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Item 8. Financial Statements and Supplementary Data

2023-02-27 compared with 2022-02-22 · 405 added, 739 removed, 657 unchanged (64% of the section changed)

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Revenue Recognition

Description of the Matter As discussed in Note 1 to the consolidated financial statements, revenue is recognized when the Company's contractual performance obligations are satisfied, in an amount that reflects the consideration expected in exchange for products and services.

Determining whether certain of the Company’s products and services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation requires significant judgment.

Judgment is required to determine the level of integration and interdependency between individual promises of software license and multi-platform support.

This determination influences whether the software license is considered distinct and accounted for separately as a license performance obligation recognized at a point in time, or not distinct and accounted for together with other promises as a single performance obligation recognized over time.

Management has concluded that the Company’s software subscription is a single combined performance obligation because the software license and multi-platform support are highly interdependent and interrelated.

Description of the Matter As described in Note 1 to the consolidated financial statements, revenue is recognized when the Company's contractual performance obligations are satisfied, in an amount that reflects the consideration expected.

Significant judgment is required to determine the level of integration and interdependencies among the individual promises included in the Company’s Create Solutions subscriptions.

This determination influences whether the software is a distinct and separate performance obligation that should be recognized at a point in time or whether the software should be combined with other promises and recognized over time.

Management has concluded that the Company’s software subscription is a single combined performance obligation because the software and software updates are highly interdependent and interrelated.

As such, the combined performance obligation is recognized over the contract term as the subscription is delivered.

Auditing the Company’s determination whether the products and services included in the Company’s software subscriptions should be accounted for as distinct performance obligations or as one combined performance obligation required a significant level of auditor judgment.

Auditing the Company’s determination whether the promises included in the Company’s Create Solutions subscriptions should be accounted for as distinct performance obligations or as one combined performance obligation required a significant level of auditor judgment.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's determination of performance obligations.

We also obtained an understanding of the Company’s product and service offerings and tested the application of the revenue recognition accounting model to determine distinct performance obligations.

Our audit procedures also included, among others, assessing the nature, level of integration and interdependency between the software license, and multi-platform support.

We also assessed key assumptions related to the software license and multi-platform support with the Company’s product specialists and further reviewed information externally available on the Company’s product offerings.

We also obtained an understanding of the Company’s Create Solutions subscriptions and tested the application of the revenue recognition accounting model to determine distinct performance obligations.

Our audit procedures also included, among others, assessing the nature, level of integration and interdependency between the software and software updates.

We also assessed key assumptions related to the software and software updates with the Company’s product specialists and further reviewed information externally available on the Company’s Create Solutions subscriptions.

We have also evaluated the Company’s revenue disclosures in relation to these matters.

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Valuation of Acquired Intangible Assets

Description of the Matter As described in Note 6 to the consolidated financial statements, in December 2021, the Company acquired certain assets of Weta Digital Limited for total purchase consideration of $1,526.1 million, of which $668.4 million was allocated to the fair value of acquired intangible assets.

In September 2021, the Company acquired Parsec Cloud, Inc.

Description of the Matter As described in Note 5 to the consolidated financial statements, on November 7, 2022, the Company acquired ironSource Ltd.

for total purchase consideration of $2,915.6 million, of which $1,270.0 million was allocated to the fair value of acquired intangible assets.

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Cash and cash equivalents $ 1,485,084 $ 1,055,776

Marketable securities 681,323 479,406

Accounts receivable, net of allowances of $ 5,447 and $ 2,714 as of December 31, 2021 and 2020, respectively

340,491 274,255

Prepaid expenses 39,097 32,025

Other current assets 34,423 22,396

Short-term investments 101,711 681,323

Accounts receivable, net 633,775 340,491

Prepaid expenses and other 144,070 73,520

Total current assets 2,364,640 2,151,110

Property and equipment, net 121,863 106,106

Operating lease right‑of‑use assets 98,393 103,609

Goodwill 3,200,955 1,620,127

Intangible assets, net 1,922,234 814,386

Restricted cash 10,823 21,369

Other assets 224,293 149,617

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Accounts payable $ 20,221 $ 14,009

Accrued expenses and other current liabilities 144,873 106,306

Accrued expenses and other 326,339 233,976

Publisher payables 445,622 237,637

Income and other taxes payable 64,759 64,116

Deferred revenue 218,102 140,528

Operating lease liabilities 23,729 25,375

Total current liabilities 1,010,284 626,150

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Long-term deferred revenue 103,442 15,945

Long-term operating lease liabilities 92,539 98,532

Other long-term liabilities 258,959 101,825

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Commitments and contingencies (Note 10)

Redeemable noncontrolling interests 219,563 —

Unity Software Inc.

Stockholders’ equity:

Preferred stock, $ 0.000005 par value;

100,000 shares authorized, and no shares issued and outstanding as of December 31, 2021;

100,000 shares authorized, issued, and outstanding as of December 31, 2020

Common stock,$ 0.000005 par value:

1,000,000 and 1,000,000 shares authorized as of December 31, 2021 and 2020, respectively;

292,592 and 273,537 shares issued and outstanding as of December 31, 2021 and 2020, respectively

Authorized shares - 1,000,000 and 1,000,000

Issued and outstanding shares - 374,243 and 292,592

Additional paid-in capital 5,779,776 3,729,874

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Accumulated deficit ( 2,249,819 ) ( 1,331,627 )

Total stockholders’ equity 2,394,391 2,037,143

Total Unity Software Inc.

stockholders’ equity 3,528,268 2,394,391

Noncontrolling interest 6,298 —

Total liabilities and stockholders’ equity $ 7,833,985 $ 4,841,346

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Interest income and other expense, net 7,192 1,566 ( 3,885 )

Loss before provision for income taxes ( 531,230 ) ( 280,217 ) ( 153,242 )

Provision for income taxes 1,377 2,091 9,948

Loss before income taxes ( 882,425 ) ( 531,230 ) ( 280,217 )

Provision for (benefit from) Income taxes 37,063 1,377 2,091

Net loss $ ( 919,488 ) $ ( 532,607 ) $ ( 282,308 )

Basic and diluted net loss per share:

Net loss per share attributable to our common stockholders, basic and diluted $ ( 1.89 ) $ ( 1.66 ) $ ( 2.39 )

Weighted-average shares used in per share calculation attributable to our common stockholders, basic and diluted 282,195 169,973 114,442

Net income (loss) attributable to noncontrolling interest and redeemable noncontrolling interests ( 1,296 ) — —

Adjustments attributable to redeemable noncontrolling interests 2,870 — —

Net loss attributable to Unity Software Inc.

$ ( 921,062 ) $ ( 532,607 ) $ ( 282,308 )

Basic and diluted net loss per share attributable to Unity Software Inc.

$ ( 2.96 ) $ ( 1.89 ) $ ( 1.66 )

Weighted-average shares used in computation of basic and diluted net loss per share 310,504 282,195 169,973

See accompanying Notes to Consolidated Financial Statements.

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Change in foreign currency translation adjustment 259 583 161

Change in unrealized gains (losses) on marketable securities ( 1,023 ) 53 —

Other comprehensive gain (loss) ( 440 ) 214 ( 155 )

Change in unrealized gains (losses) on short-term investments 969 ( 1,023 ) 53

Change in unrealized gains on derivative instruments 939 — —

Other comprehensive income (loss) 2,167 ( 440 ) 214

Comprehensive loss $ ( 917,321 ) $ ( 533,047 ) $ ( 282,094 )

Comprehensive income (loss) attributable to noncontrolling interest and redeemable noncontrolling interests:

Net income (loss) attributable to noncontrolling interest and redeemable noncontrolling interests ( 1,296 ) — —

Foreign currency translation attributable to noncontrolling interest and redeemable noncontrolling interests 560 — —

Comprehensive income (loss) attributable to noncontrolling interest and redeemable noncontrolling interests ( 736 ) — —

Comprehensive loss attributable to Unity Software Inc.

$ ( 916,585 ) $ ( 533,047 ) $ ( 282,094 )

See accompanying Notes to Consolidated Financial Statements.

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(In thousands, except share data)

Year Ended December 31, 2019

Additional Other Total

Convertible Preferred Stock Common Stock Paid‑In Comprehensive Accumulated Treasury Stockholders’

Shares Amount Shares Amount Capital Loss Deficit Stock Equity

Additional Other Unity Software Inc.

Convertible Preferred Stock Common Stock Paid‑In Comprehensive Accumulated Stockholders’ Noncontrolling Total

Shares Amount Shares Amount Capital Loss Deficit Equity Interest (1)

Balance at December 31, 2019 95,899,214 $ 686,559 123,261,024 $ 1 $ 226,173 $ ( 3,632 ) $ ( 515,190 ) $ 393,911 $ — $ 393,911

Issuance of common stock — — 4,545,455 — 100,000 — — 100,000 — 100,000

Issuance of common stock from exercise of stock options — — 6,427,160 — 11,813 — — — 11,813

Issuance of common stock in connection with initial public offering, net of underwriting discounts and commissions and offering costs — — 28,750,000 — 1,417,582 — — 1,417,582 — 1,417,582

Issuance of common stock in connection with charitable donation — — 750,000 — 63,615 — — 63,615 — 63,615

Issuance of common stock from employee equity plans — — 12,415,153 — 34,260 — — 34,260 — 34,260

Common stock issued in connection with acquisitions — — 1,103,190 — 25,380 — — 25,380 — 25,380

Purchase and retirement of treasury stock — — ( 14,266,783 ) — ( 388,100 ) — — 101,725 ( 286,375 )

Purchase and retirement of common stock — — ( 5,000 ) — ( 110 ) — — ( 110 ) — ( 110 )

Issuance of convertible Series E preferred stock, net of issuance costs 6,818,182 149,970 — — — — — 149,970 — 149,970

Repurchase and extinguishment of convertible preferred stock ( 6,775,179 ) ( 38,473 ) — — ( 110,241 ) — — ( 148,714 )

Conversion of convertible preferred stock to common stock upon initial public offering ( 102,717,396 ) ( 836,529 ) 102,717,396 1 836,528 — — — — —

Stock‑based compensation expense — — — — 134,629 — — 134,629 — 134,629

Stock-based compensation expense in connection with modified awards for certain employees — — — — 13,521 — — — 13,521

Net loss — — — — — — ( 282,308 ) ( 282,308 ) — ( 282,308 )

Foreign currency translation adjustment — — — — — ( 155 ) — — ( 155 )

Other comprehensive income — — — — — 214 — 214 — 214

Balance at December 31, 2020 — $ — 273,537,218 $ 2 $ 2,838,057 $ ( 3,418 ) $ ( 797,498 ) $ 2,037,143 $ — $ 2,037,143

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Year Ended December 31, 2021

Additional Other Total

Convertible Preferred Stock Common Stock Paid-In Comprehensive Accumulated Treasury Stockholders’

Shares Amount Shares Amount Capital Loss Deficit Stock Equity

Additional Other Unity Software Inc.

Convertible Preferred Stock Common Stock Paid-In Comprehensive Accumulated Stockholders' Noncontrolling Total

Shares Amount Shares Amount Capital Loss Deficit Equity Interest (1)

Balance at December 31, 2020 — $ — 273,537,218 $ 2 $ 2,838,057 $ ( 3,418 ) $ ( 797,498 ) $ 2,037,143 $ — $ 2,037,143

Issuance of common stock — — 4,545,455 — 100,000 — — — 100,000

Issuance of common stock in connection with initial public offering, net of underwriting discounts and commissions and offering costs — — 28,750,000 — 1,417,582 — — — 1,417,582

Issuance of common stock in connection with charitable donation — — 750,000 — 63,615 — — — 63,615

Issuance of common stock from exercise of stock options — — 6,758,226 — 25,404 — — — 25,404

Issuance of common stock from exercise of stock options in connection with nonrecourse promissory note — — 5,656,927 — 8,856 — — — 8,856

Cumulative effect of accounting change — — — — — — ( 1,522 ) ( 1,522 ) — ( 1,522 )

Issuance of common stock from employee equity plans — — 11,650,963 — 66,704 — — 66,704 — 66,704

Issuance of common stock for settlement of RSUs — — 3,935,813 — — — — — — —

Common stock issued in connection with acquisitions — — 3,468,362 — 526,081 — — 526,081 — 526,081

Purchase and retirement of treasury stock — — ( 5,000 ) — ( 110 ) — — — ( 110 )

Issuance of convertible Series E preferred stock, net of issuance costs 6,818,182 149,970 — — — — — — 149,970

Conversion of convertible preferred stock to common stock upon initial public offering ( 102,717,396 ) ( 836,529 ) 102,717,396 1 836,528 — — — —

Purchase of capped calls — — — — ( 48,127 ) — — ( 48,127 ) — ( 48,127 )

Stock‑based compensation expense — — — — 347,159 — — 347,159 — 347,159

Stock-based compensation expense in connection with modified awards for certain employees — — — — 75 — — — 75

Net loss — — — — — — ( 532,607 ) ( 532,607 ) — ( 532,607 )

Foreign currency translation adjustment — — — — — 161 — — 161

Unrealized gain on marketable securities — — — — — 53 — — 53

Other comprehensive loss — — — — — ( 440 ) — ( 440 ) — ( 440 )

Balance at December 31, 2021 — $ — 292,592,356 $ 2 $ 3,729,874 $ ( 3,858 ) $ ( 1,331,627 ) $ 2,394,391 $ — $ 2,394,391

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Year Ended December 31, 2022

Additional Other Total

Convertible Preferred Stock Common Stock Paid‑In Comprehensive Accumulated Treasury Stockholders’

Shares Amount Shares Amount Capital Loss Deficit Stock Equity

Accumulated Total

Additional Other Unity

Convertible Preferred Stock Common Stock Paid‑In Comprehensive Accumulated Stockholders’ Noncontrolling Total

Shares Amount Shares Amount Capital Loss Deficit Equity Interest (1)

Balance at December 31, 2021 — $ — 292,592,356 $ 2 $ 3,729,874 $ ( 3,858 ) $ ( 1,331,627 ) $ 2,394,391 $ — $ 2,394,391

Cumulative effect of accounting change — — — — — — ( 1,522 ) — ( 1,522 )

Issuance of common stock from exercise of stock options — — 11,650,963 — 66,704 — — — 66,704

Issuance of common stock from employee equity plans — — 5,119,859 — 63,493 — — 63,493 — 63,493

Issuance of common stock for settlement of RSUs — — 6,545,464 — — — — — — —

Common stock issued in connection with acquisitions — — 112,716,696 — 2,932,228 — — 2,932,228 — 2,932,228

Purchase of capped calls — — — — ( 48,127 ) — — — ( 48,127 )

Purchase and retirement of common stock — — ( 42,731,179 ) — ( 1,500,000 ) — — ( 1,500,000 ) — ( 1,500,000 )

Stock‑based compensation expense — — — — 549,671 — — 549,671 — 549,671

Stock-based compensation expense in connection with modified awards for certain employees — — — — 12,630 — — — 12,630

Net loss — — — — — — ( 532,607 ) — ( 532,607 )

Foreign currency translation adjustment — — — — — 583 — — 583

Unrealized loss on marketable securities — — — — — ( 1,023 ) — — ( 1,023 )

Capital contribution from minority interest holder — — — — 7,380 — — 7,380 6,387 13,767

Net loss, including adjustment to redeemable noncontrolling interests — — — — ( 2,870 ) — ( 918,192 ) ( 921,062 ) ( 89 ) ( 921,151 )

Other comprehensive income — — — — — 2,167 — 2,167 — 2,167

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

(1) Excludes redeemable noncontrolling interests.

