What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-29 · 90 added, 103 removed, 209 unchanged (48% of the section changed)

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This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.

Discussion of 2021 and year-over-year comparisons between fiscal 2022 and 2021 that are not included in this Form 10-K can be found under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operation" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that was filed with the SEC on February 27, 2023, and are incorporated by reference herein.

Discussion of 2022 and year-over-year comparisons between

Unity Software Inc.

Unity is the world's leading platform for creating and growing interactive, real-time 3D ("RT3D") content and experiences.

Our comprehensive set of software, including AI solutions, supports creators through the entire development lifecycle as they build, run, and grow immersive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices.

fiscal 2023 and 2022 that are not included in this Form 10-K can be found under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operation" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, that was filed with the SEC on February 29, 2024, and are incorporated by reference herein.

Unity offers a suite of tools to create, market and grow games and interactive experiences across all major platforms from mobile, PC, and console, to extended reality (XR).

Our platform consists of two complementary sets of solutions:

Create Solutions and Grow Solutions, which together comprise our strategic portfolio surrounding the Unity Engine, Cloud and Monetization.

Impact of Macroeconomic Trends and Geopolitical Events

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

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

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

Create Solutions and Grow Solutions, which together comprise our Strategic Portfolio surrounding the Unity Engine and related consumption services, and Monetization.

Recent Developments in Our Business

In the third quarter of 2023, we announced changes to our pricing model for our Create Solutions, which will become effective for users of the next major release of the software expected to be available in 2024.

We experienced a high volume of negative customer feedback including a boycott and a slowdown of signing new contracts and renewals as a result of these changes, which we believe negatively impacted our Grow Solutions revenue in the second half of 2023.

While we expect a potential benefit from this change over the long term for our business, the ultimate impact on our business remains uncertain.

In the fourth quarter of 2023, we underwent a CEO change and began a comprehensive assessment of our product portfolio and our cost structure, to focus on those offerings that are most valuable to our customers, which are the core aspects of our Create and Grow Solutions.

In this effort to reset, we plan to meaningfully decrease our offering of professional services and hardware components that support our hosting services and cease further development of our artistry tools.

Together, these offerings contributed approximately $280 million of revenue in 2023, predominately within Create Solutions.

In addition, in the fourth quarter of 2023 and the first quarter of 2024, we announced reductions to our workforce and our office footprint.

In the fourth quarter of 2023 we incurred approximately $16 million of impairment charges on operating leases.

In the first quarter of 2024, we expect to recognize approximately $195 million in employee separation costs, primarily related to the acceleration and modifications of equity awards.

These costs associated with lease terminations and employee separations encompass the substantive cost components of our restructuring efforts.

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

Starting in the fourth quarter of 2023, we began to reset our product and service offerings to focus on our core businesses, which we refer to as our "Strategic Portfolio":

the Unity Engine and related consumption services, and Monetization, while narrowing our investments in new businesses to those most attractive, mainly Industries beyond gaming.

We also exited businesses where we do not believe that we can provide unique value to customers or generate a sound return to investors.

Specifically, we have limited our Professional Services business to a few selected strategic engagements, we are shifting our multiplayer business to support the demands of live multiplayer games beyond infrastructure, and we have stopped the independent development of professional artistry tools, which we will instead consider integrating into the Unity Editor.

During the year ended December 31, 2024 we recognized approximately $90 million of revenue associated with these non-strategic portfolios and we expect that these amounts will decline throughout 2025.

In the year ended December 31, 2024, we began to substantially reduce our workforce and our office footprint.

This resulted in approximately $214 million in employee separation costs, primarily related to the acceleration and modifications of equity awards, and $53 million of non-employee charges associated with these reductions.

We are continuing to evaluate our facility needs, and expect more changes in 2025.

In the third quarter of 2023, we announced changes to our pricing model for our Create Solutions.

We experienced a high volume of negative customer feedback including a boycott and a slow down of signing new contracts and renewals as a result of these changes.

