U 10-K & 10-Q changes, risk factors and insider trading
Unity Software Inc. · NYSE · Services-Prepackaged Software · CIK 1810806 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “We are increasingly building AI into certain of our offerings, and issues raised by the use of, or failure to successfully use, AI in our offerings, or the use of AI by our customers and competitors may adversely affect our business, reputation, or financial results.”
New heading “We rely upon third-party data centers and providers of cloud-based infrastructure to host our platform. Any disruption in the operations of these third-party providers, limitations on capacity or interference with our use could adversely affect our business, financial condition, and results of operations.”
New heading “International trade policies, including tariffs, sanctions and trade barriers may adversely affect our business, financial condition, results of operations and prospects.”
Removed heading “Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at a similar rate, if at all.”
Removed heading “Conditions in Israel, including political unrest, militarization and war, have impacted and may further adversely affect our operations.”
Removed heading “Adverse developments affecting the financial services industry, such as actual events or perceived concerns involving liquidity, defaults or non-performance by financial institutions could adversely affect our financial condition and results of operations.”
Removed heading “Interruptions, performance problems, or defects associated with our platform may adversely affect our business, financial condition, and results of operations.”
Removed heading “We are increasingly building AI into certain of our offerings, and issues raised by the use of AI in our offerings may adversely affect our business, reputation, or financial results.”
Largest changes
“We also use AI, including generative AI, and ML technologies in our products and services. The development and use of AI/ML present various privacy and data security risks that may impact our business. AI/ML are subject to privacy and data security laws, as well as increasing regulation and scrutiny. Several jurisdictions worldwide, including Europe and certain U.S. states, have proposed or enacted laws governing AI/ML. …”see in full comparison
“We are increasingly building AI into certain of our offerings, such as Unity Vector, our new machine learning model, our new Unity AI product line, which includes AI Assistant and AI Generators, which are currently in beta, and Unity Inference Engine (formerly Unity Sentis), which allows creators to embed an AI model in the Unity Runtime for their game or application, enhancing gameplay and other functionality. AI Generators leverage both Unity-developed and third-party models for AI-driven assistance during creation. …”see in full comparison
“Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or the financial services industry generally, or concerns or rumors about any such events, have in the past and may in the future lead to market-wide liquidity problems. …”see in full comparison
“Adverse developments affecting the financial services industry, such as actual events or perceived concerns involving liquidity, defaults or non-performance by financial institutions could adversely affect our financial condition and results of operations.”see in full comparison
In the U.S., federal, state, and local governments have enacted numerous privacy and data security laws,see in full comparisonincludingsuchdata breach notification laws, personal information privacy laws, health information privacy laws, and consumer protection laws. For example,as, the Telephone Consumer Protection Act ("TCPA"), which imposes various consumer consent requirements and other restrictions oncertaintelemarketing activity andotherviolationscommunicationsofwithwhich,consumersor similar laws enacted byphone, fax or text message. TCPA violationsstates, can result in significant financialpenalties, including penalties or criminal fines imposed by the Federal Communications Commission or fines of up to $1,500 per violation imposed through private litigation or by state authorities. Some states have enacted laws similar to the TCPA, with similar potential exposure.penalties. In addition, theCalifornia Consumer Privacy Act ("CCPA"),CCPA, which applies to personal information of consumers, business representatives, employees, and other individuals with whom we interact, imposes a number of obligations on covered businesses, including requirements to respond to requests from California residents related to their personalinformation.informationThe CCPAand contains significant potential penalties for noncompliance.Additionally, the California Privacy Rights Act expanded the CCPA's requirements, including by adding new rights and establishing a new regulatory agency to implement and enforce the law. Other states are considering or have also enacted privacy and data security laws, which increase compliance costs and resources. Our actual or perceived noncompliance with these and other emerging state laws could harm our business.