See accompanying Notes to Consolidated Financial Statements.

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Net loss $ ( 919,488 ) $ ( 532,607 ) $ ( 282,308 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 211,576 64,567 42,974

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Stock-based compensation expense 550,065 347,159 134,629

Stock-based compensation expense in connection with modified awards for certain employees 12,630 75 13,521

Other 21,418 13,843 3,246

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Accounts receivable, net ( 9,548 ) ( 65,151 ) ( 63,294 )

Prepaid expenses ( 6,831 ) ( 9,131 ) ( 9,269 )

Other current assets ( 13,170 ) ( 12,985 ) 4,457

Operating lease right-of-use ("ROU") assets 23,739 23,923 —

Deferred tax, net ( 13,033 ) ( 213 ) ( 4,466 )

Prepaid expenses and other ( 21,719 ) ( 22,014 ) ( 22,116 )

Other assets 40,096 5,157 16,351

Accounts payable ( 17,574 ) 2,022 ( 2,526 )

Accrued expenses and other current liabilities 34,571 41,618 12,432

Accrued expenses and other ( 1,041 ) 31,767 94,639

Publisher payables ( 50,242 ) 55,368 44,605

Income and other taxes payable ( 1,296 ) 19,525 13,166

Operating lease liabilities ( 26,473 ) ( 20,204 ) —

Other long-term liabilities ( 29,790 ) ( 27,313 ) ( 47,310 )

Deferred revenue 166,816 15,753 37,408

Net cash provided by (used in) operating activities ( 111,449 ) 19,913 ( 67,936 )

Net cash used in operating activities ( 59,431 ) ( 111,449 ) 19,913

Investing activities

Purchase of marketable securities ( 519,698 ) ( 482,453 ) —

Proceeds from principal repayments on marketable securities 18,572 1,644 —

Maturities of marketable securities 290,385 — —

Purchase of non-marketable investments ( 4,600 ) ( 1,000 ) —

Purchase of property and equipment ( 41,938 ) ( 40,156 ) ( 27,035 )

Purchases of short-term investments ( 150,911 ) ( 519,698 ) ( 482,453 )

Proceeds from sales of short-term investments 436,293 — —

Proceeds from principal repayments and maturities of short-term investments 387,453 308,957 1,644

Purchases of non-marketable investments ( 15,000 ) ( 4,600 ) ( 1,000 )

Sales of non-marketable investments 1,000 — —

Purchases of property and equipment ( 57,138 ) ( 41,938 ) ( 40,156 )

Acquisition of intangible assets — — ( 750 )

Business acquisitions, net of cash acquired 121,531 ( 1,580,081 ) ( 52,475 )

Net cash used in investing activities ( 1,837,360 ) ( 575,190 ) ( 219,541 )

Unity Software Inc.

UNITY SOFTWARE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

2021 2020 2019

Net cash provided by (used in) investing activities 723,228 ( 1,837,360 ) ( 575,190 )

Financing activities

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Payment of debt issuance costs ( 379 ) ( 22,575 ) ( 247 )

Capital contribution from noncontrolling interest holders 210,252 — —

Proceeds from initial public offering, net of underwriting discounts, commissions, and offering costs — — 1,417,582

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Proceeds from issuance of common stock — — 100,000

Repurchase and extinguishment of convertible preferred stock — — ( 148,714 )

Purchase and retirement of treasury stock — ( 110 ) ( 286,375 )

Proceeds from exercise of stock options 66,704 25,404 11,813

Proceeds from exercise of stock options in connection with nonrecourse promissory note — 8,856 —

Net cash provided by financing activities 1,721,002 1,701,455 161,472

Repurchase and retirement of common stock ( 1,500,000 ) — ( 110 )

Proceeds from issuance of common stock from employee equity plans 63,493 66,704 34,260

Net cash (used in) provided by financing activities ( 226,634 ) 1,721,002 1,701,455

Unity Software Inc.

UNITY SOFTWARE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

2022 2021 2020

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash 1,926 459 673

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Cash paid for income taxes, net of refunds $ 25,206 $ 5,651 $ 19,956

Cash paid for operating leases $ 28,463 $ 29,811 $ 29,336

Supplemental disclosures of non‑cash investing and financing activities:

Fair value of common stock issued as consideration for business acquisitions $ 526,081 $ 25,144 $ 34,807

Fair value of common stock issued as consideration for acquisition of intangible assets $ — $ 236 $ —

Accrued property and equipment $ 8,329 $ 4,665 $ 3,572

Fair value of common stock issued as consideration for business and asset acquisitions $ 2,932,296 $ 526,081 $ 25,380

Assets acquired under operating lease $ 20,699 $ 18,507 $ 24,647

The below table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the total of the same amounts shown on the consolidated statements of cash flows (in thousands):

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Cash and cash equivalents $ 1,485,084 $ 1,055,776 $ 1,272,578

Restricted cash 10,823 21,369 17,137

Restricted cash, included in other assets 20,604 10,823 21,369

Total cash, cash equivalents, and restricted cash $ 1,505,688 $ 1,066,599 $ 1,293,947

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of Business and Summary of Significant Accounting Policies

Accounting Policies

Description of Business

We were founded as Over the Edge Entertainment in Denmark in 2004.

We reorganized as a Delaware corporation on May 28, 2009 as Unity Software Inc.

(collectively referred to with its wholly owned subsidiaries as “we,” “our” or “us”).

We provide a comprehensive set of software solutions to create, run and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices, among others.

We are headquartered in San Francisco, California and have operations in the United States, Denmark, Belgium, Canada, China, Colombia, Finland, France, Germany, Ireland, Israel, Japan, Lithuania, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland, and the U.K.

We are headquartered in San Francisco, California and have operations in the United States, Denmark, Israel, Belgium, Canada, China, Colombia, Czech Republic, Finland, France, Germany, Ireland, Japan, Lithuania, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland, the U.K., and the United Arab Emirates.

We market our solutions directly through our online store and field sales operations in North America, Denmark, China, Finland, the U.K., Germany, Israel, Japan, Singapore, South Korea, and Spain, and indirectly through independent distributors and resellers worldwide.

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generally accepted accounting principles ("GAAP").

The consolidated financial statements include the accounts of Unity Software Inc.

and its wholly owned subsidiaries.

The 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.

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The preparation of 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.

For us, these estimates include, but are not limited to, revenue recognition, allowances for doubtful accounts, fair values of financial instruments, useful lives of fixed assets, the incremental borrowing rate ("IBR") we use to determine our operating lease liabilities, income taxes, valuation of deferred tax assets and liabilities, valuation of intangible assets, useful lives of intangible assets, assets acquired and liabilities assumed through business combinations, valuation of stock-based compensation, capitalization of software costs and software implementation costs, customer life for capitalized commissions, and other contingencies, among others.

For us, these estimates include, but are not limited to, revenue recognition, the measurement of liabilities for uncertain tax positions and deferred tax assets and liabilities, the fair value of tangible and intangible assets acquired and liabilities assumed through business combinations, the fair value of redeemable noncontrolling interests, the fair value of equity awards assumed and replaced in connection with the acquisition of ironSource, and customer life for capitalized commissions.

Actual results could differ from those estimates, and such differences could be material to our financial position and results of operations.

Revenue Recognition

Revenue is recognized upon the transfer of control of promised products and services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

We evaluate and recognize revenue by:

• identifying the contract(s) with the customer;

• identifying the performance obligation(s) in the contract(s);

• determining the transaction price;

• allocating the transaction price to performance obligation(s) in the contract(s);

Revenue is measured based on the amount of consideration that we expect to receive from our customers.

Revenue excludes sales and indirect taxes.

In arrangements where we have multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price ("SSP").

We generally determine SSP based on observable pricing.

When observable pricing is not available, we use cost plus margin analysis to determine SSP.

During the fourth quarter of 2022, we completed our acquisition of ironSource.

This resulted in adjustments to our internal reporting structure to focus on two complementary and interconnected solutions:

(1) Create Solutions and (2) Grow Solutions.

Unity Software Inc.

• recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (“transfer of control”).

The five-step model requires us to make significant estimates in situations where we are unable to establish stand-alone selling price based on various observable prices using all information that is reasonably available.

Observable inputs and information we use to make these estimates include historical internal pricing data and cost plus margin analysis.

We generate revenue through three sources:

(1) Create Solutions, which consists primarily of our subscription offerings and professional services;

(2) Operate Solutions, which includes our monetization services, hosting, and multiplayer services, and voice services;

and (3) Strategic Partnerships and Other, which are primarily arrangements with strategic hardware, operating system, device, game console, and other technology providers for the customization and development of our software to enable interoperability with these platforms.

We recognize revenue as our contractual performance obligations are satisfied.

When contracts with our customers contain multiple performance obligations, we allocate the overall transaction price, which is the amount of consideration to which we expect to receive in exchange for promised goods or services, to each of the distinct performance obligations based on their estimated relative standalone selling prices.

Create Solutions

Create Solutions Subscriptions

Our subscriptions, mainly consisting of Unity Pro and Unity Plus (collectively, the “Create Solutions subscriptions”) are fully integrated content development solutions that enable customers to build interactive real-time 2D and 3D applications.

These Create Solutions subscriptions provide customers with the rights to a software license with embedded cloud functionality and multi-platform support.

Significant judgment is required to determine the level of integration and interdependency between individual promises of the Create Solutions subscriptions.

This determination influences whether the software is considered distinct and accounted for separately as a license performance obligation recognized at a point in time, or not distinct and accounted for together with other promises in the Create Solutions subscriptions as a single performance obligation recognized over time.

Under FASB ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”) , we have concluded that the software license is not distinct from the multi-platform support as they are highly interdependent and interrelated considering the significant two-way dependency between the promises.

Although the promise to the embedded cloud functionality represents separate performance obligations under Topic 606, we have accounted for these obligations as if they are a single performance obligation that includes the software license and the multi-platform support because the cloud functionality has the same pattern of transfer to the customer over the duration of the subscription term.

The transaction price is determined based on the consideration that we will be entitled to receive in exchange for transferring our Create Solutions subscriptions to the customer, and we do not have material variable consideration.

We recognize the single performance obligation ratably over the contract term beginning when the license key is delivered.

Enterprise customers may purchase an enhanced support offering (“Enterprise Support”) that is sold separately from the Create Solutions subscriptions, and is capable of being distinct, and is distinct within the context of the contract due to its separate utility.

Enterprise Support is generally billed in advance and is recognized ratably over the support term as we have a stand-ready performance obligation over the support term.

When an arrangement includes Enterprise Support and Create Solutions subscriptions, which have the same pattern of transfer to the customer (the services transfer to the customer over the same period), we account for those performance obligations as if they are a single performance obligation.

If an arrangement includes Enterprise Support and Create Solutions subscriptions that do not have the same pattern of transfer, we allocate the transaction price to the distinct performance obligations and recognize them ratably over their respective terms.

Create Solutions subscriptions typically have a term of one to three years and are generally billed in advance and recognized ratably over the term.

Unity Software Inc.

Professional Services

Our professional services revenue is primarily composed of consulting, integration, training, and custom application and workflow development.

Professional services may be billed in advance or on a time and materials basis and we recognize the related revenue as services are rendered.

We typically invoice our customers up front or when promised services are delivered, and the payment terms vary by customer type and location.

The term between billing and payment due dates is not significant.

As a result, we have determined that our contracts do not include significant financing component.

Customer billings related to taxes imposed by and remitted to governmental authorities on revenue-producing transactions are reported on a net basis.

Operate Solutions

We generate advertising revenue through our monetization solutions, including the Unified Auction, which allows publishers to sell the available advertising inventory from their mobile applications to advertisers.

We enter into contracts with both advertisers and publishers to participate in the Unified Auction.

For advertisements placed through the Unified Auction, we evaluate whether we are the principal (in which case revenue is reported on a gross basis) or the agent (in which case revenue is reported on a net basis).

The evaluation to present revenue on a gross basis versus net basis requires significant judgment.

We have concluded that the publisher is our customer and we are the agent in facilitating the fulfillment of the advertising inventory in the Unified Auction primarily because we do not control the advertising inventory prior to the placement of an advertisement.

As the operator of the Unified Auction, our role is to enable the publisher to monetize its advertising inventory with the advertiser based on the bid/ask price from the auction.

We do not control the outcome of the bids and do not have pricing latitude in the transaction.

Based on these and other factors, we report advertising revenue based on the net amount retained from the transaction which is our revenue share.

Advertising revenue is recognized at a point in time when control is transferred to the customer.

This occurs when a user installs an application after seeing an advertisement contracted on a cost-per-install basis or when an advertisement starts on a cost-per-impression basis.

Typically, we do not retain a share of the revenue generated through Unity IAP (“In-App Purchases”).

Publisher payables represent amounts earned by publishers in the Unified Auction and are presented as a reduction of revenue in our consolidated statements of operations.

Payment terms are contractually defined and vary by publisher and location.

Cloud and Hosting Services

We provide cloud-based services as well as enterprise hosting (“Hosting Services”) to developers that develop and operate multiuser/multiplayer games and applications through a combination of hardware server and cloud-based infrastructure and services.

The Hosting Services facilitate the connection of end users, and allow content game and application operators to monitor network traffic.

Our cloud-based services provide our customers with tools and services to develop and operate live games and applications, including voice chat services.

