Unity Software Inc. [U] Filings

10-Q 1 unity-20240630.htm 10-Q unity-20240630

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 June 30, 2024
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)


Delaware		27-0334803
(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) 638-9950
	(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.000005 par value

The 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 filer

☒

Accelerated filer

☐

Non‑accelerated 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 August 1, 2024, there were 396,857,800 shares of the registrant's common stock outstanding.

UNITY SOFTWARE INC.

FORM 10‑Q

For the Quarter Ended June 30, 2024

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Operations	2

	Condensed Consolidated Statements of Comprehensive Loss	3

	Condensed Consolidated Statements of Stockholders' Equity	4

	Condensed Consolidated Statements of Cash Flows	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

Item 3.	Defaults Upon Senior Securities	62

Item 4.	Mine Safety Disclosures	62

Item 5.	Other Information	62

Item 6.	Exhibits	63

SIGNATURES		65

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 "aim," "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.

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 and discussed in greater detail below, under "Part II, Item 1A. Risk Factors" and summarized below.

•We have a history of losses and may not achieve or sustain profitability on a GAAP basis in the future.

•If we fail to successfully execute our plans to reset our portfolio to focus on our Strategic Portfolio and to right-size our investments, our business will be harmed.

•If we are not able to grow efficiently and manage our costs, we may not achieve profitability on a GAAP basis.

•We may fail to realize the possible synergies between our Create and Grow Solutions, including the benefits of the ironSource Merger, or those synergies may take longer to realize than expected.

•If we are unable to retain our existing customers and expand their use of our platform, or attract new customers, our growth and operating results could be adversely affected, and we may be required to reconsider our growth strategy.

•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. For example, in the third quarter of 2023 we announced changes to our pricing model for our Create Solutions, which will become effective for users of the next major release of the software expected to be available in 2024. We experienced a high volume of negative customer feedback including a boycott and a slowdown of signing new contracts and renewals as a result of these changes which we believe negatively impacted our Grow Solutions revenue in the second half of 2023. We periodically review our pricing structures and business models. Decisions to change how we price our products or services have in the past and may in the future be viewed unfavorably and harm our business.

•Operating system platform providers or application stores may change terms of service, policies or technical requirements applicable to us or our customers, 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.

•We are increasingly building artificial intelligence ("AI") into certain of our offerings, and issues raised by the use of AI in our offerings may adversely affect our business, reputation, or financial results.

•Recent negative macroeconomic factors, such as inflation, interest rates, and limited credit availability have and could further cause economic uncertainty and volatility, which could harm our business.

•Increased competition in the advertising market and ongoing restrictions related to the gaming industry in China have impacted our growth rates and may continue to do so.

•Ongoing geopolitical instability, particularly in Israel, where a significant portion of our Grow Solutions operations is located, has impacted and may further adversely affect our business.

•The loss of one or more members of our senior management or key employees could harm our business, and we may not be able to find adequate replacements. For example, we've recently experienced significant management turnover. Our ability to successfully manage executive transitions and to retain senior executives could impact our operations and our business.

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.

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.


Table of Contents						Unity Software Inc.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements


UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)

	As of
	June 30, 2024		December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	1,267,957	$	1,590,325

Accounts receivable, net	573,220		611,723
Prepaid expenses and other	142,889		122,843

Total current assets	1,984,066		2,324,891
Property and equipment, net	112,080		140,887

Goodwill	3,166,304		3,166,304
Intangible assets, net	1,230,716		1,406,745

Other assets	190,568		204,614
Total assets	$	6,683,734	$	7,243,441
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	12,693	$	14,517
Accrued expenses and other	264,469		307,704
Publisher payables	388,253		385,113

Deferred revenue	176,127		186,769


Total current liabilities	841,542		894,103
Convertible notes	2,237,245		2,711,750
Long-term deferred revenue	10,173		6,015

Other long-term liabilities	178,198		217,195
Total liabilities	3,267,158		3,829,063
Commitments and Contingencies (Note 7)
Redeemable noncontrolling interests	226,056		225,797
Stockholders' equity:


Common stock, $0.000005 par value:
Authorized shares - 1,000,000 and 1,000,000
Issued and outstanding shares - 395,444 and 384,872	2		2
Additional paid-in capital	6,682,060		6,259,479
Accumulated other comprehensive loss	(8,898)		(5,009)
Accumulated deficit	(3,488,478)		(3,071,830)

Total Unity Software Inc. stockholders' equity	3,184,686		3,182,642
Noncontrolling interest	5,834		5,939
Total stockholders' equity	3,190,520		3,188,581
Total liabilities and stockholders' equity	$	6,683,734	$	7,243,441

See accompanying Notes to Condensed Consolidated Financial Statements.


Table of Contents						Unity Software Inc.


UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Revenue	$	449,259	$	533,478	$	909,639	$	1,033,839
Cost of revenue	108,875		158,827		253,262		320,791
Gross profit	340,384		374,651		656,377		713,048
Operating expenses
Research and development	208,935		267,955		491,663		548,435
Sales and marketing	169,854		209,131		400,479		425,258
General and administrative	91,015		89,017		268,584		185,791
Total operating expenses	469,804		566,103		1,160,726		1,159,484
Loss from operations	(129,420)		(191,452)		(504,349)		(446,436)
Interest expense	(5,829)		(6,142)		(11,864)		(12,271)
Interest income and other income (expense), net	10,457		9,061		87,100		22,676
Loss before income taxes	(124,792)		(188,533)		(429,113)		(436,031)
Provision for (benefit from) Income taxes	946		4,791		(11,897)		10,996
Net loss	(125,738)		(193,324)		(417,216)		(447,027)
Net loss attributable to noncontrolling interest and redeemable noncontrolling interests	(164)		(1,164)		(568)		(1,836)


Net loss attributable to Unity Software Inc.	$	(125,574)	$	(192,160)	$	(416,648)	$	(445,191)

Basic and diluted net loss per share attributable to Unity Software Inc.	$	(0.32)	$	(0.51)	$	(1.07)	$	(1.18)
Weighted-average shares used in computation of basic and diluted net loss per share	392,537		380,355		389,844		378,145

See accompanying Notes to Condensed Consolidated Financial Statements.


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UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Net loss	$	(125,738)	$	(193,324)	$	(417,216)	$	(447,027)
Other comprehensive loss, net of taxes:
Change in foreign currency translation adjustment	(1,393)		(12,155)		(4,854)		(8,998)

Change in unrealized gains (losses) on derivative instruments	—		616		—		289
Other comprehensive loss	(1,393)		(11,539)		(4,854)		(8,709)
Comprehensive loss	(127,131)		(204,863)		(422,070)		(455,736)
Net loss attributable to noncontrolling interest and redeemable noncontrolling interests	(164)		(1,164)		(568)		(1,836)
Foreign currency translation attributable to noncontrolling interest and redeemable noncontrolling interests	(255)		(2,506)		(965)		(1,857)
Comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interests	(419)		(3,670)		(1,533)		(3,693)
Comprehensive loss attributable to Unity Software Inc.	$	(126,712)	$	(201,193)	$	(420,537)	$	(452,043)

See accompanying Notes to Condensed Consolidated Financial Statements.