Because there are many different cybercrime and hacking techniques and such techniques continue to evolve, we have in the past been and may in the future be unable to anticipate attempted security breaches, react in a timely or effective manner or implement adequate preventative measures. While we have developed systems and processes designed to protect the integrity, confidentiality and security of our and our customers' confidential, proprietary, and personal information under our control or under the control of third parties with whom we work, we cannot assure you that any security measures that we or our third-party service providers have implemented has been or will in the future be effective against current or future security threats.see in full comparisonASecuritysecuritybreachesbreachand other incidents have occurred in the past, and may occur in the future, resulting in unauthorized, unlawful orotherinappropriatesecurityaccessincident,to, inability to access, disclosure of orthe perception that one has occurred, could result in aloss ofcustomersensitive,confidenceproprietaryinortheconfidentialsecurity of our platform and damage to our reputation and brand, reduce demand for our solutions, disrupt normal business operations, require us to incur material costs to investigate and remedy the incident and prevent recurrence, expose us to litigation, regulatory enforcement action, fines, penalties and damages and adversely affect our business, financial condition and results of operations. These risks are likely to increase as we continue to grow and process, store and transmit an increasingly large volume of data.information.
Full comparison: every changed paragraph (163)
We have experienced significant net losses on a GAAP basis in each period since inception. In addition, our revenue has varied and, in certain quarters and annual periods, declined and could vary andor decline in the future. We are not certain whether we will achieve or maintain profitability in the future. Our costs and expenses may increase in the long term on a GAAP basis, which could negatively affect our future results of operations. In addition, we may continue to makeour investments in areas such areas as:
•initiatives to grow our presence in new or adjacent industries and use cases beyond the gaming industry;
•our technology infrastructure, including systems architecture, hosting, scalability, availability, performance, and security;
•global expansion or restructuring; and
•our general and administration organization, including legal, IT, and accounting expenses.expenses, will vary from period to period, which will impact our costs and ability to achieve and maintain profitability.
Our efforts to achieve profitability may be costlier than we expect and may not be effective. Even if such investments increase our revenue, any such increase may not be enough to offset increasedany increase in operating expenses. Cost-cutting efforts, such as discontinuing certain product offerings, reducing our workforce or reducing our office footprint, may not be effective or may not be effective on the timelines or to the extent we expect.
We have a limited history operating our business at its current scale, and as a result, ourOur past results may not be indicative of future operating performance.
We have a limited history operating our business at its current scale and scope. You should not rely on our past results of operations as indicators of future performance. Overall growth of our revenue is difficult to predict and dependsdepends, in partpart, on our ability to execute on enhancing our machineartificial learningintelligence stack(“AI”) capabilities and data infrastructure capabilities,infrastructure, our portfolioongoing reset,business realignment, and other growth strategies. You should consider and evaluate our prospects in light of the risks and uncertainties frequently encountered by growing companies in rapidly evolving markets. These risks and uncertainties include challenges in accurate financial planning as a result of limited historical data relevant to the current scale and scope of our business and the uncertaintiesrecent resulting from having had a relatively limited time period in whichchanges to implement and evaluate our business strategies as compared to companies with longerand operating histories.model.
If we are not able to grow efficientlyefficiently, and manage our costs, we may not achieve profitability on a GAAP basis.
We are aimingaim to achieve and maintain profitability on a GAAP basis. To do so, we need to continuously improve our platform’s capabilities, features and functionality. In addition, we will need to appropriately scale our internal business, IT, and financial, operating and administrative systems to serve our growing customer base, while continuing to manage headcount, capital and operating and reporting processes and expenses in an efficient manner. Any failure ofof, or delay inin, these efforts could result in impaired performance andperformance, reduced customer satisfaction,satisfaction resulting inand decreased sales to new customers or lower dollar-based net expansion rates,customers, which would hurt our revenue growth and our reputation. Further,In any failure in optimizing theaddition, costs associated with our third-party cloud servicesservice providers represent a significant portion of our ongoing expenses, and any failure to manage or optimize those costs or commitments could negatively impact our gross margins. Even if we are successful in our efforts to grow and expand, such efforts will be expensive and complex, and require the dedication of significant management time and attention. We may also suffer inefficiencies or service disruptions as a result of our efforts to scale our internal infrastructure. Cost-cutting interventions and improvements to our internal infrastructure to offset expenses may not be effectively implemented on aor timely basis,implemented, and such failures could harm our business, financial condition and results of operations.