In the third quarter of 2024, before the pricing changes took effect, we announced the cancellation of those pricing changes, the reversion to a subscription-based model, and price increases, for gaming customers.

While the initial customer response to this announcement has been positive and we expect this change to benefit our business over the long term, the ultimate impact remains uncertain.

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

We monitor the following key metrics to help us evaluate the health of our business, identify trends affecting our growth, formulate goals and objectives, and make strategic decisions.

In light of our portfolio reset, we have revised and restated these metrics to include inputs from our Strategic Portfolio only.

Customers Contributing More Than $100,000 of Revenue

We focus on the number of customers that generated more than $100,000 of revenue in the trailing 12 months, as this segment of our customer base represents the majority of our revenue.

We focus on the number of customers that generated more than $100,000 of revenue in our Strategic Portfolio, in the trailing 12 months, as this segment of our customer base represents the majority of our revenue.

We define a customer as an individual or entity that generated revenue during the measurement period.

A single organization with multiple divisions, segments, or subsidiaries is generally counted as a single customer,

A single organization with multiple divisions, segments, or subsidiaries is generally counted as a single customer, even though we may enter into commercial agreements with multiple parties within that organization.

We had 1,254, 1,222, and 1,202 such customers in the trailing 12 months

Unity Software Inc.

even though we may enter into commercial agreements with multiple parties within that organization.

We had 1304, 1340, and 1052 such customers in the trailing 12 months as of December 31, 2023, 2022, and 2021, respectively.

The year over year decrease was largely a result of our de-emphasis on professional services and hosting services, as well as a more competitive environment for our Monetization solutions in 2023.

as of December 31, 2024, 2023, and 2022, respectively.

The year over year increase was largely a result of our subscriptions growth.

While these customers represented the substantial majority of revenue for the years ended December 31, 2024, 2023, and 2022, respectively, no one customer accounted for more than 10% of our revenue for any of those years.

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Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with our Create and Grow Solutions customers and to increase their use of our platform.

We track our performance by measuring our dollar-based net expansion rate, which compares our Create and Grow Solutions revenue, excluding Strategic Partnerships and, starting in the first quarter of 2023, Supersonic, from the same set of customers across comparable periods, calculated on a trailing 12-month basis.

Had we excluded Supersonic in the fourth quarter of 2022, the dollar-based net expansion rate would have been 118%.

We track our performance by measuring our dollar-based net expansion rate, which compares our Create and Grow Solutions revenue, excluding Strategic Partnerships and Supersonic, from the same set of customers across comparable periods, calculated on a trailing 12-month basis.

Our dollar-based net expansion rate as of a period end is calculated as current period revenue divided by prior period revenue.

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Dollar-based net expansion rate 96 % 100 % 111 %

Our dollar-based net expansion rate as of December 31, 2023, 2022, and 2021 was driven primarily by the sales of additional subscriptions and services to our existing Create Solutions customers and cross-selling our solutions to all of our customers.

The decrease in dollar-based net expansion rate, compared to the comparable prior year periods, is primarily attributable to Grow Solutions, due to increased competition in the advertising market.

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

Our dollar-based net expansion rate as of December 31, 2024 was driven primarily by decreases in Grow Solutions revenue, due to competition in the advertising market, and to a lesser extent decreases in professional services revenue within Create Solutions, offset by growth in subscriptions revenue.

Our dollar-based net expansion rate as of December 31, 2023, was driven primarily by decreases in Grow Solutions revenue, due to competition in the advertising market, offset by growth in subscriptions revenue, and professional services revenue, within Create Solutions.

Our dollar-based net expansion rate as of December 31, 2022, was driven primarily by increases in Grow Solutions revenue, due in part to the ironSource merger, and growth in subscriptions revenue, and professional services revenue, within Create Solutions.

The decrease in dollar-based net expansion rate, compared to the comparable prior year periods, is attributable to declines in Grow Solutions, and professional services revenue, as noted above.

Unity Software Inc.