Table of Contents						Unity Software Inc.


UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)

		Three Months Ended June 30, 2024
							Accumulated
					Additional		Other					Unity Software Inc.
	Common Stock		Paid-In		Comprehensive		Accumulated				Stockholders'	Noncontrolling		Total
		Shares	Amount		Capital		Loss		Deficit			Equity		Interest (1)		Equity
Balance at March 31, 2024		390,396,930	$	2	$	6,554,787	$	(7,760)	$	(3,362,904)		$	3,184,125	$	5,863	$	3,189,988


Issuance of common stock from employee equity plans		1,904,693	—		11,305		—		—			11,305		—		11,305
Issuance of common stock for settlement of RSUs		3,142,675	—		—		—		—			—		—		—


Stock‑based compensation expense		—	—		117,678		—		—			117,678		—		117,678

Net loss		—	—		—		—		(125,574)			(125,574)		(11)		(125,585)
Adjustments to redeemable noncontrolling interest		—	—		(1,710)		—		—			(1,710)		—		(1,710)
Other comprehensive loss		—	—		—		(1,138)		—			(1,138)		(18)		(1,156)
Balance at June 30, 2024		395,444,298	$	2	$	6,682,060	$	(8,898)	$	(3,488,478)		$	3,184,686	$	5,834	$	3,190,520

		Three Months Ended June 30, 2023
							Accumulated
					Additional		Other					Unity Software Inc.
	Common Stock		Paid-In		Comprehensive		Accumulated				Stockholders'	Noncontrolling		Total
		Shares	Amount		Capital		Loss		Deficit			Equity		Interest (1)		Equity
Balance at March 31, 2023		378,373,685	$	2	$	5,962,358	$	490	$	(2,502,850)		$	3,460,000	$	6,296	$	3,466,296


Issuance of common stock from employee equity plans		2,094,090	—		19,973		—		—			19,973		—		19,973
Issuance of common stock for settlement of RSUs		2,822,852	—		—		—		—			—		—		—


Stock‑based compensation expense		—	—		161,098		—		—			161,098		—		161,098

Net loss		—	—		—		—		(192,160)			(192,160)		(79)		(192,239)
Adjustments to redeemable noncontrolling interest		—	—		6,202		—		—			6,202		—		6,202
Other comprehensive loss		—	—		—		(9,033)		—			(9,033)		(171)		(9,204)
Balance at June 30, 2023		383,290,627	$	2	$	6,149,631	$	(8,543)	$	(2,695,010)		$	3,446,080	$	6,046	$	3,452,126

(1) Excludes redeemable noncontrolling interests.

See accompanying Notes to Condensed Consolidated Financial Statements.


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UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY—CONTINUED
(In thousands, except share data)
(Unaudited)

		Six Months Ended June 30, 2024
							Accumulated
					Additional		Other					Unity Software Inc.
	Common Stock		Paid‑In		Comprehensive		Accumulated				Stockholders’	Noncontrolling		Total
		Shares	Amount		Capital		Loss		Deficit			Equity		Interest (1)		Equity
Balance at December 31, 2023		384,871,561	$	2	$	6,259,479	$	(5,009)	$	(3,071,830)		$	3,182,642	$	5,939	$	3,188,581




Issuance of common stock from employee equity plans		4,416,613	—		37,302		—		—			37,302		—		37,302
Issuance of common stock for settlement of RSUs		6,156,124	—		—		—		—			—		—		—






Stock‑based compensation expense		—	—		386,966		—		—			386,966		—		386,966


Net loss		—	—		—		—		(416,648)			(416,648)		(39)		(416,687)
Adjustments to redeemable noncontrolling interest		—	—		(1,687)		—		—			(1,687)		—		(1,687)
Other comprehensive loss		—	—		—		(3,889)		—			(3,889)		(66)		(3,955)
Balance at June 30, 2024		395,444,298	$	2	$	6,682,060	$	(8,898)	$	(3,488,478)		$	3,184,686	$	5,834	$	3,190,520

		Six Months Ended June 30, 2023
							Accumulated
					Additional		Other					Unity Software Inc.
	Common Stock		Paid-In		Comprehensive		Accumulated				Stockholders'	Noncontrolling		Total
		Shares	Amount		Capital		Loss		Deficit			Equity		Interest (1)		Equity
Balance at December 31, 2022		374,243,196	$	2	$	5,779,776	$	(1,691)	$	(2,249,819)		$	3,528,268	$	6,298	$	3,534,566


Issuance of common stock from employee equity plans		3,569,851	—		41,944		—		—			41,944		—		41,944
Issuance of common stock for settlement of RSUs		5,477,580	—		—		—		—			—		—		—


Stock‑based compensation expense		—	—		327,543		—		—			327,543		—		327,543
Net loss		—	—		—		—		(445,191)			(445,191)		(125)		(445,316)
Adjustments to redeemable noncontrolling interest		—	—		368		—		—			368		—		368
Other comprehensive loss		—	—		—		(6,852)		—			(6,852)		(127)		(6,979)
Balance at June 30, 2023		383,290,627	$	2	$	6,149,631	$	(8,543)	$	(2,695,010)		$	3,446,080	$	6,046	$	3,452,126

(1) Excludes redeemable noncontrolling interests.