If we fail to timely release updates and new features to our platformplatform, anddevelop successful new products, or adapt and respond effectively to rapidly changing technology, evolvingor industry standards, changing regulations, orto changing customer needs, requirements, or preferences, our platform may become less competitive.
The markets in which we competeoperate are subject to rapid technological change, evolving industry standards, and changing regulations, as well as changing customer needs, requirements and preferences.preferences, and are highly competitive. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes and competitive pressures on a timely basis. For example, in the third quarter of 2024, we announced the launch of Unity 6 and we began a comprehensive rebuild of our machine learning stack and data infrastructure. In the first quarter of 2025 we announced the rollrolled out of our new machine-learning model, Vector. If Unity 6 fails to gain market acceptance, or if we fail to execute on the rebuild and launch of our machine learning stackmodel, Unity Vector, in our Grow Solutions business. If we do not continue to improve our AI capabilities and data infrastructure, including Unity Vector, on a timely basis or at all, our business could be harmed. Similarly, emerging technologies like artificialAI intelligenceare couldlikely to impact the way that customers utilize our solutionssolutions, as well as enhance the functionality of our solutions. Accordingly, our ability to retain and expand within our existing customers and attract new ones, and increase our revenuerevenue, depends in large part on our ability to maintain, improve and differentiate our existing platform and introduce new functionality promptly and effectively.effectively, as well as developing successful new product offerings. Revenue growth from our offerings also depends on our ability to continue to respond to advancements in competing technologies, and end-user demands and expectations, which will require us to incur additional costs to implement. If we do not continue to improve our platform with additional features and functionality in a timely fashion, or if intended improvements to our platform are ineffective or otherwise not well received by customers, our revenue could be adversely affected.
We must continue to improve existing features and add new features and functionality to our platform in order to retain our existing customers and attract new ones. For example, if the technology underlying our high-definition rendering pipeline or our graphics, animation and audio tools become obsolete or do not address the needs of our customers, our business would suffer. In addition, if our investments in fundamental product enhancements do not increase performance in a sustainable manner, or fail to do so on the timelines we expect, then our revenue, particularly from our Grow Solutions, would be harmed.
Revenue growth from our offerings depends on our ability to continue to develop and offer effective features and functionality for our customers and to respond to frequently changing privacy and data security laws and regulations, policies, advancements in competing technologies, and end-user demands and expectations, which will require us to incur additional costs to implement. If we do not continue to improve our platform with additional features and functionality in a timely fashion, or if intended improvements to our platform are ineffective or otherwise not well received by customers, our revenue could be adversely affected.
If we fail to deliver timely releases of our solutions that are ready for commercial use, we release a new version, service, tool or update with a material errors,vulnerability, or other error, or we are unable to enhance our platform to keep pace with rapid technological and regulatory changes or respond to new offerings by our competitors, or if new technologies emerge that are able to deliver competitive solutions at lower prices, more efficiently, more conveniently or more securely than our solutions, or if new operating systems, gaming platforms or devices are developed and we are unable to support our customers' deployment of games and other applications onto those systems, platforms or devices, our business, financial condition and results of operations could be adversely affected.
We are increasingly building AI into certain of our offerings, and issues raised by the use of, or failure to successfully use, AI in our offerings, or the use of AI by our customers and competitors may adversely affect our business, reputation, or financial results.
