Unity Software Inc

Previous wording

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.

Current wording

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

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. 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.

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 are shifting our multiplayer business to support the demands of live multiplayer games beyond infrastructure, and we have stopped the independent development of professional artistry tools, which we will instead consider integrating into the Unity Editor. During the three and nine months ended September 30, 2024 we recognized approximately $17 million and $75 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 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.

Current wording

In the nine months ended September 30, 2024, we substantially completed reductions to our workforce and our office footprint that were announced in the first quarter of 2024. This resulted in approximately $205 million in employee separation costs, primarily related to the acceleration and modifications of equity awards, and $45 million of non-employee charges associated with these reductions.

Previous 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.

Current wording

We have had significant executive transitions in 2024. In the fourth quarter of 2024, we announced the hiring of our permanent Senior Vice President and Chief Financial Officer, Jarrod Yahes, effective January 1, 2025. Mark Barrysmith, our Senior Vice President and Chief Accounting Officer and Interim Chief Financial Officer, will no longer serve as the Interim Chief Financial Officer as of January 1, 2025, but will continue in his role as Senior Vice President and Chief Accounting Officer and will continue as our Principal Accounting Officer. Our ability to successfully manage these executive transitions, and to retain senior executives is critical to our success and the timing and full impact on our future results of operations, cash flows, or financial condition are uncertain.

Previous 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.

Current wording

We had 1,242 and 1,230 customers contributing more than $100,000 of revenue in the trailing 12 months as of September 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 nine months ended September 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 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.

Current wording

Our dollar-based net expansion rate as of September 30, 2024 was driven primarily by decreases in Grow Solutions revenue, due to competition in the advertising market, and to a lesser extent decreases in professional services revenue within Create Solutions, offset by growth in core subscriptions revenue. Our dollar-based net expansion rate as of September 30, 2023 was driven primarily by growth in professional services, and core subscriptions revenue, due to 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 attributable to declines in Grow Solutions, and professional services revenue, as noted above.

Previous wording

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.

Current wording

The chart below illustrates that our dollar-based net expansion rate has been declining over the last year.

Previous 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.

Current wording

Total revenue decreased in the three and nine months ended September 30, 2024, compared to the comparable prior year periods, primarily due to a decrease in Grow Solutions revenue, which was negatively impacted by 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. The decrease in total revenue was further driven by a decrease in Create Solutions revenue, primarily due to the termination of the subscription agreement with Wētā FX Limited, and a decrease in professional services revenue and cloud and hosting services revenue, both caused by the portfolio reset. The decrease in Create Solutions was partially offset by increases in subscription revenue.

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, the amortization of intangible assets, hosting expenses, 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 costs of related facilities.

Previous 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.

Current wording

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

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. 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.

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 $205 million in the nine months ended September 30, 2024, largely driven by the acceleration and modification of equity awards, including $15 million within cost of revenue, $46 million within research and development expense, $52 million within sales and marketing expense, and $92 million within general and administrative expense. In addition, we incurred $45 million of non-employee charges associated with this restructuring.

Previous wording

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.

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 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.

Previous 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.

Current wording

Research and development expense for the three and nine months ended September 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

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous 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.

Current wording

Interest income and other income (expense), net, for the three months ended September 30, 2024 decreased, compared to the comparable prior year period, primarily due to a decrease in interest bearing accounts, driven by the use of cash to repurchase a portion of our convertible debt in the first quarter of 2024, offset by foreign currency gains and losses. Interest income and other income (expense), net, for the nine months ended September 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

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.

Current wording

Provision for income taxes for the three months ended September 30, 2024 decreased, compared to the comparable prior year period, primarily due to decrease in earnings in foreign jurisdictions with lower effective tax rate. Benefit from income taxes for the nine months ended September 30, 2024 changed as compared to the provision for income taxes in the comparable prior year period, 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 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.

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

Previous wording

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.

Current wording

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

Previous 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.

Current wording

As of September 30, 2024, our principal sources of liquidity were cash and cash equivalents totaling $1.4 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

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.

Current wording

Since our inception, we have generated losses from our operations as reflected in our accumulated deficit of $3.6 billion as of September 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 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.

Current wording

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

Current wording

During the nine months ended September 30, 2024, net cash used in investing activities consisted primarily of purchases of property and equipment, and purchases of intangible assets.

Previous 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.

Current wording

During the nine months ended September 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.