See accompanying Notes to Condensed Consolidated Financial Statements


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UNITY SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Six Months Ended June 30,
	2024		2023
Operating activities
Net loss	$	(417,216)	$	(447,027)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	203,219		220,639

Stock-based compensation expense	381,276		320,562

Gain on repayment of convertible note	(61,371)		—
Impairment of property and equipment	21,918		—
Other	15,383		1,521
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net	38,066		1,633
Prepaid expenses and other	(19,815)		22,849



Other assets	(2,386)		24,311
Accounts payable	(460)		(3,069)
Accrued expenses and other	(40,301)		(33,727)
Publisher payables	3,140		328


Other long-term liabilities	(34,636)		(37,802)
Deferred revenue	(5,814)		(27,674)
Net cash provided by operating activities	81,003		42,544
Investing activities
Purchases of short-term investments	—		(212)
Proceeds from principal repayments and maturities of short-term investments	—		102,673
Purchases of non-marketable investments	—		(500)

Purchases of intangible assets	(360)		—
Purchases of property and equipment	(15,956)		(28,468)


Net cash provided by (used in) investing activities	(16,316)		73,493
Financing activities










Repayments of convertible note	(414,999)		—

Proceeds from issuance of common stock from employee equity plans	37,302		41,944

Net cash provided by (used in) financing activities	(377,697)		41,944
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	(9,460)		(8,785)
Increase (decrease) in cash, cash equivalents, and restricted cash	(322,470)		149,196
Cash, cash equivalents, and restricted cash, beginning of period	1,604,267		1,505,688
Cash, cash equivalents, and restricted cash, end of period	$	1,281,797	$	1,654,884

Supplemental disclosure of cash flow information:
Cash paid for interest	$	10,000	$	10,389
Cash paid for income taxes, net of refunds	$	16,307	$	5,746
Cash paid for operating leases	$	26,658	$	20,206
Supplemental disclosures of non‑cash investing and financing activities:

Assets acquired under operating lease	$	13,859	$	37,293

See accompanying Notes to Condensed Consolidated Financial Statements.


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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 United States ("U.S.") generally accepted accounting principles ("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 2023 Annual Report on Form 10-K.

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.

Employee Separation and Restructuring Costs

In January 2024, we committed to a plan to eliminate approximately 25% of our workforce, and we mutually agreed to the departure of the founders of ironSource Ltd. Following these announcements, we incurred incremental employee separation costs of approximately $201 million in the six months ended June 30, 2024, which included $128 million of incremental stock-based compensation. Of the incremental employee separation costs, $15 million are within cost of revenue, $44 million are within research and development, $52 million are within sales and marketing, and $90 million are within general and administrative. Additionally, in November 2023, we committed to a plan to reassess our real estate footprint. We incurred $38 million of restructuring costs, primarily related to office closures in the six months ended June 30, 2024.

2. Revenue

The following table presents our revenue disaggregated by source, which also have similar economic characteristics (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Create Solutions	$	150,777	$	193,110	$	314,447	$	380,479
Grow Solutions	298,482		340,368		595,192		653,360
Total revenue	$	449,259	$	533,478	$	909,639	$	1,033,839


Table of Contents						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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
United States	$	130,843	$	141,905	$	269,962	$	274,899
Greater China (1)	62,063		69,750		121,753		129,298
EMEA (2)	164,064		188,219		330,834		374,943
APAC (3)	81,119		119,107		165,155		226,635
Other Americas (4)	11,170		14,497		21,935		28,064
Total revenue	$	449,259	$	533,478	$	909,639	$	1,033,839

(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 statements of operations. As of June 30, 2024 and December 31, 2023, the allowance for uncollectible amounts was $19.3 million and $16.9 million, respectively. For the six months ended June 30, 2024 and 2023, the provision for uncollectible amounts was $5.3 million and $7.8 million, 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 June 30, 2024, capitalized commissions, net of amortization, included in prepaid expenses and other and other assets were $6.5 million and $5.2 million, respectively. As of December 31, 2023, capitalized commissions, net of amortization, included in prepaid expenses and other and other assets were $6.8 million and $4.8 million, respectively. During the three and six months ended June 30, 2024, we recorded amortization costs of $2.3 million and $4.7 million in sales and marketing expenses, as compared to $2.5 million and $5.0 million during the three and six months ended June 30, 2023, respectively.

Contract Balances and Remaining Performance Obligations

Contract assets (unbilled receivables), primarily included in accounts receivable, net, are recorded when revenue is earned in advance of customer billing schedules. Unbilled receivables totaled $22.3 million and $31.3 million as of June 30, 2024 and December 31, 2023, respectively. Of this total as of June 30, 2024, $8.3 million was included in Other Long-Term Assets on our consolidated balance sheets.

Contract liabilities (deferred revenue) relate to payments received in advance of performance under the contract. Revenue recognized during the six months ended June 30, 2024 that was included in the deferred revenue balances at January 1, 2024 was $124.7 million.

Additionally, we have performance obligations associated with commitments in customer contracts to perform in the future that had not yet been recognized in our consolidated financial statements. For contracts with original terms that exceed one year, those commitments not yet recognized as of June 30, 2024, were $352 million and relate primarily to Create Solutions subscriptions, Enterprise Support, and Strategic Partnerships. These commitments generally extend over the next one to five years and we expect to recognize approximately $203 million or 58% of this revenue during the next 12 months.


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3. Financial Instruments

Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash 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 cash, cash equivalents, and restricted cash that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):


	June 30, 2024		December 31, 2023
	Fair Value (1)
Cash	$	978,584	$	834,877
Level 1:
Restricted cash and cash equivalents:
Restricted cash	$	13,840	$	13,942
Money market funds	93,976		502,754
Time deposits	195,397		252,694


Total restricted cash and cash equivalents	$	303,213	$	769,390









Total cash, cash equivalents, and restricted cash	$	1,281,797	$	1,604,267

(1) Due to the highly liquid nature of our investments, amortized cost approximates fair value.

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 use the measurement alternative to account for adjustments to these investments for observable transactions for the same or similar investments of the same issuer in any given quarter. If we determine an impairment has occurred, the investment is written down to the estimated fair value. As of June 30, 2024 and December 31, 2023, such equity investments totaled $33.6 million. No adjustments to the carrying value of these equity investments were recorded for the three and six months ended June 30, 2024 and 2023.

4. Investment in Unity China

The results of Unity China, of which third-party investors hold a 20.5% ownership interest, are included in our condensed consolidated financial statements. Under certain conditions we may be required to repurchase the third-party interest in Unity China. The redeemable noncontrolling interests in Unity China are recorded as temporary equity on our condensed consolidated balance sheet.


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The following table presents the changes in redeemable noncontrolling interests (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Balance at beginning of period	$	224,736	$	225,376	$	225,797	$	219,563

Net loss attributable to redeemable noncontrolling interests	(153)		(1,086)		(529)		(1,712)
Accretion for redeemable noncontrolling interests	2,867		3,676		5,942		6,374
Foreign currency translation and foreign exchange adjustments for redeemable noncontrolling interests	(1,394)		(12,217)		(5,154)		(8,476)
Balance at end of period	$	226,056	$	215,749	$	226,056	$	215,749

5. Leases

We have operating leases for offices, which have remaining lease terms of up to nine years.