We primarily sell these services on a fixed fee or consumption-based model with fixed fees billed monthly in advance and consumption fees billed monthly in arrears.

We recognize revenue ratably over the contractual service term for fixed fee arrangements as we have a stand-ready performance obligation that is generally fulfilled evenly throughout the hosting period.

We recognize revenue for consumption-based arrangements as services are provided.

Unity Software Inc.

Strategic Partnerships and Other

We enter into strategic contracts with owners of hardware, operating system, device, game console and other technology providers to customize our software licenses to enable interoperability with these platforms (“Strategic Partnerships”).

This allows customers using our Create Solutions subscriptions to build and publish content to more than one platform without having to write platform-specific code.

We consider these strategic partners as our customers and generally provide them with the following promises in our contracts:

(i) development and customization of our software to integrate with the customer’s platform and (ii) post-integration ongoing support and updates.

We generally view these promises as one single performance obligation as they are not distinct within the context of the contract.

This is because the customized software license that is integrated with the customer’s platform requires continuous updates that are critical to the utility of the customized software.

The transaction price is determined based on the consideration that we will be entitled to receive in exchange for transferring our goods and services to the customer.

We do not have material variable consideration.

When Strategic Partnerships contain non-monetary consideration, we measure and record the transaction price at the estimated fair value of the non-cash consideration received from the customer.

Typically, we recognize revenue for these contracts over time as service is performed using the input method to measure progress of the satisfaction of the performance obligation.

Certain Strategic Partnerships also require the customer to pay sales-based royalties based on the sales of games on the Strategic Partner platform that incorporate our customized software.

Since customized software intellectual property is the predominant item to which royalty relates, we recognize revenue for sales-based royalties when the later of the subsequent sale or usage occurs, or the performance to which some or all of the sales-based royalty has been allocated has been satisfied.

We record revenue under these arrangements for the amounts due to us based on estimates of the sales of these customers and pursuant to the terms of the contracts.

The Strategic Partnerships are typically multi-year arrangements where customers make payments commensurate with milestones accomplished with respect to the development and integration service or pay in advance on a quarterly basis.

Create Solutions are a combination of software and services that enable customers to edit, run, and iterate real-time 2D and 3D experiences.

Revenue is primarily derived from Create Solution Subscriptions, Enterprise Support, Professional Services, and Cloud and Hosting services.

Create Solutions subscriptions provide customers with software, embedded cloud functionality, and software updates.

As the software and software updates are highly interdependent and interrelated and these services have the same pattern of performance as the embedded cloud functionality, we combine these promises and account for them as a single performance obligation that is recognized over time.

Enterprise customers may purchase an enhanced support offering ("Enterprise Support") that is sold separately and is considered its own performance obligation.

Create Solutions subscriptions and enterprise support typically have a term of one to five years and are billed in monthly, quarterly and annual installments, and recognized ratably over the service period.

Professional services revenue is primarily composed of consulting, platform integration, training, and custom application and workflow development.

Revenue is recognized as services are rendered.

We typically invoice our customers on a milestone basis or when promised services are delivered.

Our Cloud and Hosting service arrangements are based on a fixed fee or consumption-based model.

For fixed fee arrangements revenue is recognized ratably over the contractual service term as our obligations are generally fulfilled evenly throughout the hosting period.

For consumption-based arrangements, we recognize revenue as services are provided.

Grow Solutions

Grow Solutions revenue primarily consists of advertising services provided through our monetization solutions that allow publishers, which include mobile application developers, original equipment manufacturers ("OEM") and mobile carriers to sell available advertising inventory on their mobile applications or hardware devices to advertisers for in-app or on-device placements.

We present revenue on a net basis for sales where we are facilitating the transaction between advertisers and publishers and do not have control over in-app or on-device placement and on a gross basis for advertising sales where we are the publisher and have control of the in-app or on-device placement.

Advertising revenue is recognized at a point in time when the agreed upon action is completed or when the advertisement is displayed to users.

Cost of Revenue

Cost of revenue for the delivery of software tools, support, updates and advertising consists primarily of hosting expenses, personnel costs (including salaries, stock-based compensation, and benefits) for employees associated with our product support and professional services organizations, credit card fees, third-party license fees, and allocated shared costs, including facilities, IT, and security costs, as well as amortization of related capitalized software costs and depreciation of related property and equipment.

Unity Software Inc.

Cost of revenue for the delivery of software services, professional services, and advertising consists primarily of hosting expenses, personnel costs (including salaries, stock-based compensation, and benefits) for employees associated with our product support and professional services organizations, credit card fees, third-party license fees, and allocated shared costs, including facilities, IT, and security costs, as well as amortization of related capitalized software costs and depreciation of related property and equipment and amortization if acquired intangible assets.

Stock-Based Compensation

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For restricted stock units ("RSUs"), fair value is based on the closing price of our common stock on the grant date.

Unity Software Inc.

The fair value of stock options and purchases made under the 2020 Employee Stock Purchase Plan ("2020 ESPP") is estimated using the Black-Scholes pricing model.

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Options granted during the year have a maximum contractual term of ten years .

We have limited historical stock option activity and therefore estimates the expected term of stock options granted using the simplified method, which represents the average of the contractual term of the stock option and its weighted-average vesting period.

The expected volatility of stock options is based upon the historical volatility of a number of publicly traded companies in similar industry.

We have historically not declared or paid any dividends and does not currently expect to do so in the foreseeable future.

We have limited historical stock option activity and therefore estimate the expected term of stock options granted using the simplified method, which represents the average of the contractual term of the stock option and its weighted-average vesting period.

The expected volatility of stock options and employee stock purchase plan ("ESPP") purchases are based upon our historical volatility and the historical volatility of a number of publicly traded companies in similar industries over similar durations.

We have historically not declared or paid any dividends and do not currently expect to do so in the foreseeable future.

The risk-free interest rates used are based on the U.S.

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Treasury") yield in effect at the time of grant for zero-coupon U.S.

Treasury notes with maturities approximately equal to the expected term of the stock options.

We recognize stock-based compensation expense for stock options and RSUs, on a straight-line basis, over the requisite service period, generally, a vesting period of one year to four years .

Treasury notes with maturities approximately equal to the expected term of the stock options and ESPP purchases.

The fair value of price-vested units ("PVUs"), which are RSUs that contain both service-based and market-based vesting conditions, is estimated using the Monte Carlo simulation model and is based on the closing stock price of our common stock on the grant date modified to reflect the impact of the market-based vesting condition, including the estimated payout level based on that condition.

We do not adjust compensation cost for subsequent changes in the expected outcome of the market-based vesting conditions.

In connection with the acquisition of ironSource, we estimated the fair value of the assumed equity awards using a binomial lattice model.

The assumed equity awards relating to future services is being recognized over the remaining service period.

We recognize stock-based compensation expense for RSUs, stock options, and PVUs, on a straight-line basis, over the requisite service period, generally, a vesting period of one year to four years .

We recognize stock-based compensation expense related to the 2020 ESPP on a straight-line basis over the offering period.

We have elected to account for forfeitures as they occur.

We do not estimate forfeitures but instead account for them as they occur.

Cash, Cash Equivalents, and Restricted Cash

We consider all highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents.

Our cash equivalents include money market funds and commercial paper.

Our cash equivalents include money market funds, time deposits, and commercial paper.

As of December 31, 2022 and 2021, restricted cash was $ 20.6 million and $ 10.8 million, respectively.

Restricted cash consists of secured letters of credit issued in connection with our operating leases.

Restricted cash consists of secured letters of credit issued in connection with our operating leases and other amounts held in escrow.

Restrictions typically lapse at the end of the lease term, and restricted cash is classified as current or non-current based on the remaining term of the restriction.

Marketable Securities

Our marketable securities consist of investments in U.S.

Short-term Investments

Our short-term investments consist of investments in short-term deposits, U.S.

treasury securities, asset-backed securities, corporate bonds, commercial paper, and supranational bonds.

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Unrealized gains and losses, net of taxes, are included in accumulated other comprehensive loss, which is reflected as a separate component of stockholders’ equity in our consolidated balance sheets.

These investments are considered impaired when a decline in fair value is judged to be other-than-temporary.

We consider available quantitative and qualitative evidence in evaluating potential impairment of our investments on a quarterly basis.

If the cost of an individual investment exceeds its fair value, we evaluate, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and our intent and ability to hold the investment.

Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

During the year ended December 31, 2022, we sold the entirety of our available-for-sale debt securities portfolio .

Unity Software Inc.

Accounts Receivable

We record accounts receivable at the invoiced amount.

We maintain an allowance for doubtful accounts for any receivables we may be unable to collect, based on historical loss patterns, the number of days that billings are past due, and an evaluation of the potential risk of loss associated with delinquent accounts.

In addition, we review the accounts receivable amounts due from customers that are past due to identify specific customers with known disputes or collectability issues.

In determining the amount of the reserve, we make judgments about the creditworthiness of customers based on ongoing credit evaluations.

Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

As of December 31, 2021 and 2020, the allowance for doubtful accounts was $ 5.4 million and $ 2.7 million, respectively.

We include the allowances for doubtful accounts in accounts receivable, net, on the consolidated balance sheets.

Accounts receivable are recorded at the original 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 consolidated statements of operations.

As of December 31, 2022 and 2021, the allowance for uncollectible amounts was $ 9.4 million and $ 5.4 million, respectively.

Credit Risk and Concentrations

Financial instruments that potentially subject us to a concentration of credit risk consist primarily of cash and cash equivalents, marketable securities, and accounts receivable.

We place our domestic and foreign cash and cash equivalents, as well as our marketable securities, with large, creditworthy financial institutions.

Financial instruments that potentially subject us to a concentration of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable.

We place our domestic and foreign cash and cash equivalents, as well as our short-term investments, with large, creditworthy financial institutions.

Balances in these accounts may exceed federally insured limits at times.

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When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which to transact and the market-based risk.

We apply fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.

Goodwill, intangible assets, and other long-lived assets are measured at fair value on a nonrecurring basis, only if impairment is indicated.

The carrying amounts reported in the consolidated financial statements approximate the fair value for cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, due to their short-term nature.

The carrying amounts reported in the consolidated financial statements approximate the fair value for cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued liabilities, due to their short-term nature.

Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive loss.

Our other comprehensive loss includes unrealized gains and losses on available-for-sale investments and foreign currency translation adjustment.

Our other comprehensive loss includes unrealized gains and losses on available-for-sale investments, derivative instruments, and foreign currency translation adjustment.

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation and amortization, computed using the straight-line method based on the estimated useful lives of the assets.

Depreciation commences upon placing the asset in service.

An estimated useful life of three years is used for computer and other hardware and five years is used for furniture.

Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining term of the lease.

Software is amortized over the estimated useful life or license term, generally either three to five years .

Property and equipment are stated at cost less accumulated depreciation and amortization, computed using the straight-line method based on the estimated useful lives of the assets, which is generally three years for computer and other hardware and five years for furniture.

Leasehold improvements are amortized over the shorter of their estimated useful life or the remaining term of the lease.

Software licenses are amortized over the shorter of their estimated useful life or license term, which is generally three to five years .

The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized.

Unity Software Inc.

Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to the consolidated statement of operations.

We determine if a contract contains a lease based on whether we have the right to obtain substantially all of the economic benefits from the use of an identified asset and whether we have the right to direct the use of an identified asset in exchange for consideration, which relates to an asset which we do not own.

Right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

ROU assets are recognized as the lease liability, adjusted for lease incentives received and prepayments made.

Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date.

The interest rate used to determine the present value of the future lease payments is our IBR because the interest rate implicit in most of our leases is not readily determinable.

The IBR is a hypothetical rate based on our understanding of what our credit rating would be.

Lease payments may be fixed or variable;

however, only fixed payments or in-substance fixed payments are included in our lease liability calculation.

Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred.

Unity Software Inc.

Primarily all of our leases have been categorized as operating leases at inception.

On certain of our lease agreements, we may receive rent holidays and other incentives provided by the landlord.

We recognize lease costs on a straight-line basis without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments.

Additionally, incentives we receive are treated as a reduction of our costs over the term of the agreement.

Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the non-cancellable term of the lease .

We establish assets and liabilities for the present value of estimated future costs to retire long-lived assets at the termination or expiration of a lease.

Such assets are depreciated over the lease period into operating expense, and the recorded liabilities are accreted to the future value of the estimated retirement costs.

Convertible Senior Notes and Capped Call Transactions

We account for the issuance of convertible senior notes as a single liability measured at its amortized cost.

We account for each issuance of our Convertible Senior Notes as single liabilities measured at their amortized cost.

Interest expense related to the amortization of debt issuance costs are recorded in other income and expense.

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Capped call transactions will not be remeasured as long as they continue to meet the conditions for equity classification.

Business Combinations

Goodwill and Intangible Assets

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values as of the acquisition date.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Accounting for business combinations requires us to make significant estimates and assumptions, especially with respect to intangible assets.

Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.

Examples of critical estimates used in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

• future expected revenues and cash flows from acquired intangible assets;

• the economic life used on acquired company’s trade name, trademark, existing customer relationship, and contractual relationship, as well as assumptions about the period of time the acquired trade name and trademark will continue to be used in our product portfolio;

• the expected use of the acquired intangible assets;

• discount rates.

These estimates are inherently uncertain and unpredictable.

Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.

Goodwill and Intangible Assets

Unity Software Inc.

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired.

Intangible assets, with the exception of certain contractual relationships, that are not considered to have an indefinite useful life are amortized on a straight-line basis over their estimated useful lives, which typically range from three to six years .

Intangible assets, with the exception of certain contractual relationships, that have a finite life are amortized on a straight-line basis over their estimated useful lives, which typically range from three to six years .

Certain contractual relationships are amortized using an accelerated method of amortization, which reflects the pattern in which the economic benefits from the intangible assets are expected to be recognized.

On an annual basis, we evaluate the estimated remaining useful life of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining amortization period.

On an annual basis, we evaluate the estimated remaining useful life of acquired intangible assets and whether events or changes in circumstances warrant a revision to the remaining amortization period.

No changes to the useful lives of our intangible assets were deemed necessary during the years ended December 31, 2022, 2021, and 2020 based on management's evaluation.

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Accordingly, we have determined that we have a single reportable segment and operating segment structure.

Unity Software Inc.

Capitalized Software Costs and Software Implementation Costs

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We capitalize such costs during the application development stage, which begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and is ready for its intended purpose.

Costs related to preliminary project activities and post implementation activities are expensed as incurred.

