Unity Software Inc.

Previous wording

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 I, Item 1A. Risk Factors” of our Annual Report on Form 10-K filed with the SEC on February 11, 2026, “Part II, Item 1A. Risk Factors” of our Form 10-Q filed with the SEC on May 7, 2026, and "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" in this report.

Current wording

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 I, Item 1A. Risk Factors" of our Annual Report on Form 10-K filed with the SEC on February 11, 2026, "Part II, Item 1A. Risk Factors" of our Quarterly Reports on Form 10-Q filed with the SEC on May 7, 2026, and August 6, 2026, and "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" in this report.

Previous wording

In the first quarter of 2026, we announced we would sunset the ironSource Ads Network, one of our monetization networks, effective April 30, 2026, and we began the process of exiting our Supersonic game publishing business. As a result, revenue from these businesses is now included in non-strategic revenue for all periods presented. The sunset of the ironSource Ads Network was substantially completed in the second quarter of 2026, and the sale of our Supersonic business was completed on August 4, 2026.

Current wording

In the first quarter of 2026, we announced we would sunset the ironSource Ads Network, one of our monetization networks, and we began the process of exiting our Supersonic game publishing business. Revenue from these businesses is now included in non-strategic revenue for all periods presented. The sunset of the ironSource Ads Network was substantially completed in the second quarter of 2026, and on August 4, 2026, we completed the sale of our Supersonic business for net proceeds of $38.0 million, resulting in a gain on sale of business of $4.5 million, recorded primarily within general and administrative expense.

Previous wording

We generate Create Solutions revenue primarily through our suite of Create Solutions subscriptions inclusive of enterprise support, professional services, and consumption 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 generally sold separately from the Create

Current wording

We generate Create Solutions revenue primarily through our suite of Create Solutions subscriptions inclusive of enterprise support, professional services, and consumption services. Our subscriptions provide customers access to technologies that allow them to edit, run, and iterate interactive, RT3D and

Previous wording

Solutions subscriptions. Professional services are provided to our customers which are primarily platform integrations, but also include consulting, training, and custom application and workflow development. Consumption services consist of cloud and hosting services provided to our customers to simplify and enhance the way our users access and harness our solutions.

Current wording

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 generally sold separately from the Create Solutions subscriptions. Professional services are provided to our customers which are primarily platform integrations, but also include consulting, training, and custom application and workflow development. Consumption services consist of cloud and hosting services provided to our customers to simplify and enhance the way our users access and harness our solutions.

Previous wording

Total revenue increased in the three and six months ended June 30, 2026, compared to the comparable prior year periods, primarily due to an increase in Grow Solutions revenue from growth in the Unity Ads Network, driven by “Unity Vector”, partially offset by decreases in revenue from the ironSource Ads Network.

Current wording

Total revenue increased in the three and nine months ended September 30, 2026 from the prior year periods, primarily due to an increase in Grow Solutions revenue from growth in the Unity Ads Network, driven by Unity Vector, partially offset by decreases in revenue from the ironSource Ads Network.

Previous wording

The increase in total revenue was further driven by a slight increase in Create Solutions revenue, primarily due to increases in subscription revenue, partially offset by decreases in cloud and hosting services revenue, driven by our portfolio reset in 2025. Create Solutions subscription revenue in 2025 also benefited from the sale of a term license for approximately $12 million in the second quarter of that year.

Current wording

Total revenue also increased due to an increase in Create Solutions revenue, driven by higher subscription revenue, partially offset by lower cloud and hosting services revenue, resulting from our 2025 portfolio reset. Create Solutions subscription revenue in 2025 included approximately $12 million from the sale of a term license in the second quarter of 2025.

Previous wording

Included in revenue in the six months ended June 30, 2026 and 2025, are approximately $136 million and $204 million, respectively, of non-strategic portfolio revenue, primarily in Grow Solutions.

Current wording

Included in revenue in the nine months ended September 30, 2026 and 2025, are approximately $161 million and $299 million, respectively, of non-strategic portfolio revenue, primarily in Grow Solutions.

Previous wording

Cost of revenue for the three months ended June 30, 2026 was approximately flat, compared to the comparable prior year period, primarily due to decreases in amortization of intangible assets, driven by the impairment we recognized in the first quarter of 2026, offset by increases in hosting expenses, and in direct costs associated with our advertising offerings.

Current wording

Cost of revenue for the three months ended September 30, 2026 decreased from the prior year period, primarily due to a decrease in amortization of intangible assets, resulting from the impairment charge recognized in the first quarter of 2026, partially offset by increases in direct costs associated with our advertising offerings, and in hosting expenses.

Previous wording

During 2025 we had workforce reductions from our ongoing restructuring efforts. In the six months ended June 30, 2025, we incurred incremental employee separation costs related to these actions of approximately $20 million, primarily within research and development, and sales and marketing. In addition, we incurred approximately $11 million of non-employee charges associated with this restructuring in 2025.

Current wording

During 2025 we had workforce reductions from our ongoing restructuring efforts. In the nine months ended September 30, 2025, we incurred incremental employee separation costs related to these actions of approximately $23 million, primarily within research and development, and sales and marketing. In addition, we incurred approximately $16 million of non-employee charges associated with this restructuring in 2025.