Components of lease expense were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Operating lease expense	$	10,579	$	10,375	$	20,832	$	19,768

Variable lease expense	1,497		1,164		3,218		2,442
Sublease income	(552)		(440)		(796)		(824)
Total lease expense	$	11,524	$	11,099	$	23,254	$	21,386

Supplemental balance sheet information related to leases was as follows (in thousands, except weighted-average figures):


		As of
	Classification	June 30, 2024		December 31, 2023
Operating lease assets	Other assets	$	90,444	$	113,256

Current operating lease liabilities	Accrued expenses and other	$	36,065	$	39,132
Long-term operating lease liabilities	Other long-term liabilities	90,885		111,669
Total operating lease liabilities		$	126,950	$	150,801

As of June 30, 2024 and December 31, 2023, our operating leases had a weighted-average remaining lease term of 4.7 and 5.1 years, respectively, and a weighted-average discount rate of 5.3% and 5.2%, respectively.

In November 2023, we committed to a plan to reassess our real estate footprint, focusing on optimizing efficiency and reducing costs. In connection with this plan, during the three and six months ended June 30, 2024, we recorded $8.6 million and $12.2 million of impairment charges on operating lease assets, respectively.

As of June 30, 2024, our lease liabilities were as follows (in thousands):


	Operating Leases
Gross lease liabilities	$	143,358
Less: imputed interest	16,408
Present value of lease liabilities	$	126,950


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As of June 30, 2024, we had entered into a lease that has not yet commenced with future minimum lease payments of $5.0 million which are not yet reflected on our consolidated balance sheet. This operating lease will commence in 2024 with a lease term of 3 years.

6. Borrowings

Convertible Notes

As of June 30, 2024, we had $2.2 billion of unsecured convertible notes outstanding including $1.0 billion issued in November 2022 (the "2027 Notes") and $1.2 billion issued in November 2021 (the "2026 Notes"). The table below summarizes the principal and unamortized debt issuance costs and other material features of the Notes (in thousands):


						Carrying Amount as of
	Conversion Rate per $1,000 Principal	Conversion Price		Maturities	Stated Interest Rates	June 30, 2024		December 31, 2023
Convertible notes:
Principal – 2026 Notes	3.2392	$	308.72	2026	0.0%	$	1,245,232	$	1,725,000
Principal – 2027 Notes	20.4526	$	48.89	2027	2.0%	1,000,000		1,000,000
Unamortized debt issuance costs, net						(7,987)		(13,250)
Net carrying amount						$	2,237,245	$	2,711,750

Interest on the Notes is payable semi-annually in arrears. The combined interest expense on the Notes related to regular interest and the amortization of debt issuance cost was $5.8 million and $11.9 million for the three and six months ended June 30, 2024, respectively, and $1.1 million and $2.2 million for the three and six months ended June 30, 2023, respectively.

As of June 30, 2024 and December 31, 2023, the estimated fair value of the 2027 Notes were approximately $1.0 billion and $1.3 billion, respectively, and the estimated fair value of the 2026 Notes were approximately $1.1 billion and $1.4 billion, respectively. The fair value of the 2027 Notes was based on a combination of a discounted cash flow and Black-Scholes option-pricing model. The fair value of the 2026 Notes was based on quoted prices as of that date.

The 2026 Notes are convertible at the option of the holder if a conversion condition of the 2026 Notes is triggered. During the three and six months ended June 30, 2024, none of the conversion conditions of the 2026 Notes were triggered and the 2026 Notes were not convertible as of June 30, 2024. The holders of the 2027 Notes may elect to convert the notes prior to maturity. Any such conversion may be satisfied at our election with either cash, shares of our common stock, or a combination of cash and shares of our common stock. The conversion rates for the Notes is subject to customary adjustments for certain events as described in the indentures governing the Notes.

The Notes are subject to additional terms. In connection with certain corporate events, as described in the Indentures, we will increase the conversion rate for a holder of the Notes who elects to convert those notes in connection with the event. Additionally, upon the occurrence of certain corporate events and subject to certain exceptions, as described in the Indentures, holders of the Notes may require us to repurchase all or a portion of their notes at a price equal to 100% of the principal amount to be repurchased, plus any accrued and unpaid interest to date. The 2026 Notes are also redeemable at our option if certain conditions are met, as described in the Indenture governing the 2026 Notes.

As of June 30, 2024, no holders of the 2027 and 2026 Notes have exercised the conversion rights, and the if-converted value of the 2027 and 2026 Notes did not exceed the principal amount.

Convertible Note Repurchase

During the first quarter of 2024, the Company repurchased in privately negotiated transactions and extinguished a portion of the 2026 Notes, with a total principal balance of $480 million. The aggregate


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repurchase price for these notes was $415 million, resulting in pre-tax gains of $61.4 million, net of the write-off of unamortized issuance costs. The gain was included in Interest income and other income (expense), net, in the condensed consolidated statement of operations.

Capped Call Transactions

To reduce the potential dilutive effect of the 2026 Notes, in connection with their pricing, we entered into the Capped Call Transactions at a net cost of $48.1 million, with call options totaling approximately 5.6 million of our common shares, and with expiration dates ranging from September 18, 2026 to November 12, 2026. The strike price is $308.72, and the cap price is initially $343.02 per share, subject to adjustments in certain circumstances. The Capped Call Transactions are freestanding and are considered separately exercisable from the 2026 Notes. As of June 30, 2024, the Capped Call Transactions met the conditions for equity classification and were not in the money.

7. Commitments and Contingencies

The following table summarizes our non-cancelable contractual commitments as of June 30, 2024 (in thousands):


	Total		Remainder of 2024		2025‑2026		2027‑2028		Thereafter
Operating leases (1)	$	148,332	$	21,494	$	65,856	$	40,223	$	20,759
Purchase commitments (2)	611,190		148,449		433,317		29,424		—
Convertible note principal and interest (3)	2,315,232		10,000		1,285,232		1,020,000		—
Total	$	3,074,754	$	179,943	$	1,784,405	$	1,089,647	$	20,759

(1) Operating leases consist of obligations for real estate, including leases that are not yet commenced.

(2) The substantial majority of our purchase commitments are related to agreements with our data center hosting providers.

(3) Convertible notes due 2026 and 2027. See Note 6, "Borrowings," above 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 that it is both probable that a liability has been incurred and 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 condensed 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.

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 June 30, 2024, 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.


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Letters of Credit

We had $13.8 million and $13.9 million of secured letters of credit outstanding as of June 30, 2024 and December 31, 2023, respectively. These primarily relate to our office space leases and are fully collateralized by certificates of deposit which we record in restricted cash as other assets on our condensed consolidated balance sheets.

8. Stock‑Based Compensation

Stock-based compensation expense is as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Cost of revenue	$	7,911	$	19,801	$	24,717	$	38,650
Research and development	56,908		71,058		144,646		147,541
Sales and marketing	22,282		34,680		86,253		70,197
General and administrative	28,298		31,999		125,660		64,178
Total stock-based compensation expense	$	115,399	$	157,538	$	381,276	$	320,566

Included in the above expenses for the three and six months ended June 30, 2024, is $3 million and $97 million, respectively, of incremental stock-based compensation expense from modifications, primarily within general and administrative. These amounts predominately relate to the modification of awards held by the founders of ironSource Ltd. that departed in the first quarter of 2024.