Capitalized software costs are amortized on a straight-line basis over their estimated useful life, which is generally two to three years .

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The current portion of capitalized implementation costs are included in prepaid expenses on the consolidated balance sheets, and the non-current portion of capitalized implementation costs are included in other assets on the consolidated balance sheets.

Research and development costs related to internally developed software, which consist primarily of software development costs, are expensed as incurred.

Based upon our product development process, technological feasibility is established upon completion of a working model.

Costs incurred between completion of the working model and the point at which the product is ready for general release have not been significant.

Therefore, all product development costs have been charged to research and development expense.

Impairment Analysis

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We evaluate and test the recoverability of our goodwill for impairment at least annually during our fourth quarter of each calendar year or more often if and when circumstances indicate that goodwill may not be recoverable.

Unity Software Inc.

There were no material impairments of capitalized software costs, capitalized implementation costs, intangible assets, long-lived assets, or goodwill during the years ended December 31, 2022, 2021, and 2020.

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Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

Unity Software Inc.

We record an income tax expense (or benefit) for the anticipated tax consequences of the reported results of operations using the asset and liability method.

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Warranties and Indemnifications

From time to time, we enter into certain types of contracts that contingently require us to indemnify parties against third‑party claims.

These contracts primarily relate to agreements under which we indemnify customers and partners for claims arising from intellectual property infringement.

The terms of such obligations vary, and the overall maximum amount of the obligations cannot be reasonably estimated.

Historically, we have not been obligated to make any payments for these obligations, and no liabilities have been recorded for these obligations as of December 31, 2021 and 2020.

Unity Software Inc.

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 December 31, 2022 and 2021, 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.

We generally do not offer warranties for our software products.

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We have not experienced any warranty claims to date, and no liabilities have been recorded as of December 31, 2022 and 2021.

Research and Development

Research and development costs, which consist primarily of software development costs, are expensed as incurred.

FASB ASC Topic 985‑20, Costs of Software to Be Sold, Leased or Marketed , requires development costs incurred subsequent to establishment of technological feasibility related to software incorporated in our products to be capitalized and amortized over the estimated useful lives of the related products.

Based upon our product development process, technological feasibility is established upon completion of a working model.

Costs incurred between completion of the working model and the point at which the product is ready for general release have not been significant.

Therefore, all product development costs have been charged to research and development expense in the accompanying consolidated statements of operations.

Unity Software Inc.

Advertising Costs

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Advertising expense was approximately $ 18.8 million, $ 24.2 million, and $ 12.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Summary of Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , and subsequent amendments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables.

This update replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses.

The new impairment methodology eliminates the probable initial recognition threshold and, instead, estimates the expected credit losses in consideration of past events, current conditions and forecasted information.

It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

We adopted this new standard effective January 1, 2021, using the modified-retrospective approach, which resulted in a cumulative-effect adjustment of $ 1.5 million to accumulated deficit.

We updated the following accounting policies as a result of the adoption of this guidance.

Accounts Receivable

We record accounts receivable at the original invoiced amount, net of allowances for credit losses for any potential uncollectible amounts.

We make estimates of expected credit losses for the allowance for doubtful accounts based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers.

Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified.

The estimated credit loss allowance is recorded as a general and administrative expense on our consolidated statement of operations.

As of December 31, 2021, the allowance for credit losses was $ 5.4 million.

Unity Software Inc.

Marketable Securities

Our marketable securities consist of investments in U.S.

treasury securities, asset-backed securities, corporate bonds, commercial paper, and supranational bonds.

We classify our investments in debt securities as available-for-sale at the time of purchase.

We consider all debt securities as available for use in current operations, including those with maturity dates beyond one year, and therefore classify these securities as current assets in the consolidated balance sheets.

When the fair value of a security is below its amortized cost, the amortized cost will be reduced to its fair value if it is more likely than not that we are required to sell the impaired security before recovery of its amortized cost basis, or we have the intention to sell the security.

If neither of these conditions is met, we determine whether the impairment is due to credit losses by comparing the present value of the expected cash flows of the security with its amortized cost basis.

The amount of impairment recognized is limited to the excess of the amortized cost over the fair value of the security.

An allowance for credit losses for the excess of amortized cost over the expected cash flows is recorded in interest income and other expense, net in our consolidated statements of operations.

Impairment losses that are not credit-related are included in accumulated other comprehensive loss in stockholders’ equity.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .

The new guidance simplifies the accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity.

Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives.

The new guidance also requires the if-converted method to be applied for all convertible instruments in the diluted earnings per share calculated and include the effect of potential share settlement for instruments that may be settled in cash or shares.

The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021 with early adoption permitted, but only at the beginning of the fiscal year.

We early adopted ASU 2020-06 as of January 1, 2021 with no cumulative effect upon adoption.

There was no impact to the number of potentially dilutive shares in each of the periods presented.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

The new guidance creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination.

Under this exception, an acquirer applies Topic 606 to recognize and measure contract assets and contract liabilities on the acquisition date.

Topic 805 generally requires the acquirer in a business combination to recognize and measure the assets it acquires and liabilities it assumes at fair value on the acquisition date.

This generally will result in companies recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date.

The ASU is effective for fiscal years beginning December 15, 2022.

Early adoption is permitted for all entities, including adoption in an interim period.

We early adopted this new standard effective January 1, 2021.

The adoption resulted in immaterial changes in contract liabilities and total revenue recognized for the year ended December 31, 2021.

Recent Accounting Pronouncements Not Yet Adopted

There were no other significant updates to the recently issued accounting standards other than as disclosed herein.

Although there are several other new accounting pronouncements issued or proposed by the FASB, we do not believe any of those accounting pronouncements have had or will have a material impact on its financial position or operating results.

Unity Software Inc.

Disaggregation of Revenue

Revenue by Source

The following table presents our revenue disaggregated by source (in thousands):

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

Our results for the years ended December 31, 2022, 2021, and 2020 have been adjusted to align with our focus on Create and Grow Solutions by including annual revenue of approximately $ 82.7 million, $ 74.8 million, and $ 70.0 million, respectively, related to Strategic Partnerships and Other in Create Solutions and moving annual revenue of approximately $ 125.6 million, $ 105.5 million, and $ 71.4 million, respectively, related to Unity Games Services from Operate Solutions to Create Solutions.

Year Ended December 31,

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Create Solutions $ 716,078 $ 506,920 $ 372,717

Operate Solutions 709,140 471,161 293,317

Strategic Partnerships and Other 74,750 69,970 79,836

Grow Solutions 674,946 603,606 399,728

Total revenue $ 1,391,024 $ 1,110,526 $ 772,445

Additional information regarding our revenue by source is discussed under the heading “Revenue Recognition” in Note 1, “Description of Business and Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements.

Revenue by Geographic Area

The following table presents our revenue disaggregated by geography, based on the invoice address of our customers (in thousands):

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Total revenue $ 1,391,024 $ 1,110,526 $ 772,445

(1) No individual country, other than those disclosed above, exceeded 10% of our total revenue for any period presented.

(1) Greater China includes China, Hong Kong, and Taiwan.

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(4) Canada and Latin America ("Other Americas").

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers.

Contract assets relate to performance completed in advance of scheduled billings.

The primary changes in our contract assets and contract liabilities are due to our performance under the contracts and billings.

Contract assets (unbilled receivables) included in accounts receivable are recorded when revenue is recognized in advance of customer invoicing.

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 December 31, 2022, capitalized commissions, net of amortization, included in prepaid expenses and other and other assets were $ 8.8 million and $ 5.3 million, respectively.

As of December 31, 2021, capitalized commissions, net of amortization, included in prepaid expenses and other and other assets were $ 7.9 million and $ 8.7 million, respectively.

For the years ended December 31, 2022 and 2021, we recorded amortization costs of $ 9.4 million and $ 5.6 million, respectively, in sales and marketing expenses.

We did not incur any impairment losses for the years ended December 31, 2022 and 2021.

Unity Software Inc.

Contract Balances and Remaining Performance Obligations

Contract assets (unbilled receivables) included in accounts receivable, net, are recorded when revenue is earned in advance of customer billing schedules.

Unbilled receivables totaled $ 37.5 million and $ 28.3 million as of December 31, 2022 and 2021, respectively.

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Revenue recognized during the year ended December 31, 2022 that was included in the deferred revenue balances at January 1, 2022 was $ 137.4 million.

The satisfaction of performance obligations typically lags behind payments received under contract from customers, which may lead to an increase in our deferred revenue balance over time.

Unity Software Inc.

Remaining Performance Obligations

As of December 31, 2021, we had total remaining performance obligations of $ 581.5 million, which represents the total contract transaction price allocated to undelivered performance obligations primarily for Create Solutions subscriptions, Enterprise Support, and Strategic Partnership contracts, which are generally recognized over the next one year to three years.

Transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods.

This amount excludes contracts with an original expected term of one year or less and contracts for which we recognize revenue in the amount and in the same period in which we invoice for services performed.

We expect to recognize $ 204.6 million or 35 % of this revenue during the next 12 months.

We expect to recognize the remaining $ 376.8 million or 65 % of this revenue thereafter.

Cash Equivalents and Marketable Securities

Restricted cash, cash equivalents, and marketable securities consisted of the following as of December 31, 2021 (in thousands) :

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 were $ 620.0 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 $ 266.5 million or 43 % of this revenue during the next 12 months.

Financial Instruments

Restricted cash, cash equivalents, and short-term investments are recorded at fair value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities.

• Level 2—Valuations based on quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration.

• Level 3—Valuations based on unobservable inputs reflecting our own assumptions used to measure assets and liabilities at fair value.

These valuations require significant judgment.

The following table summarizes, by major security type, our restricted cash, cash equivalents, and short-term investments that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy as of December 31, 2022 (in thousands) :

Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Restricted cash:

Restricted cash and cash equivalents:

Restricted cash $ 20,604 $ — $ — $ 20,604

Total restricted cash $ 10,823 $ — $ — $ 10,823

Cash equivalents:

Money market funds 373,619 — — 373,619

Total cash equivalents $ 73,138 $ — $ — $ 73,138

Marketable securities:

Commercial paper $ 59,792 $ — $ — $ 59,792

Asset-backed securities 40,965 — ( 23 ) 40,942

Corporate bonds 237,735 20 ( 353 ) 237,402

treasury securities 272,678 1 ( 379 ) 272,300

Supranational bonds 71,121 1 ( 235 ) 70,887

Total marketable securities $ 682,291 $ 22 $ ( 990 ) $ 681,323

Time deposits 412,125 — — 412,125

Total restricted cash and cash equivalents $ 806,348 $ — $ — $ 806,348

Short-term investments:

Short-term deposits $ 101,711 $ — $ — $ 101,711

Total short-term investments $ 101,711 $ — $ — $ 101,711

Unity Software Inc.

Cash equivalents and marketable securities consisted of the following as of December 31, 2020 (in thousands) :

Cash equivalents and short-term investments consisted of the following as of December 31, 2021 (in thousands) :

Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Restricted cash:

Restricted cash and cash equivalents:

Restricted cash $ 10,823 $ — $ — $ 10,823

Total restricted cash $ 21,369 $ — $ — $ 21,369

Cash equivalents:

Money market funds 73,138 — — 73,138

Total restricted cash and cash equivalents $ 83,961 $ — $ — $ 83,961

Short-term investments:

Commercial paper $ 59,792 $ — $ — $ 59,792

Total cash equivalents $ 735,812 $ — $ — $ 735,812

Marketable securities:

Asset-backed securities 40,965 — ( 23 ) 40,942

2 unchanged sentences

Supranational bonds 71,121 1 ( 235 ) 70,887

Total marketable securities $ 479,353 $ 170 $ ( 117 ) $ 479,406

We do not intend to sell any of the securities in an unrealized loss position and we expect to realize the full value of all these investments which may be upon maturity.

Total short-term investments $ 682,291 $ 22 $ ( 990 ) $ 681,323

We did not recognize any credit losses related to our available-for-sale debt securities during the years ended December 31, 2022 and 2021.

The following table summarizes the amortized cost and fair value of our marketable securities as of December 31, 2021, by contractual years to maturity (in thousands):

Amortized Cost Fair Value

Due within one year $ 381,269 $ 381,133

Due between one and three years 301,022 300,190

Total $ 682,291 $ 681,323

There were no material realized or unrealized gains or losses, either individually or in the aggregate during the year ended December 31, 2021, 2020, and 2019 for the years ended December 31, 2021 and 2020.

Fair Value Measurements

We categorize assets and liabilities recorded or disclosed at fair value on our consolidated balance sheets based upon the level of judgment associated with inputs used to measure their fair value.

The categories are as follows:

• Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

• Level 2—Inputs are 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, for substantially the full term of the financial instruments.

• Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.

The inputs require significant management judgment or estimation.

Unity Software Inc.

The following table presents the fair value of our financial assets and liabilities measured at fair value on a recurring basis using the above input categories as of December 31, 2021 (in thousands):

Level 1 Level 2 Level 3 Total

Restricted cash:

Restricted cash $ 10,823 $ — $ — $ 10,823

Total restricted cash $ 10,823 $ — $ — $ 10,823

Cash equivalents:

Money market funds $ 73,138 $ — $ — $ 73,138

Total cash equivalents $ 73,138 $ — $ — $ 73,138

Marketable securities:

Commercial paper $ — $ 59,792 $ — $ 59,792

Asset-backed securities — 40,942 — 40,942

Corporate bonds — 237,402 — 237,402

treasury securities — 272,300 — 272,300

Supranational bonds — 70,887 — 70,887

Total marketable securities $ — $ 681,323 $ — $ 681,323

Level 1 Level 2 Level 3 Total

Restricted cash:

Restricted cash $ 21,369 $ — $ — 21,369

Total restricted cash $ 21,369 $ — $ — $ 21,369

Cash equivalents:

Money market funds $ 660,086 $ — $ — $ 660,086

Commercial paper — 75,726 — 75,726

Total cash equivalents $ 660,086 $ 75,726 $ — $ 735,812

Marketable securities:

Asset-backed securities $ — $ 49,965 $ — $ 49,965

Corporate bonds — 92,322 — 92,322

treasury securities — 327,050 — 327,050

Supranational bonds — 10,069 — 10,069

Total marketable securities $ — $ 479,406 $ — $ 479,406

Acquisitions are accounted for in accordance with FASB ASC Topic 805, Business Combinations , and the revenue and earnings of the acquired businesses have been included in our results from the respective dates of the acquisitions and were not material to our consolidated financial statements.