We are increasingly building AI into certain of our offerings, such as Unity Vector, our new machine learning model, our new Unity AI product line, which includes AI Assistant and AI Generators, which are currently in beta, and Unity Inference Engine (formerly Unity Sentis), which allows creators to embed an AI model in the Unity Runtime for their game or application, enhancing gameplay and other functionality. AI Generators leverage both Unity-developed and third-party models for AI-driven assistance during creation. With respect to third-party models, we do not control the data used to train such models or the specific outputs they generate; we act as a conduit for customer requests and return the responses from those third-party models. The datasets used to train third-party models may inadvertently include content that infringes intellectual property rights. Because we do not control the training data or model weights of third-party models, we may be subject to liability or reputational harm if customers use outputs generated through our offerings that are alleged to infringe third-party intellectual property rights. Unity-developed models are trained exclusively on directly-licensed or open-licensed data; however, we rely on the accuracy and scope of those licenses as represented by the licensors, and if such representations are incorrect or incomplete, we could face claims that our training data included content used without proper authorization. The outputs of both Unity-developed and third-party models may also inadvertently replicate protected content, resulting in potential claims of infringement. We continue to advance machine learning ("ML") algorithms in our Grow Solutions, which are designed to enable us to provide customers with better performance. AI technologies are complex and rapidly evolving, and we face significant competition from other companies as well as an evolving regulatory landscape. AI technologies, in particular generative AI and interactive chatbots, are subject to existing laws of various states and countries such as those regarding privacy, data security, and consumer protection, and the evolving regulatory landscape and our product development efforts may result in new or enhanced governmental or regulatory scrutiny, litigation, ethical concerns, or other complications that could adversely affect our business, reputation, or financial results. AI technologies, including generative AI and interactive chatbots, are subject to existing laws of various states and countries such as those regarding privacy, data security, and consumer protection. In particular, global AI regulatory frameworks remain highly uncertain, rapidly changing, and inconsistent across jurisdictions, and frequently have extraterritorial reach, and, as a result may apply to our AI offerings regardless of where they are developed or deployed. For example, the EU AI Act sets out a risk-based framework, subjecting certain AI technologies to numerous compliance obligations, including transparency, conformity and risk assessment, monitoring and human oversight requirements, and noncompliance could lead to fines of up to 35 million Euros or 7% of our total worldwide annual turnover. Certain provisions of the EU AI Act could require us to alter or restrict our use of AI both in features or products available to our users and in our systems that interact with our users. In addition, certain U.S. states have proposed, enacted, or are considering laws governing the development and use of AI technologies, such as the Colorado Artificial Intelligence Act, California Bot Disclosure Law, the Utah Artificial Intelligence Policy Act, and the California Consumer Privacy Act ("CCPA") regulations on automated decision-making technology.
Additionally, certain privacy and data security laws extend rights to consumers and regulate automated decision making in ways that may be incompatible with our use of AI/ML. These obligations may make it harder for us to conduct our business using AI/ML, lead to litigation or regulatory fines or penalties, require us to change our business practices, retrain our AI/ML, delete our models, or prevent or limit our use of AI/ML. For example, the Federal Trade Commission ("FTC") has required other companies to delete algorithms and models derived from or trained on allegedly unlawfully collected data, where it has alleged the company has violated privacy or consumer protection laws.
Governments are increasingly scrutinizing generative AI technologies for potential intellectual property and content-related harms, and any regulatory enforcement or litigation in this area could adversely affect our business, reputation, or financial results. In addition, AI and ML models may create flawed, incomplete, or inaccurate outputs, some of which may appear correct. This may happen if the inputs that the model relied on were inaccurate, incomplete or flawed (including if a bad actor "poisons" the AI/ML with bad inputs or logic), or if the logic of the AI/ML is flawed (a so-called "hallucination"). We may use AI/ML outputs to make certain decisions. Due to these potential inaccuracies or flaws, the model could lead us to make decisions that could bias certain individuals or classes of individuals and adversely impact their rights. Our AI-enabled technology could be used by an end user in a manner publicly perceived as controversial. The foregoing can cause us to face adverse consequences, including reputational harm, competitive harm, customer loss or legal liability.