Stock Options

A summary of our stock option, including price-vested options ("PVO"), activity is as follows:


	Options Outstanding
	Stock Options Outstanding	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (In Years)
Balance as of December 31, 2023	31,541,466	$	19.35	4.79
Granted	2,119,253	$	22.50
Exercised	(3,865,467)	$	6.04
Forfeited, cancelled, or expired	(1,345,771)	$	52.00
Balance as of June 30, 2024	28,449,481	$	19.85	4.31

The calculated grant-date fair value of stock options and PVOs granted, were estimated using the Black-Scholes option-pricing model and a Monte Carlo stimulation, respectively, with the following assumptions:


	Three Months Ended June 30,	Six Months Ended June 30,
	2024		2023	2024	2023
Expected dividend yield	—		—	—	—
Risk-free interest rate	4.3% - 4.7%		3.8%	4.1% - 4.7%	3.8% - 4.2%
Expected volatility	60.0% - 66.5%		56.3%	60.0% - 66.5%	54.7% - 56.3%
Expected term (in years)	6.25 - 10.00		6.25	6.25 - 10.00	6.25
Fair value of underlying common stock	$17.95 - $24.27		$35.84	$17.95 - $26.89	$29.33 - $35.84


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Restricted Stock Units

A summary of our restricted stock unit ("RSU"), including price-vested unit ("PVU"), activity is as follows:


	Unvested RSUs
	Number of Shares	Weighted-Average Grant-Date Fair Value
Unvested as of December 31, 2023	37,332,551	$	38.31
Granted	3,996,991	$	25.55
Vested	(6,161,752)	$	43.62
Forfeited	(6,924,178)	$	41.80
Unvested as of June 30, 2024	28,243,612	$	34.49

Price-Vested Units and Price-Vested Options

The vesting for each of the PVOs and PVUs is subject to the fulfillment of both a service period that extends up to four years and the achievement of a stock price hurdle during the relevant performance period that extends up to six and seven years, respectively. The fair value of each PVO and PVU award is estimated using a Monte Carlo simulation that uses assumptions determined on the date of grant. During the three and six months ended June 30, 2024, the stock price hurdles were not met.

Employee Stock Purchase Plan

The fair value of shares offered under our Employee Stock Purchase Plan ("ESPP") was determined on the grant date using the Black-Scholes option pricing model. The following table summarizes the assumptions used and the resulting grant-date fair values of our ESPP:


	Six Months Ended June 30,
		2024	2023
Expected dividend yield		—	—
Risk-free interest rate		5.3%	5.2%
Expected volatility		56.0%	94.5%
Expected term (in years)		0.50	0.50
Grant-date fair value per share		$9.11	$12.44

Additional information related to the ESPP is provided below (in thousands, except per share amounts):


	Six Months Ended June 30,
		2024	2023
Shares issued under the ESPP		551,146	532,643
Weighted-average price per share issued		$24.92	$25.87

9. Income Taxes

Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, we update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to volatility due to several factors, including variability in accurately predicting our pre-tax income or loss and the mix of jurisdictions to which they relate, intercompany transactions, changes in how we do business, and tax law developments.


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Our effective tax rate for the three and six months ended June 30, 2024 differs from the U.S. federal statutory tax rate of 21% primarily due to the need to record a valuation allowance on U.S. losses and to a lesser extent tax expense on foreign earnings taxed at different rates. In addition, during the first quarter of 2024, we recorded a tax benefit on foreign losses in connection with employee separation costs and we continued to restructure our tax operations which resulted in a reduction to our U.S. valuation allowance. Our effective tax rate for the three and six months ended June 30, 2023 differed from the U.S. federal statutory tax rate of 21% primarily due to the need to record a valuation allowance in the U.S. on losses and to a lesser extent, tax expense on foreign earnings taxed at different rates. In addition, the Company undertook certain tax restructuring efforts that enhanced our ability to offset deferred tax liabilities in the U.S. in future periods, thereby partially reducing the need for a valuation allowance.

The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. We regularly assess the ability to realize our deferred tax assets and establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. In performing this assessment with respect to each jurisdiction, we review all available positive and negative evidence. Primarily due to our history of losses, we believe that it is more likely than not that the deferred tax assets of our U.S. federal, certain U.S. states, Denmark, U.K., and other non-U.S. jurisdictions will not be realized and we have maintained a full valuation allowance against such deferred tax assets.

As of June 30, 2024, we had $185.9 million of gross unrecognized tax benefits, of which $30.7 million would impact the effective tax rate, if recognized. It is reasonably possible that the amount of unrecognized tax benefits as of June 30, 2024 could increase or decrease significantly as the timing of the resolution, settlement, and closure of audits is highly uncertain. We believe that we have adequately provided for any reasonably foreseeable outcome related to our tax audits and that any settlement will not have a material impact on our financial condition and operating results at this time.

10. Net Loss per Share of Common Stock

Basic and diluted net loss per share is the same for all periods presented because the effects of potentially dilutive items were antidilutive given our net loss in each period.

The following table presents potentially dilutive common stock excluded from the computation of diluted net loss per share (in thousands) because the impact of including them would have been antidilutive:


	As of June 30,
		2024	2023

Convertible notes		24,488	26,042
Stock options and PVOs		28,449	32,342
Unvested RSUs and PVUs		28,244	32,165


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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Please read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition, or results of operations. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in "Part II, Item 1A. Risk Factors" included elsewhere in this report. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements, like all statements in this report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments. See the section titled "Note Regarding Forward-Looking Statements and Risk Factor Summary" in this report.

Overview

Unity is the world's leading platform for creating and growing interactive, real-time 3D ("RT3D") content and experiences. Our comprehensive set of software, including AI solutions, supports creators through the entire development lifecycle as they build, run, and grow immersive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices.

Our platform consists of two complementary sets of solutions: Create Solutions and Grow Solutions, which together comprise our strategic portfolio surrounding the Unity Engine, Cloud and Monetization.

Impact of Macroeconomic Trends and Geopolitical Events

Recent negative macroeconomic factors, such as inflation, high interest rates, and limited credit availability have and could further cause economic uncertainty and volatility, which could harm our business. Further, increased competition in the advertising market and ongoing restrictions related to the gaming industry in China have impacted our growth rates and may continue to do so. Ongoing geopolitical instability, particularly in Israel, where a significant portion of our Grow Solutions operations is located, may adversely affect our business.