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

Results of Operations

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Interest expense (23,542) (24,580) (7,404)

Interest income and other expense, net 59,529 7,192 1,566

Interest income and other income (expense), net 111,558 59,529 7,192

Loss before income taxes (667,133) (797,845) (882,425)

Provision for Income taxes 28,477 37,063 1,377

Provision for (benefit from) Income taxes (2,846) 28,477 37,063

Net loss $ (664,287) $ (826,322) $ (919,488)

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Interest expense (1) (1) (1)

Interest income and other expense, net 2 1 —

Interest income and other income (expense), net 6 2 1

Loss before income taxes (37) (37) (63)

Provision for Income taxes 1 3 —

Provision for (benefit from) Income taxes — 1 3

Net loss (37) % (38) % (66) %

Create Solutions

We generate Create Solutions revenue primarily through our suite of Create Solutions subscriptions inclusive of enterprise support, professional services, and cloud and hosting services.

We generate Create Solutions revenue primarily through our suite of Create Solutions subscriptions inclusive of enterprise support, professional services, and consumption services.

Our subscriptions provide customers access to technologies that allow them to edit, run, and iterate interactive, RT3D and 2D experiences that can be created once and deployed to a variety of platforms.

Enhanced support services are provided to our enterprise customers and are sold separately from the Create Solutions subscriptions.

Enhanced support services are provided to our enterprise customers and are generally sold separately from the Create Solutions subscriptions.

Professional services are provided to our customers and include consulting, platform integration, training, and custom application and workflow development.

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

Our Grow Solutions revenue did benefit from seasonality in 2024, with the fourth quarter being the strongest quarter for our Grow Solutions primarily as a result of an increase in players during the holidays and device sales during the fourth quarter holiday season.

Unity Software Inc.

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Total revenue $ 1,813,255 $ 2,187,317 $ 1,391,024

The increase in total revenue for the year ended December 31, 2023, compared to the comparable prior year period, was primarily due to the acquisition and inclusion of revenue from ironSource within Grow Solutions.

Grow Solutions revenue includes approximately $72 million related to the return of customer incentives issued by ironSource prior to the merger and we do not expect to receive any material amounts in future periods.

Grow Solutions revenue was also negatively impacted by increased competition, which we expect will continue in 2024.

Revenue from Create Solutions increased for the year ended December 31, 2023, compared to the comparable prior year periods, primarily due to approximately $99 million of incremental revenue in the fourth quarter of 2023 from Wētā FX Limited, as a result of terminating their subscription rights in exchange for a perpetual license, and growth among existing customers primarily due to our price increases.

Total revenue decreased in the year ended December 31, 2024, compared to the comparable prior year period, primarily due to a decrease in Create Solutions revenue, primarily due to the termination of the subscription agreement with Wētā FX Limited, which includes approximately $99 million of incremental revenue in the fourth quarter of 2023 from terminating Wētā FX Limited's subscription rights in exchange for a perpetual license;

and a decrease in professional services revenue, and consumption services revenue, both caused by the portfolio reset.

The decrease in Create Solutions revenue was partially offset by increases in subscription revenue.

The decrease in total revenue was further driven by a decrease in Grow Solutions revenue, which was negatively impacted by competition.

To be more competitive we are focused on enhancing our machine learning stack and data infrastructure capabilities, which we believe will take some time to manifest in sustainable increased performance.

In the near term, we are transitioning to use the new machine learning stack, and we expect that this transition will negatively impact our Grow Solutions revenue, and improve gradually as our model improves and learns over time.

The decrease in Grow Solutions revenue was further driven by the return of customer incentives, issued by ironSource prior to the merger, for which we received approximately $72 million of revenue in 2023, and no material amounts in 2024.

We do not expect to receive any material amounts related to these customer incentives in any future periods.

Cost of Revenue, Gross Profit, and Gross Margin

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

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

Gross profit, or revenue less cost of revenue, has been and will continue to be affected by various factors, including our product mix, the costs associated with third-party hosting services and the extent to which we expand and drive efficiencies in our hosting costs, professional services, and customer support organizations.