As these requirements continue to emerge or change, we may be required to modify, restrict, or disable certain AI features; implement new technical, governance and other controls; or incur significant compliance and operational costs. Failure to anticipate or comply with evolving AI regulatory obligations could adversely affect our ability to develop and deliver AI-enabled offerings, reduce the competitiveness of our products, or negatively impact our business, reputation, or financial results.
The increasing use of AI and ML, including AI-driven automation tools, may enable customers to reduce their reliance on human developers, and therefore paid seat licenses, or otherwise circumvent usage- and seat-based licensing metrics by obfuscating the number of users accessing our products. Any such shift could materially reduce demand for our core subscription-based products and adversely affect our revenues and business model.
Advances in AI and 2D and 3D content generation technologies may enable our customers to use AI to automate or replicate aspects of content, content creation, simulation, or runtime functionality provided by our platform and solutions, and allow competitors to develop solutions that reduce the competitiveness of our platform and solutions. Even where such activities are unauthorized or prohibited, our ability to prevent, detect, or stop it may be limited. To the extent such advances reduce the need for our products, or otherwise disintermediate Unity from the content creation process, our business and financial condition could be materially adversely affected.
Market acceptance of AI technologies is uncertain, and we may allocate resources toward technologies or products that do not align with customer needs or achieve market acceptance, or are rapidly rendered obsolete. We may be unsuccessful in product development efforts, or our competitors may use AI technologies more efficiently than we do and develop solutions that reduce the competitiveness of our product offerings. We may also incur significant costs and may not achieve any significant revenue from these new offerings. The performance or suitability of third-party models could change in ways that negatively affect the customer experience, and our reliance on third-party models may also limit our ability to differentiate our offerings or control cost and performance characteristics. Any of these factors could adversely affect our business, reputation, or financial results.
We derive a significant portion of our revenue from our Grow Solutions, which is primarily generated under revenue-share or profit-share models. Under these models, our customers depend on us as a source of their own revenue, which in some cases may represent a significant portion of their total revenue. Should customers lose confidence in the value or effectiveness of our Grow Solutions, consumption of these offerings could decline.
We derive a significant portion of our revenue from our Grow Solutions, and such revenue is primarily generated under a revenue-share or profit-share model. Under such models, our customers depend on us as a source of their own revenue, which in some cases may represent a significant portion of their revenue. Should customers lose confidence in the value or effectiveness of our Grow Solutions or if our Grow Solutions are less effective, consumption of these offerings could decline. For example, our revenue growth in the first half of 2022 was negatively impacted by challenges with certain of our Grow Solutions that reduced the efficacy of such products. We must continually add new features and functionality to our Grow Solutions to remain competitive and respond to our customers' needs, particularly in a competitive environment. For example, in the third quarter of 2024 we began a comprehensive rebuild of our machine learning stack and data infrastructure. And in the first quarter of 2025, we announced that we were beginning the roll out of our machine-learning model, Vector. If we fail to execute on the rebuild of our machine learning stack and data infrastructure and our offerings, or if our improvements on those offerings such as Vector, fail to perform properly, our business could be harmed.
Our Grow Solutions customers rely on us to attract a broad range of advertisers to our platform to generate demand for their impressions through our offeringsofferings, such as LevelPlay,including Unity Ads, and Sonic.Ads. If we are unable to also serve the needs of advertisers, they may reduce their consumption of our solutions and, because the advertising market is highly competitive, they mayand shift their business to other competitor advertising solutions or supply paths, which could adversely affect our revenue. In addition, advertising spending is often adversely affected by macroeconomic factors like laboreconomic shortages, supply chain disruptions,downturns and inflation continue to cause logistical challenges, increased input costs, and inventory constraints for advertisers.inflation. These factors have in the past decreased, and may in the future decrease or halt, advertiser spending. Our Grow Solutions are also dependent upon the continued proliferation of mobile connected devices, such as smartphonessmartphones, tablets and tablets,televisions, as well as the increased consumption of content through those devices. Consumer usage of these mobile connected devices may be inhibited for a number of reasons beyond our control. If user adoption of mobile connected devices or user consumption of content on those devices do not continue to grow, our business could be harmed.