Recent Developments in Our Business

Starting in the fourth quarter of 2023, we began to reset our product and service offerings to focus on our core businesses, which we refer to as our "Strategic Portfolio": the Unity Engine, Cloud, and Monetization, while narrowing our investments in new businesses to those most attractive, mainly industries beyond gaming. We also exited businesses where we do not believe that we can provide unique value to customers or generate a sound return to investors. Specifically, we have limited our Professional Services business to a few selected strategic engagements, we will shift our multiplayer business to orchestration and managed solutions, and we will stop the independent development of professional artistry tools, which we will instead integrate into the Unity Editor and AI tools. During the three and six months ended June 30, 2024 we recognized approximately $23 million and $58 million, respectively, of revenue associated with these non-strategic portfolios and we expect that these amounts will decline throughout the remainder of 2024.

In the six months ended June 30, 2024, we substantially completed reductions to our workforce and our office footprint. This resulted in approximately $201 million in employee separation costs, primarily related to the acceleration and modifications of equity awards, and $38 million of non-employee charges associated with these reductions.

In the second quarter of 2024, we announced the hiring of our permanent Chief Executive Officer and President, Matthew Bromberg. Additionally, in August 2024, we announced that Luis Visoso, our


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Executive Vice President and Chief Financial Officer, would be leaving the Company effective August 9, 2024, and Mark Barrysmith, our Chief Accounting Officer, would assume the role of Interim Chief Financial Officer.

Our ability to execute on these changes, successfully manage executive transitions, and to retain Mr. Bromberg and other senior executives is critical to our success, and their timing and full impact on our future results of operations, cash flows, or financial condition are uncertain.

For additional details, refer to the section titled "Risk Factors."

Key Metrics

As further discussed in Item 2 of Part I, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K, we monitor the following key metrics to help us evaluate the health of our business, identify trends affecting our growth, formulate goals and objectives, and make strategic decisions. We have revised and restated these metrics to include inputs from our Strategic Portfolio only.

Customers Contributing More Than $100,000 of Revenue

We had 1,254 and 1,227 customers contributing more than $100,000 of revenue in the trailing 12 months as of June 30, 2024 and 2023, respectively. The year over year increase was largely a result of our core subscriptions growth. While these customers represented the substantial majority of revenue for the six months ended June 30, 2024 and 2023, respectively, no one customer accounted for more than 10% of our revenue for either period.

Dollar-Based Net Expansion Rate

Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with our Create and Grow Solutions customers and to increase their use of our platform. We track our performance by measuring our dollar-based net expansion rate, which compares our Create and Grow Solutions revenue, excluding Strategic Partnerships and Supersonic, from the same set of customers across comparable periods, calculated on a trailing 12-month basis.


	As of
	June 30, 2024		June 30, 2023
Dollar-based net expansion rate	96	%	103	%

Our dollar-based net expansion rate as of June 30, 2024 and 2023, was driven primarily by the sales of additional subscriptions and services to our existing Create Solutions customers and cross-selling our solutions to all of our customers, offset by decreases in Grow Solutions revenue. The decrease in dollar-based net expansion rate, compared to the comparable prior year period, is primarily attributable to Grow Solutions, due to increased competition in the advertising market.


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The chart below illustrates that our dollar-based net expansion rate has been declining over the last year with a slight rebound in the fourth quarter of 2022 due to the ironSource Merger.

Results of Operations

The following table summarizes our historical consolidated statements of operations data for the periods indicated (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue	$	449,259	$	533,478	$	909,639	$	1,033,839
Cost of revenue	108,875		158,827		253,262		320,791
Gross profit	340,384		374,651		656,377		713,048
Operating expenses
Research and development	208,935		267,955		491,663		548,435
Sales and marketing	169,854		209,131		400,479		425,258
General and administrative	91,015		89,017		268,584		185,791
Total operating expenses	469,804		566,103		1,160,726		1,159,484
Loss from operations	(129,420)		(191,452)		(504,349)		(446,436)
Interest expense	(5,829)		(6,142)		(11,864)		(12,271)
Interest income and other income (expense), net	10,457		9,061		87,100		22,676
Loss before income taxes	(124,792)		(188,533)		(429,113)		(436,031)
Provision for (benefit from) Income taxes	946		4,791		(11,897)		10,996
Net loss	(125,738)		(193,324)		(417,216)		(447,027)


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The following table sets forth the components of our condensed consolidated statements of operations data as a percentage of revenue for the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue	100	%	100	%	100	%	100	%
Cost of revenue	24		30		28		31
Gross profit	76		70		72		69
Operating expenses
Research and development	47		50		54		53
Sales and marketing	38		39		44		41
General and administrative	20		17		29		18
Total operating expenses	105		106		127		112
Loss from operations	(29)		(36)		(55)		(43)
Interest expense	(1)		(1)		(1)		(1)
Interest income and other income (expense), net	2		2		9		2
Loss before income taxes	(28)		(35)		(47)		(42)
Provision for (benefit from) Income taxes	—		1		(1)		1
Net loss	(28)	%	(36)	%	(46)	%	(43)	%

Revenue

Create Solutions

We generate Create Solutions revenue primarily through our suite of Create Solutions subscriptions inclusive of enterprise support, professional services, and cloud and hosting services. Our subscriptions provide customers access to technologies that allow them to edit, run, and iterate interactive, RT3D and 2D experiences that can be created once and deployed to a variety of platforms. Enhanced support services are provided to our enterprise customers and are sold separately from the Create Solutions subscriptions. Professional services are provided to our customers and include consulting, platform integration, training, and custom application and workflow development. Cloud and hosting services are provided to our customers to simplify and enhance the way our users access and harness our solutions.

Grow Solutions

We generate Grow Solutions revenue primarily through our monetization solutions and game publishing services. Our monetization solutions allow publishers, original equipment manufacturers, and mobile carriers to sell available advertising inventory on their mobile applications or hardware devices to advertisers for in-application or on-device placements. Our revenue represents the amount we retain from the transaction we are facilitating through our Unified Auction and mediation platform. Our game publishing services provide game developers with the infrastructure and expertise to launch their mobile games and manage their growth; this is achieved through marketability testing tools, live games management tools and game design support, and optimizing the implementation of the customer's commercial model. Through these publishing services, we generate revenue from in-app advertising in published games and in some cases, in app purchase revenue.


Table of Contents						Unity Software Inc.