We expect our gross profit to increase in absolute dollars in the long term but decrease in the short term as we reset our product portfolio to focus on the Unity Engine and Monetization solutions.

We expect our gross profit to increase in absolute dollars in the long term but decrease in the short term as we reset our product portfolio to focus on the Unity Engine and related consumption services, and Monetization solutions.

We expect our gross profit as a percentage of revenue, or gross margin, to fluctuate from period to period.

Cost of revenue for the year ended December 31, 2023 increased, compared to the comparable prior year period, primarily due to an increase of approximately $197 million in amortization expenses related to intangible assets acquired through our business combinations, including $105 million of incremental expense in the fourth quarter of 2023 due to fully amortizing an intangible assets related to the Wētā FX Limited contract that was terminated, as well as higher personnel-related expenses.

Cost of revenue for the year ended December 31, 2024 decreased, compared to the comparable prior year period, primarily due to a decrease in amortization expenses related to intangible assets acquired through our business combinations, which includes $105 million of incremental expenses in the fourth quarter of 2023 from fully amortizing intangible assets related to the Wētā FX Limited contract that was terminated, a decrease in personnel costs, driven by our reductions in headcount, and a decrease in our hosting expenses in line with decreases in related revenue.

Operating Expenses

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The most significant component of our operating expenses is personnel-related costs, including salaries and wages, sales commissions, bonuses, benefits, stock-based compensation, and payroll taxes.

Although personnel-related costs contributed to the increase in expense period over period primarily due to the increased headcount resulting from the ironSource Merger, we have been evaluating our headcount needs, slowing down our hiring efforts, reducing the number of managerial layers, and focusing on containing the growth rate of other expenses.

In November 2023, we announced an amendment of our agreements with Wētā FX Limited, and committed to a plan to close corporate offices in approximately 14 locations.

Following these announcements, we incurred incremental expenses of approximately $121 million from fully amortizing contract intangible assets related the Wētā FX Limited, primarily within cost of revenue.

We also incurred restructuring and reorganization expenses of approximately $70 million for the year ended December 31, 2023, of which $52 million related to reductions in our workforce, largely within research and development expense, and $18 million related to

Unity Software Inc.

our intent to exit certain leased facilities, primarily impairment charges on operating lease assets in general and administrative expense.

As part of our efforts to restructure and streamline our organizational structure, in 2023 we began workforce reductions, and began to reduce our number of corporate offices.

We incurred restructuring and reorganization expenses of approximately $70 million for the year ended December 31, 2023, of which $52 million related to reductions in our workforce, largely within research and development expense, and $18 million related to our intent to exit certain leased facilities, primarily impairment charges on operating lease assets in general and administrative expense.

Further, in January 2024, we committed to a plan to eliminate approximately 25% of our workforce, and we mutually agreed to the departure of the founders of ironSource Ltd.

Following these announcements and substantially in the first quarter of 2024, we incurred incremental employee separation costs of approximately $214 million in the year ended December 31, 2024, largely driven by the acceleration and modification of equity awards, including $15 million within cost of revenue, $48 million within research and development expense, $58 million within sales and marketing expense, and $93 million within general and administrative expense.

In addition, we incurred approximately $53 million of non-employee charges associated with this restructuring in 2024, largely within research and development expense.

Research and Development

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We expect research and development expenses to fluctuate as a percentage of revenue from period to period.

Research and development expense for the year ended December 31, 2023 increased, compared to the comparable prior year period, primarily due to higher personnel-related, and hosting expenses resulting from the ironSource Merger.

Research and development expense for the year ended December 31, 2024 decreased, compared to the comparable prior year period, primarily due to a decrease in personnel costs driven by our reductions in headcount in the first quarter of 2024.

Sales and Marketing

Our sales and marketing expenses consist primarily of personnel-related costs, advertising and marketing programs, including user acquisition costs and digital account-based marketing, user events such as developer-centric conferences and our annual Unite user conferences, and amortization expenses related to intangible assets.