There were no material realized or unrealized gains or losses, either individually or in the aggregate, during the years ended December 31, 2022 and 2021.

During the year ended December 31, 2022, we sold the entirety of our available-for-sale debt securities portfolio.

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.

At December 31, 2022, equity investments totaled $ 31.1 million.

Approximately $ 15.6 million of these equity investments were measured at cost.

As part of the merger with ironSource, $ 15.5 million of these equity investments were measured at fair value using the market approach.

Unity Software Inc.

Investment in Unity China

In August 2022, we formed a company in China ("Unity China") to perform research and development activities and to facilitate commercialization in the Greater China region.

Upon formation, we agreed to sell to third-party investors an ownership interest of approximately 20.5 % in Unity China for cash consideration of $ 196.5 million.

Under the agreement and pursuant to certain conditions that include successfully completing an initial public offering of Unity China at a valuation greater than $ 3.6 billion, the investors have the option to require us to repurchase their interest at a redemption value based on the greater of Unity China's then current equity fair value or a guaranteed floor value in the aggregate amount of $ 278.0 million.

The redeemable noncontrolling interests are initially measured at its issuance date fair value and then adjusted for its proportionate net income or loss and accreted to its estimated redemption value through the applicable redemption date, which is August 2027.

We valued the combination of the investors' equity interest in Unity China and their redemption right at approximately $ 217.9 million.

The investors' equity interest was valued using a discounted cash flow analysis and market approach.

The redemption right was valued using the Black-Scholes option-pricing model adjusted for probabilities of successfully completing an initial public offering.

The difference between the fair value of the redeemable noncontrolling interests and cash consideration received was recognized as a customer incentive, as the equity interest holders are also customers.

The customer incentive will be amortized against revenue over the five-year term of the redemption right.

Subsequent and contingent to the initial investment from third-party investors, a management investor contributed $ 14.4 million for an ownership interest of 1.5 % with no redemption rights.

The results of Unity China are included in our consolidated financial statements and were not material for the year ended December 31, 2022, and the redeemable noncontrolling interests are recorded as temporary equity on our consolidated balance sheet.

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

December 31, 2022

Balance at beginning of period $ —

Initial fair value measurement of investors' equity interest and redemption right 217,900

Net loss attributable to redeemable noncontrolling interests ( 1,207 )

Adjustments for redeemable noncontrolling interests 2,870

Balance at end of period $ 219,563

The revenue and earnings of the acquired businesses have been included in our results from the respective dates of the acquisitions and, other than the ironSource Merger, were not material to our consolidated financial statements in the year of acquisition.

The total purchase price allocated to the net assets acquired is assigned based on the fair values as of the date of acquisition.

The fair value assigned to identifiable intangible assets acquired was determined using the income approach and the cost approach.

We believe that these identified intangible assets will have no residual value after their estimated economic useful lives.

The identifiable intangible assets are subject to amortization on a straight-line basis, as this best approximates the benefit period related to these assets.

The identifiable intangible assets are subject to amortization on a straight-line basis over their estimated useful lives, as this best approximates the benefit period related to these assets.

The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, is recorded as goodwill.

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income tax purposes.

For 2021 and certain 2020 acquisitions, the fair values of assets acquired and liabilities assumed, including current income taxes payable and deferred taxes, may change over the measurement period as additional information is received and certain tax returns are finalized.

For 2022, the fair values of assets acquired and liabilities assumed, including current income taxes payable and deferred taxes, may change over the measurement period as additional information is received and certain tax returns are finalized.

Accordingly, the provisional measurements of fair value of the current income taxes payable and deferred taxes are subject to change.

We expect to finalize the valuation as soon as practicable, but not later than one year from the respective acquisition dates.

2021 Acquisitions

In December 2021, we completed the purchase of certain assets and assembled workforce from Weta Digital,for a total consideration of approximately $ 1.5 billion.

This amount was payable in a combination of approximately $ 1.0 billion in cash and the issuance of 3,468,362 shares of common stock valued at approximately $ 526.1 million.

Weta Digital researches and develops sophisticated visual effects tools.

The following table summarizes the consideration paid for Weta Digital and the estimated fair values of the assets acquired at the acquisition date (in thousands):

Consideration:

Cash $ 1,000,001

Common stock issued 526,081

Fair value of total consideration transferred $ 1,526,082

Recognized amounts of identifiable assets acquired and liabilities assumed:

Intangible assets $ 668,400

Total identifiable net assets assumed 668,400

Total $ 1,526,082

(1) Goodwill reflects the expected future benefits of certain synergies and acquired assembled workforce, which does not qualify for separate recognition as an identifiable intangible asset.

The goodwill balance is not subject to amortization, and because it was acquired in a taxable asset purchase it is deductible for U.S.

income tax purposes over a period of 15 years.

We recorded $ 5.9 million in transaction costs associated with the asset purchase for the year ended December 31, 2021.

These costs were recorded within general and administrative expenses.

The revenue and earnings of the acquired business have been included in our results since the acquisition date and are not material to our consolidated financial results.

Ziva Dynamics

In December 2021, we completed the acquisition of Ziva Dynamics for total consideration of approximately $ 127.7 million in cash.

Ziva Dynamics provides services and simulation software specializing in the development of characters to film, gaming, virtual, and augmented reality industries.

Unity Software Inc.

The following table summarizes the consideration paid for Ziva Dynamics and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Consideration:

Cash $ 127,653

Fair value of total consideration transferred $ 127,653

Recognized amounts of identifiable assets acquired and liabilities assumed:

Accounts receivable, net 297

Other current assets 642

Property and equipment, net 457

Intangible assets 23,200

Other assets and liabilities, net 74

Accrued expenses and other current liabilities ( 547 )

Deferred revenue ( 493 )

Deferred tax liability ( 2,534 )

Total identifiable net assets assumed 23,384

Total $ 127,653

(1) Goodwill reflects the expected future benefits of certain synergies and acquired assembled workforce, which does not qualify for separate recognition as an identifiable intangible asset.

The goodwill balance is not subject to amortization, and it is not typically deductible for Canadian income tax purposes.

However, we will make an election, for Canadian tax purposes, to step-up the tax basis of Ziva Dynamics' intangibles and a portion of goodwill, offsetting the current tax implications of the step-up by using Ziva Dynamics' tax attributes (e.g.

The estimated amount of goodwill that will be amortizable after the step-up election is approximately $ 3 million.

We recorded $ 1.3 million in transaction costs associated with the Ziva Dynamics acquisition for the year ended December 31, 2021.

2022 Acquisitions

ironSource Ltd.

On November 7, 2022, we completed the acquisition of ironSource, a leading business platform for the app economy.

The purchase consideration was payable through the issuance of 112,547,375 shares of our common stock valued at approximately $ 2.8 billion, and assumed 17,326,341 equity awards valued at approximately $ 126.7 million for services rendered through the acquisition date.

Total purchase consideration transferred was approximately $ 2.9 billion.

We recorded $ 33.0 million in transaction costs associated with the acquisition for the year ended December 31, 2022.

These costs were recorded within general and administrative expenses.

Pro forma results of operations for the Ziva Dynamics acquisition have not been presented because the acquisition is not material to the consolidated statements of operations and comprehensive loss.

In September 2021, we completed the acquisition of Parsec for a total consideration of approximately $ 332.7 million in cash.

Parsec designs and develops remote access streaming technology.

Parsec offers a proprietary desktop capturing application primarily used for playing games through video streaming.

Unity Software Inc.

The following table summarizes the consideration paid for Parsec and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

The revenue and earnings of the acquired business have been included in our results since the acquisition date.The revenue and income related to ironSource were $ 120.3 million and $ 5.4 million, respectively, for the year ended December 31, 2022.

The following table summarizes the consideration paid for ironSource and the estimated fair values of the assets acquired at the acquisition date (in thousands):

Consideration:

Cash $ 332,729

Common stock issued $ 2,788,924

Assumed equity awards 126,700

Fair value of total consideration transferred $ 2,915,624

Recognized amounts of identifiable assets acquired and liabilities assumed:

Cash $ 23,402

Accounts receivable, net 1,349

Intangible assets 43,200

Other assets and liabilities, net ( 124 )

Cash and cash equivalents $ 138,216

Accounts receivable 292,670

Prepaid expenses and other 44,457

Property, plant, and equipment 7,063

Intangible assets, net 1,270,000

Short term investments 103,831

Other assets 66,951

Accounts payable ( 25,681 )

Accrued expenses and other ( 99,419 )

Publisher payables ( 258,227 )

Deferred revenue ( 1,325 )

Deferred tax liability ( 4,570 )

Other long-term liabilities ( 165,996 )

Total identifiable net assets assumed 1,372,540

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(1) Goodwill reflects the expected future benefits of certain synergies and acquired assembled workforce, which does not qualify for separate recognition as an identifiable intangible asset.

The goodwill balance is not subject to amortization, and it is not deductible for U.S.

The goodwill balance is not subject to amortization and is not deductible for U.S.

income tax purposes.

We recorded $ 1.3 million in transaction costs associated with the Parsec acquisition for the year ended December 31, 2021.

These costs were recorded within general and administrative expenses.

Pro forma results of operations for the Parsec acquisition have not been presented because the acquisition is not material to the consolidated statements of operations and comprehensive loss.

Metaverse Technologies Limited

In June 2021, we completed the acquisition of Metaverse Technologies Limited ("Metaverse") for consideration of $ 45.7 million in cash.

Metaverse develops first class software and solutions to prepare and optimize computer-aided design ("CAD") data, reducing time and efforts and maximizing visualization performance.

Metaverse bridges the gap between complex models that are made for design or engineering and the RT3D world.

Unity Software Inc.

The following table summarizes the consideration paid for Metaverse and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Consideration:

Cash $ 45,721

Fair value of total consideration transferred $ 45,721

Recognized amounts of identifiable assets acquired and liabilities assumed:

Intangible assets 12,340

Other assets and liabilities, net 194

Income and other taxes payable ( 1,470 )

Other payable ( 345 )

Deferred revenue ( 507 )

Deferred tax liability ( 2,210 )

Total identifiable net assets assumed 9,095

Total $ 45,721

(1) Goodwill reflects the expected future benefits of certain synergies and acquired assembled workforce, which does not qualify for separate recognition as an identifiable intangible asset.

The goodwill balance is not subject to amortization, and it is not deductible for French income tax purposes.

We recorded $ 0.8 million in transaction costs associated with the Metaverse acquisition for the year ended December 31, 2021.

These costs were recorded within general and administrative expenses.

Pro forma results of operations for the Metaverse acquisition have not been presented because the acquisition is not material to the consolidated statements of operations and comprehensive loss.

Other 2021 Acquisitions

In March 2021, we completed the acquisition of Visual Live 3D LLC ("Visual Live") for total consideration of approximately $ 24.8 million in cash.

In aggregate, $ 5.1 million was attributed to intangible assets and represents acquired developed technology, customer relationships, and trademarks, $ 0.6 million was attributed to other assets, $ 19.8 million was attributed to goodwill and $ 0.6 million was attributed to other liabilities assumed.

In November 2021, we completed the acquisition of SyncSketch for total consideration of approximately $ 30.4 million in cash.

In aggregate, $ 7.8 million was attributed to intangible assets and represents acquired developed technology, customer relationships, and trademarks, $ 0.8 million was attributed to other assets, $ 23.2 million was attributed to goodwill and $ 1.4 million was attributed to other liabilities assumed.

During the year ended December 31, 2021, we completed other acquisitions for total consideration of approximately $ 47.1 million payable in cash.

In aggregate, $ 1.0 million represented cash acquired, $ 30.2 million was attributed to intangible assets and represented acquired developed technology, customer relationships and trademarks, $ 20.1 million was attributed to goodwill and $ 4.2 million was attributed to net liabilities assumed.

These acquisitions were strategic in nature as they enhanced our product offerings.

We recorded $ 3.8 million in transaction costs associated with these acquisitions for the year ended December 31, 2021.

These costs were recorded within general and administrative expenses.

Unity Software Inc.

MindKick, Inc.

On January 28, 2022, we completed the purchase of MindKick, Inc.

("MindKick") for a total purchase consideration of approximately $ 46.6 million.

This consideration included a combination of approximately $ 26.7 million in cash and the issuance of 169,321 shares of our common stock valued at approximately $ 16.1 million.

An additional 42,330 shares of our common stock subject to a service-based vesting condition were granted to certain employees of Mindkick;

these shares of common stock are accounted for outside of the business combination and will be recognized as post-combination expense.

MindKick provides 2D game creation tools and game templates with the goal of providing consumers the ability to create, play, and share their own 2D games on mobile.

Prior to the completion of the acquisition, we held a minority investment in MindKick that we accounted for using the equity method of accounting.

In circumstances where a business combination is achieved in stages, previously-held equity interests are remeasured at fair value.

The remeasured fair value assigned to the previously-held equity interest in MindKick of $ 3.7 million approximates cost, and therefore, no gain or loss was recognized.

The identifiable assets and liabilities acquired are primarily $ 37.0 million in goodwill, $ 7.5 million in intangible assets, $ 2.8 million in cash, and ($ 0.7 million) in other net assets and liabilities.

The transaction costs associated with the acquisition are not material.

The revenue and earnings of the acquired business have been included in our results since the acquisition date and are not material to our consolidated results.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the consolidated results of Weta Digital for the years ended December 31, 2021 and 2020, giving effect to the acquisition as if it had occurred on January 1, 2020, and combines the historical financial results of Weta Digital.

The following unaudited pro forma financial information presents the consolidated results of ironSource for the years ended December 31, 2022 and 2021, giving effect to the acquisition as if it had occurred on January 1, 2021, and combines the historical financial results of ironSource.

The unaudited pro forma financial information includes adjustments to give effect to pro forma events that are directly attributable to the acquisition.

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2021 Acquisitions

In April 2020, we completed the acquisition of 100 % of the issued share capital of Finger Food for consideration of $ 46.8 million payable in a combination of $ 23.6 million in cash and the issuance of 1,030,711 shares of common stock valued at $ 23.1 million.

Finger Food creates developer applications on top of our solutions for a variety of industries, such as automotive, construction, gaming and retail.

The acquisition of Finger Food was strategic in nature as we look to create repeatable solutions from Finger Food’s projects and apply the know-how of customer engagement to our offerings.

Unity Software Inc.