Create Solutions customers have no obligation to renew their subscriptions, which are primarily one to five years in length, after they expire, and have no obligation to continue using our Grow Solutions, which are primarily sold under revenue-share or profit-share-based models. We periodically review our pricing structures and business models and in the third quarter of 2023 we announced changes to our pricing model for our Create Solutions, which were to 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. In light of this customer feedback, we reviewed our pricing structure and announced a new pricing structure during the third quarter of 2024. Although this later announcement was favorably received, decisions to change how we price our products or services have been and may in the future be viewed unfavorably and harm our business.
For us to maintain or improve our results of operations, it is important that our Create Solutions customers renew and expand their subscriptions with us and that our Grow Solutions customers continue using and expanding their use of our solutions. Create Solutions customers have no obligation to renew their subscriptions, which are primarily for one to five years in length, after they expire, and our Grow Solutions, which are primarily sold under revenue-share or profit-share-based models. We invest in targeted sales and account-based marketing efforts to identify opportunities to grow use of our solutions within and across multiple studios within a single customer. However, our efforts may not be successful despite the resources we devote to them. Even if one or several studios within a customer adopt our Create or Grow Solutions, other studios within that customer may choose to adopt different solutions or to continue to employ internally-developed solutions. Further, consolidation or reorganization of studios within a customer may reduce opportunities to expand usage of our solutions across multiple studios. In addition, we periodically review our fees, pricing structures and business models, and decisions to change how we price our products or services have been and may in the future be viewed unfavorably and harm our business.
It is also important for us to cross-sell more Create Solutions to our Grow Solutions customers,customers asand wellvice as Grow Solutions to our Create Solutions customers.versa. While we believe there are significant cross-sellingbenefits opportunitiesto betweenour customers in using both our Create and Grow Solutions, and that our Create andSolutions customers are under no obligation to use our Grow SolutionsSolutions, work together synergistically,and our efforts to cross-sell may not be successful.
We have realigned our business to focus on the Unity Engine and related consumption services, and monetization solutions, and are continuing to exit other businesses and right-size our investments. These efforts may not be effective or sufficient to offset our expenses, and may themselves have adverse impacts, such as loss of continuity or accumulated knowledge, limited technological support on legacy products, inefficiency during transitional periods, distraction, and potential challenges operating our business with fewer resources. For example, in 2024 we reduced our employee workforce by approximately 25%, and various members of our management team departed from their operational roles and in 2025 we further reduced our employee workforce and continued to wind down certain non-strategic businesses. The departure of employees may create a loss of accumulated knowledge, inefficiency, and other challenges to operating our business. If we fail to efficiently execute on these plans to restructure, or if the benefits from these efforts are not achieved on the timeline or to the extent we expect, our business may be harmed and we may fail to achieve or maintain profitability.
The markets in which we participate are highly competitive, and if we do not compete effectively, our business, financial condition, and results of operations could be harmed.
•increased costs for advertisers to target users due to changes in the privacy landscape;
•reduced supply from publishers, who may also use channels beyond in-app advertising to grow revenue;
•rapid technological change, such as the rise of AIAI, and machine learning,learning and increasing use of data and trained models, evolving industry standards, changing regulations,models as well as changing customer needs, requirements and preferences;
•the impact of evolving industry standards and changing regulations, which may affect us differently than some our competitors, including, for example, increased costs for advertisers to target users due to changes in the data privacy landscape;
•reduced supply from game publishers, who may also use channels beyond in-app advertising to grow revenue;
•the internal development of alternative solutions by a significant number of companies, including other gaming and ad-tech companies;
•mergers, acquisitions and other strategic relationships amongst our competitors which may allow them to provide more comprehensive offerings or achieve greater economies of scale than us, and may introduce new competitors in our markets;
•intense competition within the gaming market which may impact our company and a significant number of our customers, who also operate in the gaming market; and
•the introduction of alternative solutions by larger, more experienced companies that offer 2D and 3D design solutions in the industries in which we currently operate or may expand into.into; and
•mergers, acquisitions and other strategic relationships amongst our competitors which may allow them to provide more comprehensive offerings or achieve greater economies of scale than us, and which may introduce new competitors in our markets.