Our sales and marketing expenses consist primarily of personnel-related costs, amortization expenses related to intangible assets, and advertising and marketing programs, including user acquisition costs and digital account-based marketing, user events such as developer-centric conferences and our annual Unite user conferences.

We expect that our sales and marketing expense will increase in absolute dollars in the long term, as we hire additional personnel, increase our account-based marketing, direct marketing and community outreach activities, invest in additional tools and technologies, and continue to build brand awareness, but decrease in the short term as we reset our Strategic Portfolio.

We expect sales and marketing expenses to fluctuate as a percentage of revenue from period to period.

Sales and marketing expense for the year ended December 31, 2023 increased, compared to the comparable prior year period, primarily due to an increase in amortization expense related to intangible assets acquired through our business acquisitions of approximately $136 million, higher user acquisition costs and higher personnel-related expenses due to the ironSource Merger.

Sales and marketing expense for the year ended December 31, 2024 decreased, compared to the comparable prior year period, primarily due to a decrease in personnel costs, driven by our reductions in headcount in the first quarter of 2024, and a decrease in amortization expenses related to intangible assets.

General and Administrative

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We expect general and administrative expenses to fluctuate as a percentage of revenue from period to period.

General and administrative expense for the year ended December 31, 2023 increased, compared to the comparable prior year period, primarily due to higher personnel-related expenses associated with the ironSource Merger, and to a lesser extent lease related expenses, partially offset by a decrease in professional fees.

General and administrative expense for the year ended December 31, 2024 increased, compared to the comparable prior year period, primarily due to higher personnel-related costs, driven by employee separation costs in the first quarter of 2024.

Unity Software Inc.

Interest Expense

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

Interest expense for the year ended December 31, 2023 increased, compared to the comparable prior year period, due to accrued interest on our 2027 Notes and amortization of debt issuance costs.

Interest Income and Other Expense, Net

Interest income and other expense, net, consists primarily of interest income earned on our cash, cash equivalents, and short-term investments, foreign currency gains and losses.

Interest expense for the year ended December 31, 2024 decreased, compared to the comparable prior year period, in line with our outstanding debt obligations.

Interest Income and Other Income (Expense), Net

Interest income and other income (expense), net, consists primarily of gains on the repurchase of convertible debt, interest income earned on our cash, cash equivalents, and short-term investments, and foreign currency gains and losses.

As we have expanded our global operations, our exposure to fluctuations in foreign currencies has increased, and we expect this to continue.

Unity Software Inc.

Interest income and other expense, net, for the year ended December 31, 2023 increased, compared to the comparable prior year period, primarily due to rising interest rates increasing the interest and dividend income earned on our money market investments and time deposit accounts.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions where we conduct business.

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

Provision for (benefit from) Income taxes

Provision for (benefit from) income taxes consists primarily of income taxes in certain foreign jurisdictions where we conduct business.

We have a valuation allowance against certain of our deferred tax assets, including NOL carryforwards and tax credits related primarily to research and development.

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See Note 13, "Income Taxes," of the Notes to Consolidated Financial Statements.

Provision for income taxes for the year ended December 31, 2023 decreased, compared to the comparable prior year period, primarily due to certain tax restructurings that affect our ongoing computation of qualifying foreign income, made during the year ended December 31, 2023.

The benefit from income taxes for the year ended December 31, 2024 changed as compared to the provision for income taxes in the comparable prior year period, primarily due to a tax benefit from our foreign losses in connection with employee separation costs recorded in the first quarter of 2024 and our continued restructuring efforts in the first quarter of 2024 that enhanced our ability to offset deferred tax liabilities in the U.S.

in future periods, thereby partially reducing the need for a valuation allowance.

Non-GAAP Financial Measures

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As a result, our non-GAAP financial measures are presented for supplemental informational purposes only and should not be considered in isolation or as a substitute for our consolidated financial statements presented in accordance with GAAP.