The following table summarizes the consideration paid for Finger Food and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Consideration:

Cash $ 23,626

Common stock issued 23,126

Fair value of total consideration transferred $ 46,752

Recognized amounts of identifiable assets acquired and liabilities assumed:

Accounts receivable, net 5,758

Property and equipment, net 1,307

Operating lease ROU assets 4,972

Deferred tax assets 1,327

Customer relationships 2,900

Trademark 200

Income and other taxes payable ( 8,109 )

Operating lease liabilities ( 4,972 )

Other assets and liabilities, net ( 293 )

Deferred tax liability ( 1,436 )

Total identifiable net assets assumed 1,942

Goodwill 44,810

Total $ 46,752

The acquired customer relationships and trademark intangible assets have useful lives of two years and six months , respectively.

Goodwill of $ 44.8 million reflects the expected future benefits of certain synergies and acquired assembled workforce, which does not qualify for separate recognition as an identifiable intangible asset.

Other 2020 Acquisitions

During the year ended December 31, 2020, we completed other acquisitions for total consideration of approximately $ 31.6 million payable in a combination of $ 29.6 million in cash and the issuance of 72,479 shares of common stock valued at $ 2.0 million.

In aggregate, $ 0.4 million represented cash acquired, $ 9.1 million was attributed to intangible assets and represents acquired developed technology, customer relationships and trademarks, $ 2.6 million was attributed to other assets, $ 23.3 million was attributed to goodwill, and $ 3.8 million was attributed to other liabilities assumed.

During the year ended December 31, 2021, we completed the acquisitions of certain companies for a total purchase consideration of approximately $ 2.1 billion payable in cash and stock.

The purchase consideration was primarily allocated to goodwill of approximately $ 1.3 billion and intangible assets of approximately $ 790.2 million.

These acquisitions were strategic in nature as they enhanced our product offerings.

We recorded approximately $ 4.1 million in transaction costs associated with acquisitions for the year ended December 31, 2020.

These costs were recorded within general and administrative expenses.

The revenue and earnings of the acquired businesses have been included in our results since the acquisition date.

Pro forma results of operations for these acquisitions have not been presented because they are not material to the consolidated statements of operations.

2019 Acquisitions

In January 2019, we completed the acquisition of 100 % of the issued share capital of Mercer Road Corporation ("Vivox") for consideration of $ 123.4 million payable in a combination of $ 119.0 million in cash and the issuance of 348,739 shares of common stock valued at $ 4.4 million.

Unity Software Inc.

Vivox provides cross-platform voice and text communication tools for social experiences where players can communicate regardless of location in game play, on any platform, whether it is mobile, personal computer or console.

The acquisition of Vivox was strategic in nature as we look to deliver more services for connected games and other use cases.

The acquired developed technology has an estimated useful life of six years .

The acquired customer relationships and trademark intangible assets have useful lives of two years and four years , respectively.

Goodwill of $ 94.2 million reflects the expected future benefits of certain synergies and acquired assembled workforce, which does not qualify for separate recognition as an identifiable intangible asset.

In September 2019, we completed the acquisition of 100 % of the issued share capital of deltaDNA Limited ("deltaDNA") for consideration of $ 53.1 million payable in a combination of $ 32.8 million in cash and $ 20.3 million of our common stock.

The total purchase price includes 928,123 common shares issued by us.

deltaDNA provides analytics, messaging and ad campaign management tools to enable real-time player life-cycle management.

The acquisition of deltaDNA was strategic in nature as we look to integrate deltaDNA’s engagement tools and services to support our monetization products.

The acquired developed technology has an estimated useful life of six years .

The acquired customer relationships and trademark intangible assets have useful lives of two years and three years , respectively.

Goodwill of $ 35.2 million reflects the expected future benefits of certain synergies and acquired assembled workforce, which does not qualify for separate recognition as an identifiable intangible asset.

In December 2019, we completed the acquisition of 100 % of the issued share capital of Artomatix Limited (“Artomatix”) for consideration of $ 48.8 million payable in a combination of $ 38.7 million in cash and $ 10.1 million of our common stock.

The total purchase price includes 457,875 common shares issued by us.

Artomatix offers artificial intelligence (“AI”) and machine learning powered tools to simplify and automate parts of the 3D art creation process.

The acquisition of Artomatix was strategic in nature as we look to expand our offering for 3D artists in addition to developers.

The acquired developed technology has an estimated useful life of six years .

Goodwill of $ 39.0 million reflects the expected future benefits of certain synergies and acquired assembled workforce, which does not qualify for separate recognition as an identifiable intangible asset.

Other 2019 Acquisitions

During the year ended December 31, 2019, we completed other acquisitions and purchases of intangible assets for total consideration of approximately $ 8.2 million.

In aggregate, $ 0.4 million represented cash acquired, $ 3.5 million was attributed to intangible assets and represents acquired developed technology, $ 0.4 million was attributed to other assets, $ 4.5 million was attributed to goodwill and $ 0.7 million was attributed to other liabilities assumed.

These acquisitions generally enhance the breadth and depth of our offerings and expand our expertise in different functional areas.

We recorded $ 3.6 million in transaction costs associated with these acquisitions for the year ended December 31, 2019.

These costs were recorded within general and administrative expenses.

Goodwill and Intangible Assets

Goodwill represents the excess of purchase price and related costs over the value assigned to net tangible and identifiable intangible assets acquired in business combinations.

Unity Software Inc.

The following table presents the changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021 (in thousands):

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Trademark 5.7 60,557 ( 3,937 ) 56,620

Contractual relationship 8.0 200,000 ( 2,818 ) 197,182

Total intangible assets $ 890,932 $ ( 76,546 ) $ 814,386

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2023 $ 394,582

Thereafter 253,912

Total $ 1,922,234

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Furniture 30,046 27,916

Internally developed software 3,508 3,301

Purchased software 1,449 1,436

Internally developed and purchased software 8,264 4,957

Vehicles 38 —

Construction in progress 10,442 12,075

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United Kingdom 12,944 15,011

Greater China 4,300 5,653

EMEA, excluding United Kingdom (1)

22,336 12,587

Other Americas, excluding Canada (1)

Total long-lived assets, net $ 113,334 $ 104,111

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2022 December 31,

Accrued expenses and other current liabilities:

Accrued expenses and other:

Accrued expenses $ 107,075 $ 85,281

Accrued compensation 121,654 83,936

Accrued expenses and other current liabilities $ 144,873 $ 106,306

Sales Commissions

We consider internal sales commissions as incremental costs of obtaining the contract with a customer.

We apply a practical expedient to expense incremental costs incurred if the period of the benefit is one year or less.

Incremental costs that have a period of benefit greater than one year are capitalized and amortized over the estimated period of benefit.

Capitalized commissions, net of amortization, are included in other current assets and other assets on our consolidated balance sheets.

We capitalized $ 14.8 million and $ 8.8 million of sales commissions for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, capitalized commissions, net of amortization, included in other current assets and other assets were $ 7.9 million and $ 8.7 million, respectively.

As of December 31, 2020, capitalized commissions, net of amortization, included in other current assets and other assets were $ 2.9 million and $ 4.4 million, respectively.

Capitalized commissions are amortized over the expected period of benefit, which we have determined, based on analysis, to be three years .

Amortization of capitalized commissions are included in sales and marketing expenses on our consolidated statements of operations.

For the years ended December 31, 2021 and 2020, we amortized $ 5.6 million and $ 1.5 million of capitalized commissions, respectively.

We did no t incur any impairment losses for the years ended December 31, 2021 and 2020.

We have operating leases for offices which have remaining lease terms of less than one year to 10 years, some of which include options to extend the lease with renewal terms from one to five years .

Some leases include an option to terminate the lease from less than one year up to five years from the lease commencement date.

Income and other taxes payable 97,610 64,759

Accrued expenses and other $ 326,339 $ 233,976

We have operating leases for offices which have remaining lease terms of up to nine years , some of which include options to extend the lease with renewal terms from one to five years .

Some leases include an option to terminate the lease for up to five years from the lease commencement date.

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

December 31, 2022 December 31,

Operating lease expense, excluding ROU asset impairment $ 29,153 $ 29,265

Operating lease expense $ 31,707 $ 29,153

Short-term lease expense 1,317 728

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Total lease expense $ 38,331 $ 34,604

Other information related to operating leases was as follows (in thousands):

December 31, 2021 December 31, 2020

Cash paid for amounts included in the measurement of operating lease liabilities $ 29,811 $ 29,336

Operating lease ROU assets obtained in exchange for new operating lease liabilities $ 18,507 $ 24,647

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

Classification December 31, 2022 December 31, 2021

Operating lease assets Other assets $ 120,535 $ 98,393

Current operating lease liabilities Accrued expenses and other $ 34,469 $ 23,729

Long-term operating lease liabilities Other long-term liabilities 107,776 92,539

Total operating lease liabilities $ 142,245 $ 116,268

As of December 31, 2022, our operating leases had a weighted-average remaining lease term of 5.0 years and a weighted-average discount rate of 4.0 %.

As of December 31, 2021, our operating leases had a weighted-average remaining lease term of 5.9 years and a weighted-average discount rate of 4.3 %.

As of December 31, 2021, future minimum lease payments under our non-cancellable operating leases were as follows (in thousands):

As of December 31, 2022, our lease liabilities were as follows (in thousands):

Operating Leases (1)

2022 $ 28,193

Thereafter 31,547

Total future minimum lease payments 132,533

Gross lease liabilities $ 157,097

imputed interest ( 14,852 )

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As of December 31, 2022, we had entered into leases that have not yet commenced with future minimum lease payments of $ 40.1 million that are not yet reflected on our consolidated balance sheets.

These operating leases will commence in 2022 with lease terms of 2.1 years to 5.4 years.

In August 2018, we entered into a lease agreement for approximately 150,000 square feet of office space in San Francisco, California.

In June 2021, we entered into an agreement to terminate the lease, which involved a one-time payment of $ 43.5 million, all of which was recorded in general and administrative expense on our consolidated statement of operations.

Credit Agreement

On December 20, 2019, we entered into a revolving credit agreement (the “ Credit Agreement”), which provided for a committed revolving loan facility of up to $ 125.0 million (the “Revolving Facility”) and included a $ 20.0 million letter of credit subfacility (the “LC Capacity” and together with the Revolving Facility, the “Credit Facility”).

Borrowings under the Credit Facility were available for working capital and general corporate purposes.

The Credit Facility had a maturity date of December 20, 2024.

At our option, we were to specify whether the loans made under the Revolving Facility were an Alternate Base Rate (“ABR”) borrowing or a Eurodollar borrowing, which then determined the annual interest rate.

ABR borrowings bore interest at the ABR plus 0.50 %.

Eurodollar borrowings bore interest at the adjusted LIBO Rate plus 1.50 %.

The ABR equaled the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50 %, and (iii) the sum of the adjusted one-month LIBO Rate for a Eurodollar borrowing plus 1.00 %.

The ABR was subject to a floor of 1.00 %.

For ABR borrowings, interest was payable on the last day of March, June, September, and December of each year.

For Eurodollar borrowings, interest was payable on the last day of each interest period for the applicable borrowing, and if such interest period extended over three months, each day prior to the last day of each three-month interval during such interest period.

Commitments under the Revolving Facility are subject to a commitment fee of 0.25 % on the difference between the total committed amount of the Revolving Facility on the one hand, and the amount drawn thereunder plus the aggregate amount of LC Capacity used on the other.

An annual letter of credit fee of 1.50 % of the average daily undrawn amount of the letters of credit issued thereunder was also payable quarterly.

Letters of credit issued under the letter of credit subfacility were subject to a fronting fee of 0.125 % on the average daily undrawn amount on such letters of credit.

In March 2020, we borrowed the full $ 125.0 million amount as a Eurodollar borrowing under the Revolving Facility.

In September 2020, we repaid the $ 125.0 million of indebtedness under the Credit Facility using a portion of the net proceeds we received from our IPO.

In connection with this borrowing, we recognized $ 1.1 million and $ 1.5 million in expense primarily related to the interest cost associated with this borrowing, commitment fees on the undrawn portion, and amortization of debt issuance costs during the years ended December 31, 2021 and 2020, respectively.

This amount is reported within "Interest expense" on our consolidated statements of operations and comprehensive loss.

Under the Credit Agreement, we were to maintain a minimum liquidity balance of $ 75.0 million as of the last day of the most recently completed four consecutive fiscal quarters, which commenced on June 30, 2020.

The Credit Agreement contained customary conditions to borrowing, representations and warranties, events of default and covenants, including covenants that restrict our ability to incur indebtedness, grant liens, make investments, undergo corporate changes, make dispositions, prepay other indebtedness, pay dividends or other distributions and engage in transactions with our affiliates.

The obligations under the Credit Agreement are secured by a perfected security interest in (i) all of our tangible and intangible assets, except for certain customary excluded assets, and (ii) all of our ownership in capital stock of restricted subsidiaries (limited, in the case of the stock of non-U.S.

subsidiaries and U.S.

subsidiaries that have no material assets other than equity interests and/or indebtedness in foreign subsidiaries that are controlled foreign corporations, to 65 % of the capital stock of such subsidiaries).

The obligations under the Credit Agreement are also guaranteed by our existing and subsequently acquired or formed material domestic subsidiaries.

In April 2021, we terminated without penalty our Credit Agreement.

There was no outstanding indebtedness under the Credit Facility, and we determined that the Credit Facility was no longer necessary.

We were in compliance in all material respects with the covenants in the Credit Agreement through April 2021, when the Credit Agreement was terminated.

These operating leases will commence in 2023 with lease terms of approximately five to ten years .

Convertible Notes

In November 2021, we issued an aggregate of $ 1.7 billion principal amount of 0 % Convertible Senior Notes due 2026, including the exercise in full by the initial purchasers of their option to purchase up to an additional $ 225.0 million aggregate principal amount of the 2026 Notes, pursuant to an Indenture dated as of November 19, 2021 (the “Indenture”), between us and U.S.

Bank National Association, as trustee.

The net proceeds from the issuance of the 2026 Notes were $ 1.7 billion, net of debt issuance costs and cash used to purchase the capped call transactions ("Capped Call Transactions") discussed below.

In November 2022, we issued the 2027 Notes.

The closing of the issuance and sale of the 2027 Notes (the "PIPE") occurred promptly following the closing of the ironSource Merger, pursuant to an indenture dated November 8, 2022 (the “Indenture”).

Proceeds from the issuance of the 2027 Notes were approximately $ 1.0 billion, net of debt issuance costs.

