that a liability has been incurred and that the amount of loss can be reasonably estimated. We also disclose material contingencies when we believe a loss is not probable but reasonably possible. Legal costs related to such potential losses are expensed as incurred. In addition, recoveries are shown as a reduction in legal costs in the period in which they are realized. With respect to our outstanding matters, based on our current knowledge, we believe that the resolution of such matters will not, either individually or in aggregate, have a material adverse effect on our business or our consolidated financial statements. However, litigation is inherently uncertain, and the outcome of these matters cannot be predicted with certainty. Accordingly, cash flows or results of operations could be materially affected in any particular period by the resolution of one or more of these matters.
We are currently subject to a putative class action complaint, which we believe is without merit and intend to vigorously defend against. See "Part II—Other Information, Item 1. Legal Proceedings" for additional information regarding the class action complaint.
Indemnifications
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters. Indemnification may include losses from our breach of such agreements, services we provide, or third-party intellectual property infringement claims. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future indemnification payments may not be subject to a cap. As of September 30, 2022, there were no known events or circumstances that have resulted in a material indemnification liability to us and we did not incur material costs to defend lawsuits or settle claims related to these indemnifications.
Letters of Credit
We had $10.8 million of secured letters of credit outstanding as of September 30, 2022 and December 31, 2021. These primarily relate to our office space leases and are fully collateralized by certificates of deposit which we record in restricted cash on our condensed consolidated balance sheets.
9. Stock‑Based Compensation
We recorded stock-based compensation expense related to grants to employees on our condensed consolidated statements of operations as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Cost of revenue$18,097 $7,780 $38,768 $18,237 
Research and development81,490 49,169 196,853 114,046 
Sales and marketing31,381 22,168 80,340 48,728 
General and administrative23,511 18,200 60,187 68,267 
Total stock-based compensation expense$154,479 $97,317 $376,148 $249,278 
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Unity Software Inc.
Stock Options
A summary of our stock option activity under the 2009 Stock Plan, 2019 Stock Plan, and 2020 Equity Incentive Plan (the "2020 Plan") is as follows:
Options Outstanding
Stock
Options
Outstanding
Weighted-Average
Exercise
Price
Weighted-Average
Remaining
Contractual
Term
(In Years)
Balance as of December 31, 202129,226,041 $13.28 6.26
Granted1,821,700 $70.18 
Exercised(3,496,913)$6.63 
Forfeited, cancelled, or expired(728,531)$35.85 
Balance as of September 30, 202226,822,297 $17.41 5.78
The calculated grant-date fair value of stock options granted was estimated using the Black-Scholes option-pricing model with the following assumptions:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Expected dividend yield
Risk-free interest rate3.3%1.0%
1.7% - 3.3%
0.9% - 1.2%
Expected volatility33.5%32.9%
33.3% - 33.8%