Previous wording

In the first quarter of 2026, we announced we would sunset the ironSource Ads Network, effective April 30, 2026, and we began the process of exiting our Supersonic game publishing business. Following these announcements, we incurred incremental impairment charges of $279 million, in the six months ended June 30, 2026, associated with these decisions. The impairment charges include $227 million within cost of revenue, and $47 million within sales and marketing expense. Furthermore, in the six months ended June 30, 2026, we incurred employee separation costs and other non-employee charges of approximately $38 million from our ongoing global restructuring efforts, primarily related to the planned closure of Unity France. These incremental charges are primarily in research and development.

Current wording

In the first quarter of 2026, we announced we would sunset the ironSource Ads Network and would sell our Supersonic game publishing business. Following these announcements, we incurred incremental impairment charges of $279 million, in the nine months ended September 30, 2026, associated with these decisions. The impairment charges include $227 million within cost of revenue, and $47 million within sales and marketing expense. Furthermore, in the nine months ended September 30, 2026, we incurred employee separation costs and other non-employee charges of approximately $51 million from our ongoing global restructuring efforts, primarily related to the planned closure of Unity France. These incremental charges are primarily in research and development. Finally upon the sale of Supersonic on August 4, 2026, we recorded a gain on sale of business of $4.5 million, primarily within general and administrative expense.

Previous wording

Research and development expenses primarily consist of personnel-related costs for the design and development of our platform, amortization expenses related to intangible assets, and hosting expenses. We expect our research and development expenses to increase in absolute dollars in the long term, as we invest in new solutions, expand features and functionality with existing solutions, support our artificial intelligence ("AI") and machine learning ("ML") initiatives, and enter new markets. 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 (including salaries, benefits, and stock-based compensation) for the design and development of our platform, hosting 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 invest in new solutions, expand features and functionality with existing solutions, support our artificial intelligence ("AI") and machine learning initiatives, and enter new markets. 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, 2026 increased, compared to the comparable prior year periods, primarily due to an increase in amortization costs from the change in useful lives of certain intangible assets in 2025, and an increase in hosting expenses.

Current wording

Research and development expense for the nine months ended September 30, 2026 increased from the prior year period, primarily due to an increase in amortization costs from the change in useful lives of certain intangible assets in 2025, and an increase in hosting expenses.

Previous wording

Our sales and marketing expenses consist primarily of personnel-related costs, the amortization and impairment of 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 Unite user conferences. We expect that our sales and marketing expense will decrease as a result of the divestiture of the Supersonic business.

Current wording

Our sales and marketing expenses consist primarily of personnel-related costs (including salaries, benefits, and stock-based compensation), the amortization and impairment of intangible assets, and advertising and marketing programs, including user acquisition costs and digital account-based

Previous wording

Sales and marketing expense for the six months ended June 30, 2026 was approximately flat, compared to the comparable prior year period, primarily due to an impairment of long-lived intangible assets recognized in the first quarter of 2026, offset by decreases in amortization of intangible assets, driven by the same impairment, and personnel costs.

Current wording

Sales and marketing expense for the nine months ended September 30, 2026 decreased from the prior year period, primarily due to decreases in amortization of intangible assets, driven by the impairment we recognized in the first quarter of 2026, and decreases in our user acquisition costs and personnel costs. These were partially offset by an impairment of long-lived intangible assets recognized in the first quarter of 2026.

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.

Current wording

Our general and administrative expenses primarily consist of personnel-related costs (including salaries, benefits, and stock-based compensation) for finance, legal, human resources, IT and administrative employees; professional fees for external legal, accounting, and other professional services; and allocated overhead.

Previous wording

General and administrative expense for the three and six months ended June 30, 2026 decreased, compared to the comparable prior year periods, primarily due to decreases in allocated overhead and personnel-related costs, both driven by reductions in our real estate footprint and in headcount, due to restructuring in 2025.

Current wording

General and administrative expense for the three and nine months ended September 30, 2026 decreased from the prior year periods, primarily due to decreases in allocated overhead and personnel-related costs, both driven by reductions in our real estate footprint and in headcount, due to restructuring in 2025. The decrease was further driven by the gain from the sale of our Supersonic business in the third quarter of 2026.

Previous wording

Interest income and other income (expense), net, for the three months ended June 30, 2026 decreased, compared to the comparable prior year period, primarily due to losses from foreign exchange, offset by increases in interest income.

Current wording

Interest income and other income (expense), net, for the three months ended September 30, 2026 increased from the prior year period, primarily due to increases in interest income and foreign currency gains.

Previous wording

Interest income and other income (expense), net, for the six months ended June 30, 2026 decreased, compared to the comparable prior year period, primarily due to gains on the repurchase of convertible debt of $42.7 million in the first quarter of 2025, and an impairment of an equity investment of $15.0 million in the first quarter of 2026.