Our competitors mayinclude other game development engines and platforms and large technology and ad-tech companies, many of which have greater name recognition, longer operating histories, more established customer relationships, larger marketing budgets and greater financial and operational resources than we do. We cannot assure you that we will not be forced to engage in price-cutting or revenue limiting initiatives, change payment terms or increase our advertising and other expenses to attract and retain customers in response to competitive pressures.
In addition, some of our competitors are also our partners and/or customers. We compete to various degrees on the basis of price, technical performance, product features, system compatibility, quality and sales and technical support. These competitors may decide to stop buying our products, compete more aggressively with us, use technical capabilities to hinder the performance of our products, or use our products or the information they obtain about or derived from our products and technology to develop or improve their own competing solutions, which could materially and adversely affect our business, financial condition and results of operations.
For all of these reasons,If we mayare not be ableunable to compete successfully against our current or future competitors, whichit could result in the failure of our platform and products to continue to achieve or maintain market acceptance, which would harm our business, financial condition, and results of operations.
We have reset our portfolio to focus on the Unity Engine and related consumption services, and Monetization solutions, exiting other businesses and right-sizing our investments. These efforts may not be effective or sufficient to offset our expenses, and may themselves have adverse impacts, such as loss of continuity or accumulated knowledge, inefficiency during transitional periods, distraction, and potential challenges operating our business with fewer resources. For example, in the first quarter of 2024 we reduced our employee workforce by approximately 25%, and certain members of our management team, including the ironSource founders, departed from their operational roles. The departure of these employees may create a loss of accumulated knowledge, inefficiency, and other challenges to operating our business. If we fail to efficiently execute on these plans to restructure, or if the benefits from these efforts are not achieved on the timeline we expect, we may fail to achieve or maintain profitability.
Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at a similar rate, if at all.
Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate. Market opportunity estimates and growth forecasts, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The variables that affect the calculation of our market opportunity are also subject to change over time.
We cannot assure you that any particular number or percentage of addressable users or companies covered by our market opportunity estimates will purchase our solutions at all or generate any particular level of revenue for us. In addition, any expansion in our market depends on a number of factors, including the cost, performance and perceived value associated with our platform and those of our competitors. Even if the market in which we compete meets the size estimates and growth we forecast, our business could fail to achieve a substantial share of this market or grow at a similar rate, if at all. Our growth is subject to many risks and uncertainties. Accordingly, the estimates of market opportunity or forecasts of market growth we have made and may make should not be taken as indicative of our future growth.
We and our customers are subject to the standard policies and terms of service of the operating system platforms on which we create, run and monetize applications and content, as well as policies and terms of service of the various application stores, such as the Apple App Store or Google Play Store, which make applications and content available to end users. Each of these operating system platforms and stores has broad discretion to change and interpret its terms of service and policies. Each may also change its fee structure, add fees associated with access to and use of its platform, alter how customers are able to advertise or monetize on their platform, change how the personal or other user information is made available to application developers on their platform, limit the use of personal information for advertising purposes or restrict how end users can share information on their platform or across other platforms.
In particular, operating system platform providers or application stores such as Apple or Google have in the past and may in the future change their technical requirements or policies in a manner that adversely impacts the way in which we or our customers offer solutions or collect, use, and share data from end-user devices. Restrictions on our ability to collect and use data as desired could negatively impact our Create Solutions and Grow Solutions as well as our resource planning and feature development planning for our software. For example, Google is continuing to develop their implementation of Android Privacy Sandbox, a set of technologies that will, when their use is mandated, alter the manner in which advertising is performed on Android devices, and which may impact our business. The long-term impact of these and other future privacy, platform, and regulatory changes could increase application store fees to our customers, or have other impacts which could harm our business.
