Unity Software Inc

Previous wording

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. In the first quarter of 2024, we recognized approximately $34 million of revenue associated with these non-strategic portfolios and we expect that these amounts will decline throughout the remainder of 2024.

Current wording

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.

Previous wording

In the first quarter of 2024, we substantially completed reductions to our workforce and our office footprint. This resulted in approximately $193 million in employee separation costs, primarily related to the acceleration and modifications of equity awards, and $19 million of non-employee charges associated with these reductions.

Current wording

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.

Previous wording

In the second quarter of 2024, we announced the hiring of our permanent Chief Executive Officer and President, Matthew Bromberg. Our ability to successfully transition the Chief Executive Officer role and to retain Mr. Bromberg and other senior executives could impact our operations and our business.

Current wording

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

Previous wording

Our ability to execute on these plans or execute them in a timely manner is critical to our success, and their timing and full impact on our future results of operations, cash flows, or financial condition are uncertain.

Current wording

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.

Previous wording

We had 1,243 and 1,214 customers contributing more than $100,000 of revenue in the trailing 12 months as of March 31, 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 three months ended March 31, 2024 and 2023, respectively, no one customer accounted for more than 10% of our revenue for either period.

Current wording

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.

Previous wording

Our dollar-based net expansion rate as of March 31, 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. 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.

Current wording

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.

Previous wording

We generate Create Solutions revenue primarily through our suite of Create Solutions subscriptions inclusive of enterprise support, cloud and hosting services, and professional 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. Cloud and hosting services are provided to our customers to simplify and enhance the way our users access and harness our solutions. Professional services are provided to our customers and include consulting, platform integration, training, and custom application and workflow development.

Current wording

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.

Previous wording

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 game publishing services, we generate revenue from in-app advertising in published games and in some cases, in app purchase revenue.

Current wording

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.

Previous wording

Total revenue decreased in the three months ended March 31, 2024, compared to the comparable prior year period, primarily due to a decrease in Create Solutions revenue, driven by the termination of the subscription agreement with Wētā FX Limited, and by a decrease in cloud and hosting services revenue from reduced usage of those offerings, partially offset by increases in core subscription revenue, which excludes Wētā. The decrease in total revenue was further driven by a decrease in Grow Solutions revenue, which was negatively impacted by increased competition.

Current wording

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.

Previous wording

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, hosting expenses, the amortization of intangible assets, and depreciation of related property and equipment.

Current wording

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.

Previous wording

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 a result of the reset of our product portfolio to focus on the Unity Engine and Monetization solutions. We expect our gross profit as a percentage of revenue, or gross margin, to fluctuate from period to period.

Current wording

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.

Previous wording

Cost of revenue for the three months ended March 31, 2024 decreased, compared to the comparable prior year period, primarily due to a decrease of approximately $7 million in amortization expenses related to the Wētā FX Limited contract that was terminated in 2023, and a decrease in our hosting and professional service expenses in connection with our portfolio reset. Personnel costs were comparable period over period inclusive of employee separation costs in the first quarter of 2024.

Current wording

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.

Previous wording

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. 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 $193 million in the first quarter of 2024, largely driven by the modification of equity awards, including $15 million within cost of revenue, $43 million within research and development expense, $47 million within sales and marketing expense, and $88 million within general and administrative expense. These personnel-related costs were the main driver of the increase in expenses period over period. In addition, we incurred $19 million of non-employee charges associated with this restructuring.

Current wording

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.

Previous wording

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 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 a result of the reset of our

Current wording

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

Previous wording

Research and development expense for the three months ended March 31, 2024 increased, compared to the comparable prior year period, primarily due to personnel costs which were comparable period over period inclusive of employee separation costs in the first quarter of 2024.

Current wording

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.

Previous wording

Our sales and marketing expenses consist primarily of personnel-related costs, 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, and amortization expenses related to intangible assets. 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 a result of the reset of our Strategic Portfolio. We expect sales and marketing expenses to fluctuate as a percentage of revenue from period to period.

Current wording

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.

Previous wording

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 a result of the reset of our Strategic Portfolio. We expect general and administrative expenses to fluctuate as a percentage of revenue from period to period.

Current wording

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.

Previous wording

Sales and marketing expense for the three months ended March 31, 2024 increased, compared to the comparable prior year period, primarily due to higher personnel-related costs, driven by employee separation costs in the first quarter of 2024.

Current wording

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.

Previous wording

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, 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.

Current wording

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.

Previous wording

Interest income and other income (expense), net, for the three months ended March 31, 2024 increased, compared to the comparable prior year period, primarily due to a gain on the repurchase of convertible debt of $61.4 million in the first quarter of 2024.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Provision for (benefit from) income taxes for the three months ended March 31, 2024 increased, compared to the comparable prior year period, primarily due to a larger tax benefit from 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.

Current wording

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.

Previous wording

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 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, interest, income tax, and other non-operating activities, which primarily consist of foreign exchange rate gains or losses.

Current wording

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.

Previous wording

We define free cash flow as net cash provided by (used in) 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.

Current wording

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.

Previous wording

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

Current wording

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):

Previous wording

As of March 31, 2024, our principal sources of liquidity were cash, and cash equivalents totaling $1.2 billion, which were primarily held for working capital purposes. Our cash equivalents are invested primarily in government money market funds.

Current wording

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.

Previous wording

Our material cash requirements from known contractual and other obligations consists 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.

Current wording

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.

Previous wording

Since our inception, we have generated losses from our operations as reflected in our accumulated deficit of $3.4 billion as of March 31, 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.

Current wording

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.

Previous wording

During the three months ended March 31, 2024, net cash used in operating activities was primarily due to an increase in working capital. Our cash flows fluctuate from period to period due to revenue seasonality, timing of billings, collections, and publisher payments. Historical cash flows are not necessarily indicative of our results in any future period.

Current wording

During the six months ended June 30, 2024, net cash provided by operating activities was primarily due to a decrease in our net loss, adjusted for certain non-cash items, which include depreciation and amortization, stock-based compensation, gain on convertible notes, impairments, and other, offset by a decrease in operating assets and liabilities. Our cash flows can fluctuate from period to period due to revenue seasonality, timing of billings, collections, and publisher payments, and historical cash flows are not necessarily indicative of our results in any future period.

Previous wording

During the three months ended March 31, 2024, net cash used in investing activities consisted primarily of purchases of property and equipment.

Current wording

During the six months ended June 30, 2024, net cash used in investing activities consisted primarily of purchases of property and equipment.

Previous wording

During the three months ended March 31, 2024, net cash used in financing activities consisted of repayments of convertible notes, offset by the proceeds from the issuance of common stock under our employee equity plans.

Current wording

During the six months ended June 30, 2024, net cash used in financing activities consisted of repayments of convertible notes, offset by the proceeds from the issuance of common stock under our employee equity plans.