Beginning in the first quarter of 2023, we have replaced non-GAAP gross profit, non-GAAP loss from operations, non-GAAP net loss, and non-GAAP net loss per share with adjusted gross profit and adjusted EBITDA.

These measures have also been presented for the prior year period in a comparable manner.

Adjusted Gross Profit and Adjusted EBITDA

We define adjusted gross profit as GAAP gross profit excluding expenses associated with stock-based compensation, amortization of acquired intangible assets, depreciation, and restructurings and reorganizations.

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

We define adjusted gross margin as adjusted gross profit as a percentage of revenue.

We define adjusted EBITDA as net income or loss excluding benefits or expenses associated with stock-

Unity Software Inc.

based compensation, amortization of acquired intangible assets, depreciation, acquisitions, restructurings and reorganizations, insurance reimbursement for legal expenses, interest, income tax, and other non-operating activities, which primarily consist of foreign exchange rate gains or losses.

We use adjusted gross profit and adjusted EBITDA in conjunction with traditional GAAP measures to evaluate our financial performance.

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

Unity Software Inc.

Adjusted gross profit and adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.

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• adjusted gross profit and adjusted EBITDA excludes the expense of amortization of acquired intangible assets and depreciation of property and equipment, and although these are non-cash expenses, the assets being amortized may have to be replaced in the future and adjusted gross profit and adjusted EBITDA does not reflect cash expenditure for such replacements;

• adjusted EBITDA excludes costs incurred from our acquisitions, and in connection with the formation of Unity China;

• adjusted EBITDA excludes costs incurred from our acquisitions;

• adjusted gross profit and adjusted EBITDA excludes costs incurred from restructuring activities;

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Interest expense 23,542 24,580

Interest income and other expense, net (59,529) (7,192)

Income tax expense 28,477 37,063

Interest income and other income (expense), net (111,558) (59,529)

Provision for (benefit from) income taxes (2,846) 28,477

Adjusted EBITDA $ 389,814 $ 447,829

Free Cash Flow

We define free cash flow as net cash provided by (used in) operating activities less cash used for purchases of property and equipment.

We define free cash flow as net cash provided by operating activities less cash used for purchases of property and equipment.

We believe that free cash flow is a useful indicator of liquidity as it measures our ability to generate cash, or our need to access additional sources of cash, to fund operations and investments.

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Some of these limitations are:

• it is not a substitute for net cash (used in) provided by operating activities;

• it is not a substitute for net cash provided by operating activities ;

• other companies may calculate free cash flow or similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a tool for comparison;

• the utility of free cash flow is further limited as it does not reflect our future contractual commitments and does not represent the total increase or decrease in our cash balance for any given period.

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

Net cash provided by (used in) operating activities $ 234,700 $ (59,431)

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

Net cash provided by operating activities $ 315,553 $ 234,700

Purchases of property and equipment (29,549) (55,921)

Free cash flow $ 286,004 $ 178,779

Net cash provided by investing activities $ 44,040 $ 723,228

Net cash provided by (used in) investing activities $ (42,409) $ 44,040

Net cash used in financing activities $ (338,307) $ (174,015)

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As of December 31, 2024, our principal sources of liquidity were cash and cash equivalents totaling $1.5 billion, which were primarily held for working capital purposes.

Our cash equivalents are invested primarily in government money market funds.

Our material cash requirements from known contractual and other obligations consists of our convertible notes, obligations under operating leases for office space, and contractual obligations for hosting services to support our business operations.

Our cash equivalents are invested primarily in government money market funds and time deposits.

Our material cash requirements from known contractual and other obligations consist of our convertible notes, obligations under operating leases for office space, and contractual obligations for hosting services to support our business operations.

See Item 8 of Part II, "Financial Statements and Supplementary Data — Note 10 — Commitments and Contingencies" for additional discussion of our principal contractual commitments.