The debt issuance costs are amortized to interest expense using the straight-line method, which approximates the effective interest method.

The 2026 Notes are general unsecured obligations which do not bear regular interest and for which the principal balance will not accrete.

We may elect for special interest to accrue on the 2026 Notes as the sole remedy for any failure by us to comply with certain reporting requirements for the first 365 days after the occurrence of such failure under the Indenture.

Special interest will accrue for any failure by us to comply with certain reporting requirements during the six-month period beginning on, and including, the date that is six months after the last date of original issuance of the 2026 Notes.

Special interest will also accrue if, and for so long as, the restrictive legend on the 2026 Notes has not been removed, the 2026 Notes are assigned a restricted CUSIP number or the 2026 Notes are not otherwise freely tradeable by holders other than our affiliates as of the de-legending deadline date set forth in the Indenture until the restrictive legend has been removed from the 2026 Notes, the 2026 Notes are assigned an unrestricted CUSIP number and the 2026 Notes are freely tradable.

Holders of the 2026 Notes may receive special interest under specified circumstances as outlined in the Indenture.

Special interest, if any, will be payable semiannually in arrears on November 15 and May 15 of each year, beginning on May 15, 2022 (if and to the extent that special interest is then payable on the 2026 Notes).

The 2027 Notes are general unsecured obligations which bear regular interest of 2.0 %.

We may elect for additional interest to accrue on the 2027 Notes as the sole remedy for any failure by us to comply with certain reporting requirements under the Indenture.

Holders of the 2027 Notes may receive additional interest under specified circumstances as outlined in the Indenture.

Additional interest, if any, will be payable in the same manner as the regular interest, which is semiannually in arrears on May 15 and November 15 of each year, beginning on May 15, 2023.

The 2027 Notes will mature on November 15, 2027 unless earlier converted, redeemed, or repurchased.

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The conversion rate is subject to customary adjustments for certain events as described in the Indenture governing the 2027 Notes.

We may not redeem the Notes prior to November 20, 2024.

We may redeem for cash all or any portion of the 2026 Notes, at our option, on or after November 20, 2024 if the last reported sale price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 -consecutive-trading-day period (including the last day of such period), ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100 % of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date.

If we redeem less than all the outstanding 2026 Notes, at least $ 150.0 million aggregate principal amount of 2026 Notes must be outstanding and not subject to redemption as of, and after giving effect to, delivery of the relevant notice of redemption.

No sinking fund is provided for the convertible notes, which means that we are not required to redeem or retire them periodically.

Holders of the 2026 Notes may convert all or a portion of their 2026 Notes at their option at any time prior to the close of business on the business day immediately preceding August 15, 2026, in multiples of $1,000 principal amounts, only under the following circumstances:

• during any calendar quarter commencing after the calendar quarter ending on March 31, 2022 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the preceding calendar quarter is greater than or equal to 130 % of the applicable conversion price of the 2026 Notes on each such trading day;

• during the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of the 2026 Notes for each trading day of that ten consecutive trading day period was less than 98 % of the product of the last reported sale price of our common stock and the applicable conversion rate of the 2026 Notes on each such trading day;

• if we call such 2026 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2026 Notes called (or deemed called) for redemption; or

• on the occurrence of specified corporate events set forth in the Indenture.

On or after August 15, 2026, the 2026 Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances.

In connection with a make-whole fundamental change, as defined in the Indenture, or in connection with certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, in each case as described in the Indentures, we will increase the conversion rate for a holder of the 2026 Notes who elects to convert its 2026 Notes in connection with such a corporate event or during the related redemption period in certain circumstances.

Additionally, in the event of a fundamental change, subject to certain limitations described in the Indenture, holders of the 2026 Notes may require us to repurchase all or a portion of the 2026 Notes at a price equal to 100 % of the principal amount of 2026 Notes to be repurchased, plus any accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date.

In connection with a make-whole fundamental change, as defined in the Indenture, or in connection with certain corporate events that occur prior to the maturity date or a notice of redemption, in each case as described in the Indentures, we will increase the conversion rate for a holder of the 2027 Notes who elects to convert its 2027 Notes in connection with such a corporate event or during the related redemption period in certain circumstances.

Additionally, in the event of a fundamental change, subject to certain limitations described in the Indenture, holders of the 2027 Notes may require us to repurchase all or a portion of the 2027 Notes at a price equal to 100 % of the principal amount of 2027 Notes to be repurchased, plus any accrued and unpaid additional interest, if any, to, but excluding, the fundamental change repurchase date.

We accounted for the issuance of the 2027 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

The table below summarizes the principal and unamortized debt issuance cost for the 2027 Notes (in thousands):

December 31, 2022

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Net carrying amount $ 999,632

Interest expense related to the amortization of debt issuance costs was $ 0.5 million for the year ended December 31, 2021.

As of December 31, 2021, the if-converted value of the 2026 Notes did not exceed the principal amount.

The sale price for conversion was not satisfied as of December 31, 2021 for the 2026 Notes.

The 2026 Notes were not eligible for conversion as of December 31, 2021.

Interest expense on the 2027 Notes related to regular interest was $ 2.9 million and interest expense related to the amortization of debt issuance costs was immaterial for the year ended December 31, 2022.

As of December 31, 2022, no holders of the 2027 Note have exercised the conversion rights, and the if-converted value of the 2027 Notes did not exceed the principal amount.

In November 2021, we issued an aggregate of $ 1.7 billion principal amount of 0 % Convertible Senior Notes due 2026 (the "2026 Notes").

Proceeds from the issuance of the 2026 Notes were $ 1.7 billion, net of debt issuance costs and cash used to purchase the capped call transactions ("Capped Call Transactions") discussed below.

The debt issuance costs are amortized to interest expense using the straight-line method, which approximates the effective interest method.

The 2026 Notes are general unsecured obligations which do not bear regular interest and for which the principal balance will not accrete.

The 2026 Notes will mature on November 15, 2026 unless earlier converted, redeemed, or repurchased.

The 2026 Notes are convertible into cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election, at an initial conversion rate of 3.2392 shares of common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of approximately $ 308.72 per share of our common stock.

The conversion rate is subject to customary adjustments for certain events as described in the indenture governing the 2026 Notes.

The table below summarizes the principal and unamortized debt issuance cost for the 2026 Notes (in thousands):

December 31, 2022

Convertible note:

Principal $ 1,725,000

Unamortized debt issuance cost ( 17,461 )

Net carrying amount $ 1,707,539

Interest expense related to the amortization of debt issuance costs was $ 4.5 million for the year ended December 31, 2022 and $ 0.5 million for the year ended December 31, 2021.

Capped Call Transactions

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The Capped Call Transactions will not be remeasured as long as they continue to meet the conditions for equity classification.

As of December 31, 2021, the Capped Call Transactions were not in the money.

As of December 31, 2022, the Capped Call Transactions were not in the money and met the conditions for equity classification.

Commitments and Contingencies

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Total 2023 2024-2025 2026-2027 Thereafter

Operating leases $ 157,097 $ 39,272 $ 63,226 $ 32,806 $ 21,793

Purchase commitments (2)

947,953 234,317 494,759 218,877 —

Convertible notes (3)

2,725,000 — — 2,725,000 —

Total $ 3,830,050 $ 273,589 $ 557,985 $ 2,976,683 $ 21,793

(1) The operating lease obligation consists of obligations for real estate

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

Data Center Hosting Commitments

In September 2021, we entered into an amended cloud service agreement with an additional term of five years beginning on the amendment date.

In December 2021, we entered into an amended commitment agreement to increase the annual commitments over the contract term.

Under the agreement and amendment, we were granted access to use certain cloud services.

Minimum annual commitments increase annually over the term of the agreement.

The aggregate value of all annual minimum commitments over the contract term is $ 700.0 million over five years .

Total spend under the original and amended cloud service agreements for the years ended December 31, 2021, 2020, and 2019 was approximately $ 117.7 million, $ 63.2 million, and $ 32.7 million, respectively.

The total spend under the amended cloud service agreement for the year ended December 31, 2021 was $ 32.9 million.

(3) Convertible notes due 2026 and 2027.

See Note 9, "Borrowings," of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.

We expect to meet our remaining commitment.

Unity Software Inc.

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 accrue a liability when management believes that it is both probable that a liability has been incurred and that the amount of loss can be reasonably estimated.

We also disclose material contingencies when we believe a loss is not probable but reasonably possible.

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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

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 December 31, 2021, 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.

Unity Software Inc.

We are currently subject to a putative class action complaint and related derivative claims, which we believe is without merit and intend to vigorously defend against.

See Part I, Item 3.

"Legal Proceedings" for additional information regarding the class action complaint.

Letters of Credit

We had $ 20.6 million and $ 10.8 million of secured letters of credit outstanding as of December 31, 2022 and 2021, respectively.

These primarily relate to our office space leases and are fully collateralized by certificates of deposit which we record in restricted cash on our consolidated balance sheets based on the term of the remaining restriction.

These primarily relate to our office space leases and are fully collateralized by certificates of deposit which we record in restricted cash on our consolidated balance sheets .

Stockholders’ Equity and Employee Compensation Plans

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Employee Compensation Plans

2009 Stock Plan, 2019 Stock Incentive Plan, and 2020 Equity Incentive Plan

The Company adopted the 2009 Stock Plan, 2019 Stock Incentive Plan ("2019 Stock Plan") and the 2020 Equity Incentive Plan ("2020 Plan"), primarily for the purpose of granting stock-based awards to employees and non-employee directors.

Upon the effectiveness of the 2020 Plan in August 2020, no further grants may be made under the Company's 2009 Stock Plan and 2019 Stock Plan.

Any options or awards outstanding under the 2009 Stock Plan and 2019 Stock Plan remained outstanding and effective.

Any shares under 2009 Stock Plan and 2019 Stock Plan that expire, or are forfeited, cancelled, withheld, or reacquired will become available for new grant under the 2020 Plan.

The 2020 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, and other forms of awards to employees, directors, and consultants, including employees and consultants of our affiliates.

The exercise price of stock options granted under the 2020 Plan must be at least equal to the fair market value of a share of our common stock on grant date and the exercise price of incentive stock options granted to any participant, who owns more than 10% of the total voting power of all classes of our outstanding stock, must be at least 110 % of the fair market value on the grant date.

The term of a stock option and stock appreciation right may not exceed 10 years, except with respect to any participant who owns 10% of the voting power of all classes of our outstanding stock, the term of an incentive stock option may not exceed five years .

As of December 31, 2021, we had reserved a total of 77.1 million shares of common stock under the 2020 Plan, of which 34.2 million were available for grant.

Stock Award Plans

Our stock compensation plans allow us to grant or assume through acquisition stock options and RSUs, including PVUs, to employees and non-employee directors.

As of December 31, 2022, we had reserved a total of 99.3 million shares of common stock under our collective compensation plans, of which 25.5 million were available for future grant.

Employee Stock Purchase Plan

Our board of directors adopted the 2020 ESPP in August 2020 and our stockholders approved the 2020 ESPP in September 2020.

The 2020 ESPP permits participants to purchase shares of our common stock through payroll deductions of up to 15 % of their earnings.

We offer an ESPP that permits employees to purchase shares of our common stock through payroll deductions of up to 15 % of their earnings.

Unless otherwise determined by the administrator, the purchase price of the shares will be 85 % of the lower of the fair market value of our common stock on (i) the first day of an offering or (ii) on the date of purchase.

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Participation ends automatically upon termination of employment with us.

The maximum number of shares of our common stock that may be issued under our 2020 ESPP is 8.0 million shares, all of which were available for issuance as of December 31, 2021.

The number of shares reserved and available for issuance under the 2020 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2021 through January 31, 2030, by 1.0 % of the total number of shares of common stock outstandi ng on December 31 of the preceding calendar year.

The maximum number of shares of our common stock that may be issued under our 2020 ESPP is 10.9 million shares, of which 10.3 million were available for issuance as of December 31, 2022.

Share Repurchase Program

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 through November 2024.

Under the Share Repurchase Program, share repurchases may be made by us from time to time in privately negotiated transactions or in open market transactions.

The Share Repurchase Program does not require us to purchase a minimum number of shares, and may be suspended, modified, or discontinued at any time without prior notice.

In 2022, we repurchased 42.7 million shares of common stock under our Share Repurchase Program in open market transactions for an aggregate purchase price of $ 1.5 billion.

As of December 31, 2022, $ 1.0 billion remained available for future share repurchases under the Share Repurchase Program.

Employee 401(k) Plan

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Stock‑Based Compensation

We recorded stock-based compensation expense related to grants to employees, including those in connection with modified awards, on our consolidated statements of operations as follows (in thousands):

We recorded stock-based compensation expense related to grants to employees on our consolidated statements of operations as follows (in thousands):

Year Ended December 31,

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Total stock-based compensation expense $ 550,065 $ 347,159 $ 134,629

As of December 31, 2021, there was unrecognized compensation expense related to outstanding stock options of $ 103.6 million to be recognized over the weighted-average remaining vesting period of 2.15 years.

As of December 31, 2021, there was unrecognized compensation expense related to unvested restricted stock units of $ 1.0 billion to be recognized over the weighted-average remaining vesting period of 2.95 years.

As of December 31, 2021, there was unrecognized compensation expense related to our 2020 ESPP of $ 1.7 million to be recognized over the weighted-average vesting period of 0.17 years.

Unrecognized compensation expense is as follows (in thousands, except for weighted-average remaining vesting period):

December 31, 2022

Unrecognized Compensation Expense Weighted-Average Remaining Vesting Period (In Years)

Outstanding stock options $ 124,265 1.93

Unvested RSUs and PVUs $ 1,671,647 3.07

2020 ESPP $ 1,542 0.17

In future periods, stock-based compensation expense may increase as we issue additional equity-based awards to continue to attract and retain employees.

In March 2021, we entered into a separation agreement with our former Chief Financial Officer.

The agreement provided for payment of a one-time lump-sum severance benefit of $ 0.3 million, payment for coverage under COBRA and modification of her equity awards.

Incremental stock-based compensation expense of $ 12.6 million in connection with the modified equity awards was recorded in general and administrative expense in the year ended December 31, 2021.

The one-time lump-sum severance benefit of $ 0.3 million was paid in full as of December 31, 2021 and was recorded in general and administrative expense.

In November 2019, we entered into a separation agreement with our former Chief People Officer.

Our Board of Directors (excluding the CEO) approved the agreement providing for payment of her earned bonus, payment for coverage under COBRA and modification of her equity awards.