Current wording

Interest income and other income (expense), net, for the nine months ended September 30, 2026 decreased from the prior year period, primarily due to gains on the repurchase of convertible debt of $42.7 million in the first quarter of 2025, and an impairment of an equity investment of $15.0 million in the first quarter of 2026.

Previous 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.

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 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

Previous wording

Benefit from income taxes for the six months ended June 30, 2026 changed, compared to the provision for income taxes in the comparable prior year period, primarily due to a larger current-year tax benefit in foreign jurisdictions resulting from restructuring activities initiated in the first quarter of 2026. For the three months ended June 30, 2026, the provision for income taxes was approximately flat compared to the prior year period.

Current wording

Provision for (benefit from) income taxes for the nine months ended September 30, 2026 decreased from the prior year period, primarily due to a larger current-year tax benefit in foreign jurisdictions resulting from restructuring activities initiated in the first quarter of 2026 and lower U.S. tax expense resulting from a change in our estimated annual effective tax rate.

Previous wording

We define adjusted gross profit as GAAP gross profit excluding expenses associated with stock-based compensation, amortization and impairment 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 and impairment 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.

Current wording

We define adjusted gross profit as GAAP gross profit excluding stock-based compensation expense, amortization and impairment of intangible assets, depreciation expense, and restructuring and reorganization costs. We define adjusted gross margin as adjusted gross profit as a percentage of revenue. We define adjusted EBITDA as net income or loss excluding stock-based compensation expense, amortization and impairment of intangible assets, depreciation expense, gain on sale of business, restructuring and reorganization costs, interest expense, interest income and other income (expense), net and the provision for income taxes.

Previous wording

We define adjusted EPS as net income or loss excluding benefits or expenses associated with stock-based compensation, amortization and impairment of acquired intangible assets, depreciation, restructurings and reorganizations, and the income tax impact of the preceding adjustments (cumulatively "adjusted net income"), increased by the tax effected impacts from any relevant dilutive securities, divided by the diluted weighted-average outstanding shares. The effective tax rate used in calculating adjusted EPS is estimated for each period, based on the net income or loss adjusted for the items noted above, and may differ from the effective rate used in our financial statements. Shares of common stock that are excluded in our calculation of GAAP diluted net loss per share due to their antidilutive impact on such calculations, are included in the diluted weighted average outstanding shares used in our calculation of adjusted EPS, to the extent they have a dilutive impact on adjusted EPS given the adjusted net income in each period.

Current wording

We define adjusted EPS as GAAP net income or loss excluding stock-based compensation expense, amortization and impairment of intangible assets, depreciation expense, gain on sale of business, restructuring and reorganization costs, and the income tax impact of the preceding adjustments (cumulatively "adjusted net income"), increased by the tax effected impacts from any relevant dilutive securities, divided by the diluted weighted-average outstanding shares. The effective tax rate used in calculating adjusted EPS is estimated for each period, based on the net income or loss adjusted for the items noted above, and may differ from the effective rate used in our financial statements. Shares of common stock that are excluded in our calculation of GAAP diluted net loss per share due to their antidilutive impact on such calculations, are included in the diluted weighted average outstanding shares used in our calculation of adjusted EPS, to the extent they have a dilutive impact on adjusted EPS given the adjusted net income in each period.

Previous wording

The following table presents a reconciliation of adjusted EPS to diluted net loss per share attributable to Unity Software Inc., the most directly comparable measures as determined in accordance with GAAP, for the periods presented (in thousands):

Current wording

The following table presents a reconciliation of adjusted EPS to diluted net income (loss) per share attributable to Unity Software Inc., the most directly comparable measures as determined in accordance with GAAP, for the periods presented (in thousands):

Previous wording

As of June 30, 2026, our principal sources of liquidity were cash and cash equivalents totaling $2.4 billion, which were primarily held for working capital purposes. Our cash equivalents are invested primarily in time deposits and in government money market funds.

Current wording

As of September 30, 2026, our principal sources of liquidity were cash and cash equivalents totaling $2.6 billion, which were primarily held for working capital purposes. Our cash equivalents are invested primarily in time deposits and in government money market funds.

Previous wording

Since our inception, we have generated losses from our operations as reflected in our accumulated deficit of $4.5 billion as of June 30, 2026. 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 $4.4 billion as of September 30, 2026. 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, 2026, net cash provided by operating activities was primarily due to our net loss, adjusted for certain non-cash items, which include impairments, depreciation and amortization, stock-based compensation, and other, and to a lesser extent, an increase 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, 2026, net cash provided by operating activities was primarily due to our net loss, adjusted for certain non-cash items, which include impairments, depreciation and amortization, stock-based compensation, and other, and to a lesser extent, an increase 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, 2026, net cash used in investing activities consisted primarily of purchases of property and equipment.

Current wording

During the nine months ended September 30, 2026, net cash provided by investing activities consisted of proceeds from the sale of assets held for sale, partially offset by purchases of property and equipment.

Previous wording

During the six months ended June 30, 2026, net cash provided by financing activities consisted of proceeds from the issuance of common stock under our employee equity plans.

Current wording

During the nine months ended September 30, 2026, net cash provided by financing activities consisted of proceeds from the issuance of common stock under our employee equity plans.