In connection with the ironSource Merger in November 2022, we issued $1.0 billion in aggregate principal amount of 2.0% convertible senior notes due 2027, the proceeds of which were used to fund repurchases under our share repurchase program.

We previously issued $1.7 billion in aggregate principal amount of 0% convertible senior notes due 2026 in November 2021.

In connection with the ironSource Merger in November 2022, we issued $1.0 billion in aggregate principal amount of the 2027 Notes, the proceeds of which were used to fund repurchases under our share repurchase program.

We previously issued approximately $1.7 billion in aggregate principal amount of the 2026 Notes in November 2021, of which approximately $480 million in aggregate principal was repurchased in March 2024 for approximately $415 million.

See Note 9, "Borrowings," for additional discussion of the Notes.

In July 2022, our board of directors approved our share repurchase program, which authorized the repurchase of up to $2.5 billion of shares of our common stock in open market transactions through November 2024 (the "Share Repurchase Program").

As of December 31, 2023, $750 million remains available for future share repurchases under this program.

Since our inception, we have generated losses from our operations as reflected in our accumulated deficit of $3.7 billion as of December 31, 2024.

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Net cash provided by (used in) investing activities (42,409) 44,040 723,228

Net cash provided by (used in) financing activities (174,015) (226,634) 1,721,002

Net cash used in financing activities (338,307) (174,015) (226,634)

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash (11,223) (6,146) 1,926

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Cash Provided by Operating Activities

During the year ended December 31, 2023, net cash provided by operating activities was primarily due to the acquisition and inclusion of operating cash flows from ironSource, and an increase in working capital as our business grows.

Our cash flows fluctuate from period to period due to revenue seasonality, timing of billings, collections, and publisher payments.

Historical cash flows are not necessarily indicative of our results in any future period.

Cash Provided by Investing Activities

During the year ended December 31, 2023, net cash provided by investing activities consisted primarily of proceeds received from the maturities of short-term investments, which was partially offset by purchases of property and equipment.

During the year ended December 31, 2024, net cash provided by operating activities was primarily due to a decrease in our net loss, adjusted for certain non-cash items, which include depreciation and amortization, stock-based compensation, gain on convertible notes, impairments, and other, offset by a decrease in operating assets and liabilities.

Our cash flows can fluctuate from period to period due to revenue seasonality, timing of billings, collections, and publisher payments, and historical cash flows are not necessarily indicative of our results in any future period.

Cash Used in Investing Activities

During the year ended December 31, 2024, net cash used in investing activities consisted primarily of purchases of property and equipment, and purchases of intangible assets.

Cash Used in Financing Activities

During the year ended December 31, 2023, net cash used in financing activities consisted of repurchases and retirement of common stock, offset by the proceeds from the issuance of common stock under our employee equity plans.

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

Critical Accounting Policies and Estimates

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Unity Software Inc.

When contracts contain multiple element performance obligations, an allocation of the transaction price to each performance obligation is done based on a relative stand-alone selling price ("SSP").

Judgment is required to determine SSP.

Generally, we determine SSP using observable pricing, which takes into consideration market conditions and customer specific factors.

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

For advertisements placed through our Grow Solutions networks, we evaluate whether we are the principal, where revenue would be reported on a gross basis, or the agent, where revenue would be reported on a net basis.

This evaluation of whether to present revenue on a gross or net basis requires significant judgment.

We present revenue on a gross basis for advertising sales where we are the publisher and have control of the in-app placement.

Alternatively, 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 placement.

Accounting for Business Combinations

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.

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;

and the discount rates.

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

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 placement.

Alternatively, we present revenue on a gross basis for advertising sales where we are the publisher and have control of the in-app placement.

We are subject to income taxes in the United States and numerous foreign jurisdictions.

9 unchanged sentences

We make adjustments to these reserves in accordance with the income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate.

To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will affect the provision for income taxes in the period in

Unity Software Inc.

which such determination is made and could have a material impact on our financial condition and operating results.

To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results.

We recognize interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statement of operations.

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 7. Management’s Discussion and Analysis