Incremental stock-based compensation expense of $ 13.5 million in connection with the modified equity awards was recorded in general and administrative expense in the year ended December 31, 2019.

Unity Software Inc.

Stock Options

A summary of our stock option activity under the 2009 Stock Plan, 2019 Stock Plan, and 2020 Plan is as follows:

A summary of our stock option activity is as follows:

Options Outstanding (1)

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Exercisable as of December 31, 2022 26,628,522 $ 11.25 4.87

In 2014, we issued nonplan options to purchase 4,250,000 shares of common stock, 8,500,000 when taking into account the 2 :1 forward stock split we effected in 2017, to our CEO with an exercise price of $ 2.85 per share.

These options vested over four years and were immediately exercisable.

We accepted a promissory note receivable from our CEO in consideration for the early exercise of these nonplan options.

The note receivable, totaling $ 12.1 million, bore interest at a rate of 1.72 % and had a term of seven years .

The promissory note receivable was considered nonrecourse.

Due to the nonrecourse nature of the note, the resulting exercise of the nonplan options was determined to not be substantive.

Therefore, we did not reflect the exercise of the stock options or the note receivable for accounting purposes on our consolidated balance sheets at the time the promissory note was executed.

The shares issued were considered restricted until the note was repaid.

During 2016, $ 4.2 million of the note was partially repaid and an amended promissory note was put in place for an amount of $ 8.0 million bearing interest at a rate of 1.72 % and with a remaining term of five years .

For accounting and reporting purposes, the repayment of the note was considered to be a $ 4.2 million exercise of stock options during the year ended December 31, 2016.

In June 2020, our CEO fully repaid the $ 8.0 million principal balance and $ 0.9 million in related interest of the nonrecourse promissory note that we issued in 2016.

For accounting and reporting purposes, the repayment of the note was considered to be an $ 8.9 million exercise of stock options during the year ended December 31, 2020.

The aggregate pretax intrinsic value of stock options exercised during the years ended December 31, 2021, 2020, and 2019, was $ 1,394.7 million, $ 441.0 million, and $ 92.0 million respectively.

(1) Includes assumed equity awards from the ironSource Merger.

A summary of intrinsic and fair values of our stock options is as follows (in thousands, except fair value amounts):

December 31, 2022 December 31, 2021 December 31, 2020

Aggregate pretax intrinsic value of stock options exercised (1)

$ 274,956 $ 1,394,721 $ 441,000

Weighted-average grant-date fair value of stock options granted $ 7.54 $ 39.05 $ 10.66

Fair value of stock options vested

$ 51,962 $ 48,918 $ 44,100

(1) The intrinsic value is the difference between the estimated fair value of our common stock on the date of exercise and the exercise price for in-the-money options.

The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2021, 2020, and 2019, was $ 39.05 , $ 10.66 , and $ 8.39 per share, respectively.

The fair value of stock options vested during the years ended December 31, 2021, 2020, and 2019, was $ 48.9 million, $ 44.1 million, and $ 27.8 million, respectively.

Unity Software Inc.

The calculated grant-date fair value of stock options granted was estimated using the Black-Scholes option-pricing model with the following assumptions:

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$ 22.00 - $ 152.00

Unity Software Inc.

Restricted Stock Units

A summary of our RSU activity under the 2019 Stock Plan and 2020 Plan is as follows:

A summary of our RSU, including PVU, activity is as follows:

Unvested Restricted Stock Units (1)

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Unvested as of December 31, 2022 38,105,462 $ 48.37

The total fair value of RSUs vested as of the vesting dates during the years ended December 31, 2021 and 2020 was $ 442.1 million and $ 85.9 million, respectively.

No RSUs vested during the year ended December 31, 2019.

The RSUs granted prior to our IPO are subject to both a service-based vesting condition, which is satisfied over one to four years , and a liquidity event vesting condition, which was satisfied upon the completion of our IPO in September 2020.

In the third quarter of 2020, we recorded cumulative stock-based compensation expense of $ 47.8 million related to all then-outstanding RSUs as the liquidity event vesting condition was satisfied upon the completion of our IPO.

Unity Software Inc.

(1) Includes assumed equity awards from the ironSource Merger.

The total fair value of RSUs vested as of the vesting dates during the years ended December 31, 2022, 2021, and 2020 was $ 322.5 million, $ 442.1 million, and $ 85.9 million, respectively.

No PVUs have vested during the year ended December 31, 2022.

Price-Vested Units

In October 2022, our board of directors granted to certain of our executive officers a total of 989,880 PVUs for which vesting 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 seven years .

The fair value of each PVU award is estimated using a Monte Carlo stimulation that uses assumptions determined on the date of grant.

The following table summarizes the weighted-average assumptions relating to our PVUs:

Year Ended December 31,

Share price on grant date $ 27.88

Risk-free interest rate 4.01 %

Expected volatility 50 %

Expected dividend yield — %

Employee Stock Purchase Plan

The first offering period under the 2020 ESPP began on September 1, 2021 and ends on February 28, 2022.

The fair value of stock purchase rights granted under the 2020 ESPP was estimated using the following assumptions:

December 31, 2021

The fair value of shares offered under our ESPP was determined using the Black-Scholes option pricing model with the following weighted-average assumptions:

Year Ended December 31,

Expected dividend yield — —

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Estimated fair value $ 10.51 - $ 27.42

Unity Software Inc.

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

Year Ended December 31,

Share issued under the ESPP 607,009

Weighted-average price per share issued $ 54.87

No shares were issued under the ESPP during the year ended December 31, 2021.

Loss before provision for income taxes consisted of the following for the years ended December 31, 2022, 2021, and 2020 (in thousands):

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Stock-based compensation 89,515 ( 91,623 ) ( 22,624 )

Tax effects of restructuring 169,886 — —

Base-erosion and anti-abuse tax 10,353 — —

Change in valuation allowance 63,800 301,330 139,219

1 unchanged sentence

Total tax provision $ 37,063 $ 1,377 $ 2,091

(1) Certain prior year amounts have been reclassified to conform to current year presentation.

Our income tax provision for the year ended December 31, 2022 was primarily driven by the earnings of our foreign subsidiaries, which are taxed at rates that differ from the U.S.

statutory rate, losses that cannot be benefited due to the valuation allowance against the net deferred tax assets of our United States, Denmark, and United Kingdom entities, gain recognized from an intercompany transaction with our subsidiary in Israel, and an income tax benefit recognized as a result of a partial release of our valuation allowance against our deferred tax assets in connection with business combinations.

Our income tax provision for the year ended December 31, 2020 was primarily driven by earnings of our foreign subsidiaries which are taxed at rates that differ from the U.S.

statutory tax rate and losses that cannot be benefited due to the valuation allowance on United States and Denmark entities.

Our income tax provision for the year ended December 31, 2019 was primarily driven by $ 8.5 million tax expense related to an intercompany transaction with a subsidiary.

statutory rate, losses that cannot be benefited due to the valuation allowance against the net deferred tax assets of our United States, Denmark, U.K., and China entities, base-erosion and anti-abuse tax ("BEAT") mainly arising as a result of the U.S.

mandatory research and development capitalization rules.

F ollowing our acquisition of ironSource, the Company undertook certain tax restructuring efforts as part of the integration of the acquired business.

As a result of the restructuring, we recognized $ 192.2 million of US federal and state deferred tax liabilities, which reduce our need for a valuation allowance in the U.S., except for timing differences that resulted in $ 11.6 million of income tax expense.

Our income tax provision for the year ended December 31, 2021 was primarily driven by the earnings of our foreign subsidiaries, which are taxed at rates that differ from the U.S.

statutory rate, losses that cannot be benefited due to the valuation allowance against the net deferred tax assets of our United States, Denmark, and U.K.

entities, gain recognized from an intercompany transaction with our subsidiary in Israel, and an income tax benefit recognized as a result of a partial release of our valuation allowance against our deferred tax assets in connection with business combinations.

Unity Software Inc.

5 unchanged sentences

Tax credits 110,762 81,847

Accruals and reserves 9,261 8,537

Deferred revenue 5,683 4,960

Stock-based compensation 59,443 29,647

Charitable contribution 13,707 13,834

Capitalized R&D expenditures 255,123 94,686

Depreciation and amortization — 4,300

Operating lease liabilities 23,287 24,137

4 unchanged sentences

Deferred tax liabilities:

Depreciation and amortization ( 4,469 ) —

Operating lease right-of-use assets ( 20,467 ) ( 19,341 )

Other — ( 260 )

Intangible Asset ( 404,491 ) ( 4,469 )

Operating lease ROU assets ( 16,995 ) ( 20,467 )

Total deferred tax liabilities ( 421,486 ) ( 24,936 )

1 unchanged sentence

(1) Certain prior year amounts have been reclassified to conform to current year presentation.

In the tax year ended December 31, 2022, we capitalized certain research and development costs incurred by our U.S.

and foreign subsidiaries, which resulted in a deferred tax asset of $ 255.1 million.

This deferred tax asset associated with capitalized research and development costs is offset by a valuation allowance and future taxable temporary differences.

The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods.

3 unchanged sentences

federal, state, and certain foreign deferred tax assets will not be realized as of December 31, 2022 and 2021, and as such, we have maintained a full valuation allowance against such deferred tax assets.

For the period ended December 31, 2021, we determined that due to the weight of objectively verifiable negative evidence, our U.K.

deferred tax assets are no longer more likely than not to be realized in the future and a full valuation allowance was recorded.

Unity Software Inc.

The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

In the event we determine that we will be able to realize all or part of our net deferred tax assets in the future, the valuation allowance against deferred tax assets will be reversed in the period in which we make such determination.

2 unchanged sentences

federal, state and foreign deferred tax assets increased by $ 64.5 million and $ 302.3 million in the years ended December 31, 2022 and 2021, respectively.

The increase in the valuation allowance in the years ended December 31, 2021 and 2020 was primarily related to deferred tax assets for which insufficient positive evidence exists to support their realizability.

In the tax year ended December 31, 2021, we capitalized certain research and development costs incurred by our foreign subsidiary, which resulted in a deferred tax asset of $ 38.1 million.

This deferred tax asset for the capitalized research and development costs is offset by a valuation allowance.

The increase in the valuation allowance in the years ended December 31, 2022 and 2021 was primarily related to deferred tax assets for which insufficient positive evidence exists to support their realizability, including NOL carryforwards, capitalized research and development expenses, and credits for research and development.

Unity Software Inc.

Our NOL carryforwards for U.S.

federal, state, and foreign purposes were $ 1.0 billion, $ 392.2 million, and $ 449.8 million, respectively, with most of our foreign NOL carryforward balances arising from Denmark and the U.K.

federal, state, and foreign purposes were $ 785.8 million, $ 415.0 million, and $ 1.1 billion, respectively, with most of our foreign NOL carryforward balances arising from Denmark and the U.K.

jurisdictions.

15 unchanged sentences

Gross increases for tax positions taken in current year 55,931 38,406 38,829

Gross decreases for tax positions taken in current year — — —

Acquired tax positions 11,989 — —

Reductions resulting from lapses of statues of limitations ( 2,000 ) ( 1,700 ) ( 2,952 )

2 unchanged sentences

(1) Certain prior year amounts have been reclassified to conform to current year presentation.

Unity Software Inc.

As of December 31, 2022 and 2021, we had unrecognized tax benefits of $ 176.6 million and $ 110.3 million, respectively, of which $ 24.3 million and $ 11.9 million would affect the effective tax rate if recognized.

We recognize interest and penalties related to our unrecognized tax benefits within our provision for income taxes.

The amount of interest and penalties accrued as of December 31, 2021 and 2020 were $ 2.5 million and $ 2.2 million, respectively, of which $ 0.3 million and $( 0.2 ) million was accrued in the period ended December 31, 2021 and 2020, respectively.

The amount of interest and penalties accrued as of December 31, 2022 and 2021 were $ 3.0 million and $ 2.5 million.

We are subject to taxation in the United States and various other state and foreign jurisdictions.

The material jurisdictions in which we are subject to potential examination include the United States and Denmark.

The material jurisdictions in which we are subject to potential examination include the United States, Denmark, and Israel.

Our 2012 and subsequent tax years remain open to examination by the Internal Revenue Service.

Our 2018 and subsequent tax years remain open to examination in Denmark.

Our 2018 and subsequent tax years remain open to examination in Israel and Denmark.

Unity Software Inc.

We believe that adequate amounts have been reserved in accordance with ASC 740 for any adjustments to the provision for income taxes or other tax items that may ultimately result from examinations.

3 unchanged sentences

Net Loss per Share of Common Stock

Basic net loss per share attributable to our common stockholders is computed using the weighted-average number of common shares outstanding during the period, less shares subject to repurchase.

Diluted net loss per share is computed by giving effect to all potentially dilutive common stock outstanding for the period, including stock options and RSUs, using the treasury stock method, and the 2026 Notes, using the if-converted method.

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

The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):

Year Ended December 31,

2021 2020 2019

Basic and diluted net loss per share

Net loss $ ( 532,607 ) $ ( 282,308 ) $ ( 163,190 )

Deemed dividends representing excess paid over initial issuance price to repurchase convertible preferred stock — — ( 110,241 )

Net loss attributable to our common stockholders $ ( 532,607 ) $ ( 282,308 ) $ ( 273,431 )

Weighted-average common shares used in per share computation, basic and diluted 282,195 169,973 114,442

Net loss per share, basic and diluted $ ( 1.89 ) $ ( 1.66 ) $ ( 2.39 )

Unity Software Inc.

The following table presents the forms of antidilutive potential common shares excluded from the computation of diluted net loss per share for the following periods (in thousands):

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 items excluded from the computation of diluted net loss per share for the following periods (in thousands) because the impact of including them would have been antidilutive:

Year Ended December 31,

2022 2021 2020

Convertible preferred stock — — 95,899

Convertible notes 26,042 5,588 —

Stock options 35,719 29,226 40,458

Unvested RSUs 13,697 10,366 2,849

Subsequent Events

In January 2022, we completed the acquisition of a company that provides 2D art creation tools and game templates with the goal of providing consumers the ability to create, play, and share their own 2D games.

The purchase consideration for this acquisition was approximately $ 50.0 million, payable with a combination of cash and common stock.

Prior to the completion of the acquisition, we held a minority investment in the acquired company that we accounted for using the equity method of accounting.

Unvested RSUs and PVUs 38,105 13,697 10,366

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data