Our total revenue is summarized as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Create Solutions	$	150,777	$	193,110	$	314,447	$	380,479
Grow Solutions	298,482		340,368		595,192		653,360
Total revenue	$	449,259	$	533,478	$	909,639	$	1,033,839

Total revenue decreased in the three and six months ended June 30, 2024, compared to the comparable prior year periods, primarily due to a decrease in Create Solutions revenue, driven by the termination of the subscription agreement with Wētā FX Limited, a decrease in professional services revenue and cloud and hosting services revenue, both caused by the portfolio reset, partially offset by increases in subscription revenue. The decrease in total revenue was further driven by a decrease in Grow Solutions revenue, which was negatively impacted by increased competition. To be more competitive we are focused on enhancing our machine learning stack and data infrastructure capabilities, which we believe will take some time to manifest in sustainable increased performance.

Cost of Revenue, Gross Profit, and Gross Margin

Cost of revenue consists primarily of personnel costs (including salaries, benefits, and stock-based compensation) for employees and subcontractors associated with our product support and professional services organizations, the amortization of intangible assets, hosting expenses, and depreciation of related property and equipment.

Gross profit, or revenue less cost of revenue, has been and will continue to be affected by various factors, including our product mix, the costs associated with third-party hosting services and the extent to which we expand and drive efficiencies in our hosting costs, professional services, and customer support organizations. We expect our gross profit to increase in absolute dollars in the long term but decrease in the short term as we reset our product portfolio to focus on the Unity Engine, Cloud, and Monetization solutions. We expect our gross profit as a percentage of revenue, or gross margin, to fluctuate from period to period.

Cost of revenue for the three and six months ended June 30, 2024 decreased, compared to the comparable prior year periods, primarily due to a decrease in personnel costs, driven by reductions in headcount, a decrease in our hosting expenses in connection with our portfolio decisions, and a decrease in amortization expenses related to intangible assets acquired through our business combinations.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. The most significant component of our operating expenses is personnel-related costs, including salaries and wages, sales commissions, bonuses, benefits, stock-based compensation, and payroll taxes. As part of our efforts to restructure and streamline our organizational structure, in January 2024, we committed to a plan to eliminate approximately 25% of our workforce, and we mutually agreed to the departure of the founders of ironSource Ltd. Following these announcements and substantially in the first quarter of 2024, we incurred incremental employee separation costs of approximately $201 million in the six months ended June 30, 2024, largely driven by the acceleration and modification of equity awards, including $15 million within cost of revenue, $44 million within research and development expense, $52 million within sales and marketing expense, and $90 million within general and administrative expense. In addition, we incurred $38 million of non-employee charges associated with this restructuring.

Research and Development

Research and development expenses primarily consist of personnel-related costs for the design and development of our platform, IT hosting and SaaS expenses, and amortization expenses related to intangible assets. We expect our research and development expenses to increase in absolute dollars in


Table of Contents						Unity Software Inc.

the long term, as we expand our teams to develop new solutions, expand features and functionality with existing solutions, and enter new markets, but decrease in the short term as we reset our Strategic Portfolio. We expect research and development expenses to fluctuate as a percentage of revenue from period to period.

Research and development expense for the three and six months ended June 30, 2024 decreased, compared to the comparable prior year periods, primarily due to a decrease in personnel costs driven by our reductions in headcount in the first quarter of 2024.

Sales and Marketing

Our sales and marketing expenses consist primarily of personnel-related costs, amortization expenses related to intangible assets, and advertising and marketing programs, including user acquisition costs and digital account-based marketing, user events such as developer-centric conferences and our annual Unite user conferences. We expect that our sales and marketing expense will increase in absolute dollars in the long term, as we hire additional personnel, increase our account-based marketing, direct marketing and community outreach activities, invest in additional tools and technologies, and continue to build brand awareness, but decrease in the short term as we reset our Strategic Portfolio. We expect sales and marketing expenses to fluctuate as a percentage of revenue from period to period.

Sales and marketing expense for the three months ended June 30, 2024 decreased, compared to the comparable prior year period, primarily due to a decrease in personnel costs, driven by our reductions in headcount in the first quarter of 2024, and a decrease in spending on advertising and marketing programs. Sales and marketing expense for the six months ended June 30, 2024 decreased, compared to the comparable prior year period, primarily due to a decrease in spending on advertising and marketing programs, offset by employee separation costs in the first quarter of 2024.

General and Administrative

Our general and administrative expenses primarily consist of personnel-related costs for finance, legal, human resources, IT and administrative employees; allocated overhead, and professional fees for external legal, accounting, and other professional services. We expect that our general and administrative expenses will increase in absolute dollars in the long term, as we scale to support the growth of our business but decrease in the short term as we reset our Strategic Portfolio. We expect general and administrative expenses to fluctuate as a percentage of revenue from period to period.

General and administrative expense for the three months ended June 30, 2024 increased, compared to the comparable prior year period, primarily due to impairments of operating lease assets, and an increase in our professional fees, offset by a decrease in personnel-related costs, driven by our reductions in headcount in the first quarter of 2024. General and administrative expense for the six months ended June 30, 2024 increased, compared to the comparable prior year, primarily due to higher personnel-related costs, driven by employee separation costs in the first quarter of 2024, and impairments of operating lease assets.

Interest Expense

Interest expense consists primarily of interest expense associated with our convertible debt and amortization of debt issuance costs.

Interest expense for the three and six months ended June 30, 2024 decreased, compared to the comparable prior year periods, in line with our outstanding debt obligations.

Interest Income and Other Income (Expense), Net

Interest income and other income (expense), net, consists primarily of gains on the repurchase of convertible debt, interest income earned on our cash, cash equivalents, and short-term investments, and foreign currency gains and losses. As we have expanded our global operations, our exposure to fluctuations in foreign currencies has increased, and we expect this to continue.


Table of Contents						Unity Software Inc.

Interest income and other income (expense), net, for the three months ended June 30, 2024 increased, compared to the comparable prior year period, primarily due to gains from foreign exchange. Interest income and other income (expense), net, for the six months ended June 30, 2024 increased, compared to the comparable prior year period, primarily due to gains on the repurchase of convertible debt of $61.4 million in the first quarter of 2024.

Provision for (benefit from) Income taxes

Provision for (benefit from) income taxes consists primarily of income taxes in certain foreign jurisdictions where we conduct business. We have a valuation allowance against certain of our deferred tax assets, including net operating loss ("NOL") carryforwards and tax credits related primarily to research and development. Our overall effective income tax rate in future periods may be affected by the geographic mix of earnings in the countries in which we operate. Our future effective tax rate may also be affected by changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws, regulations, or accounting principles in the jurisdictions in which we conduct business. See Note 9, "Income Taxes," of the Notes to Condensed Consolidated Financial Statements.

Provision for (benefit from) income taxes for the three and six months ended June 30, 2024 decreased, compared to the comparable prior year periods, primarily due to a tax benefit from our foreign losses in connection with employee separation costs recorded in the first quarter of 2024 and our continued restructuring efforts in the first quarter of 2024 that enhanced our ability to offset deferred tax liabilities in the U.S. in future periods, thereby partially reducing the need for a valuation allowance.

Non-GAAP Financial Measures

To supplement our consolidated financial statements prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe the following non-GAAP measures are useful in evaluating our operating performance. We are presenting these non-GAAP financial measures because we believe, when taken collectively, they may be helpful to investors because they provide consistency and comparability with past financial performance.

However, non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. As a result, our non-GAAP financial measures are presented for supplemental informational purposes only and should not be considered in isolation or as a substitute for our consolidated financial statements presented in accordance with GAAP.

Adjusted Gross Profit and Adjusted EBITDA

We define adjusted gross profit as GAAP gross profit excluding expenses associated with stock-based compensation, amortization of acquired intangible assets, depreciation, and restructurings and reorganizations. We define adjusted gross margin as adjusted gross profit as a percentage of revenue. We define adjusted EBITDA as net income or loss excluding benefits or expenses associated with stock-based compensation, amortization of acquired intangible assets, depreciation, acquisitions, restructurings and reorganizations, insurance reimbursement for legal settlement, interest, income tax, and other non-operating activities, which primarily consist of foreign exchange rate gains or losses.

We use adjusted gross profit and adjusted EBITDA in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that adjusted gross profit and adjusted EBITDA provide our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as these metrics exclude expenses that we do not consider to be indicative of our overall operating performance.


Table of Contents						Unity Software Inc.

The following table presents a reconciliation of our adjusted gross profit to our GAAP gross profit, the most directly comparable measure as determined in accordance with GAAP, for the periods presented (in thousands):


	Three Months Ended
	June 30,
	2024			2023
GAAP gross profit	$	340,384		$	374,651
Add:
Stock-based compensation expense	7,911			19,801

Amortization of intangible assets expense	26,997			34,480
Depreciation expense	2,232			2,385
Restructuring and reorganization costs	(253)			2,944
Adjusted gross profit	$	377,271		$	434,261
GAAP gross margin	76		%	70		%
Adjusted gross margin	84		%	81		%

The following table presents a reconciliation of our adjusted EBITDA to net loss, the most directly comparable measure as determined in accordance with GAAP, for the periods presented (in thousands):


	Three Months Ended
	June 30,
	2024		2023
GAAP net loss	$	(125,738)	$	(193,324)
Stock-based compensation expense	113,766		157,538
Amortization of intangible assets expense	88,432		98,702
Depreciation expense	12,977		12,204
Acquisition-related costs	—		159
Restructuring and reorganization costs	27,714		24,847
Insurance reimbursement for legal settlement	—		(3,250)

Interest expense	5,829		6,142
Interest income and other income (expense), net	(10,457)		(9,061)
Provision for Income taxes	946		4,791
Adjusted EBITDA	$	113,469	$	98,748

Free Cash Flow

We define free cash flow as net cash provided by operating activities less cash used for purchases of property and equipment. We believe that free cash flow is a useful indicator of liquidity as it measures our ability to generate cash, or our need to access additional sources of cash, to fund operations and investments.


Table of Contents						Unity Software Inc.

The following table presents a reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable measure as determined in accordance with GAAP, for the periods presented (in thousands):


	Six Months Ended June 30,
	2024		2023
Net cash provided by operating activities	$	81,003	$	42,544
Less:
Purchases of property and equipment	(15,956)		(28,468)
Free cash flow	$	65,047	$	14,076

Net cash provided by (used in) investing activities	$	(16,316)	$	73,493
Net cash provided by (used in) financing activities	$	(377,697)	$	41,944

Liquidity and Capital Resources

As of June 30, 2024, our principal sources of liquidity were cash, and cash equivalents totaling $1.3 billion, which were primarily held for working capital purposes. Our cash equivalents are invested primarily in time deposits and government money market funds.

Our material cash requirements from known contractual and other obligations consist of our convertible notes, obligations under operating leases for office space, and contractual obligations for hosting services to support our business operations. See Part I, Item I, Note 7 — "Commitments and Contingencies" for additional discussion of our principal contractual commitments.

In connection with the ironSource Merger in November 2022, we issued $1.0 billion in aggregate principal amount of 2.0% convertible senior notes due 2027, the proceeds of which were used to fund repurchases under our share repurchase program. We previously issued $1.7 billion in aggregate principal amount of 0% convertible senior notes due 2026 in November 2021, of which $480 million in aggregate principal was repurchased in March 2024 for $415 million (together with the 2027 Notes, the "Notes"). See Part I, Item I, Note 6, "Borrowings" for additional discussion of the Notes.

In July 2022, our board of directors approved our share repurchase program, which authorized the repurchase of up to $2.5 billion of shares of our common stock in open market transactions through November 2024 (the "Share Repurchase Program"). As of June 30, 2024, $750 million remains available for future share repurchases under this program.

Since our inception, we have generated losses from our operations as reflected in our accumulated deficit of $3.5 billion as of June 30, 2024. We expect to continue to incur operating losses on a GAAP basis for the foreseeable future due to the investments we will continue to make in research and development, sales and marketing, and general and administrative. As a result, we may require additional capital to execute our strategic initiatives to grow our business.

We believe our existing sources of liquidity will be sufficient to meet our working capital and capital expenditures for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and potential future equity or debt transactions. Our future capital requirements, however, will depend on many factors, including our growth rate; the timing and extent of spending to support our research and development efforts; capital expenditures to build out new facilities and purchase hardware and software; the expansion of sales and marketing activities; and our continued need to invest in our IT infrastructure to support our growth. In addition, we may enter into additional strategic partnerships as well as agreements to acquire or invest in complementary offerings, teams and technologies, including intellectual property rights, which could increase our cash requirements. As a result of these and other factors, we may choose or be required to seek additional equity or debt financing sooner than we currently anticipate. In addition, depending on prevailing market conditions, our liquidity requirements,


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contractual restrictions, and other factors, we may also from time to time seek to retire or purchase our outstanding debt, including the Notes, through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all, including as a result of macroeconomic conditions such as high interest rates, volatility in the capital markets and liquidity concerns at, or failures of, banks and other financial institutions. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, and financial condition would be adversely affected.

Our changes in cash flows were as follows (in thousands):

Unity Software Inc. [U] Filings
10-Q	[2024-08-08]
10-Q	[2024-05-09]
10-K	[2024-02-29]
10-Q	[2023-11-09]
10-Q	[2023-08-02]
10-Q	[2023-05-10]
10-K	[2023-02-27]
10-Q	[2022-11-09]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-02-22]
10-Q	[2021-11-10]
10-Q	[2021-08-11]
10-Q	[2021-05-12]
10-K	[2021-03-05]
10-Q	[2020-11-13]
S-1	[2020-08-24]