If we or our customers violate or are accused of violating these terms of service or policies, an operating system platform provider or application store could limit or discontinue our or our customers' access to its platform or store. They could also limit or discontinue our access to its platform or store if it establishes more favorable relationships with one or more of our competitors or it determines that it is in their business interests to do so. Any limitation on or discontinuation of our or our customers' access to any third-party platform or application store could adversely affect our business, financial condition, or results of operations.
If we are unable to further expand into adjacent business areas or new industries, or if our solutions for any new business area or industry fail to achieve market acceptance, our growth and operating results could be adversely affected, and we may be required to reconsider our growth strategy.
Our growth strategy is based, in part, on expanding into new industries beyond gaming.gaming Theand adjacent product expansion. For example, the market for interactive RT3D and 2D content in industries beyond gaming is still developing, and it is uncertain whether this market will develop as we expect, how rapidly it will develop and how much it will grow. Our success in these markets will depend, to a substantial extent, on the widespread adoption of our platformproducts as an alternative to existing solutions, such as traditional 2D and 3D modeling and rendering tools, or adoption by customers that are not currently using any software solutions. Market acceptance of our platform in industries beyond gaming may not grow as we expect and if our platform does not achieve widespread adoption in these other markets, our ability to grow our revenue may suffer.
Similarly, the market for programmatic advertising and Connected TV ("CTV") solutions is highly competitive and evolving, and it is uncertain whether our expansion into these gaming-adjacent verticals will develop as we expect. Our success will depend on our ability to compete with incumbent demand-side and supply-side advertising platforms, as well as the widespread adoption of our advertising technology by agencies and brands that have historically relied on traditional media or closed digital ecosystems. Market acceptance of our solutions in these areas may be hindered by our ability to provide comparable scale, targeting, and transparent measurement relative to established competitors. If our programmatic and CTV offerings do not achieve widespread adoption, or if we are unable to effectively capture advertising spend from outside of our core gaming audience, our ability to grow our revenue and diversify our business may suffer.
We are also expanding our In-App Purchase ("IAP") solutions, designed to support developers across a variety of alternative payment processing and monetization platforms. The success of these offerings depends on our ability to maintain seamless technical integration with a variety of third-party payment service providers while ensuring compliance with the evolving requirements of major platform providers and complex regulatory requirements. Platform providers may introduce new fee structures or technical hurdles relating to external payment flows that increase friction for users, reduce conversion rates, and diminish the economic benefit of our IAP offering to our customers. If we cannot effectively manage these complexities, our ability to grow our payment processing-related revenue could be adversely affected.
In addition, theThe investments we make to grow our business by expandingexpand into new or adjacent industries will continue to increase our costs and operating expenses on an absolute basis. We expect to invest in sales and marketing resources to develop and expand the use of our solutions by customers in these industries, and we will need to increase our sales and marketing, legal and compliance and other efforts as we seek to expand into newadditional industries that often require a different go-to-market strategy than the gaming industry. These investments willmay occur in advance of our realization of significant revenue from such industries, particularly given that customers in these industries arecharacterized typicallyby enterprise customers with long contracting cycles, which will make it difficult to determine if we are allocating our resources effectively and efficiently. If the revenue we derive from these investments is not sufficient to achieve a return on investment, our business and results of operations would suffer.
We rely in part on strategic partnerships and other strategic relationships with hardware, operating system, device, game console, and other technology providers in order to be able to offer our customers the ability to deploy their content on a variety of third-party platforms. If any of these third parties were to suspend, limit or cease their operations or otherwise terminate their relationships with us, our results of operations could be adversely affected. We have entered into separate agreements with each of our strategic partners. Our agreements with our strategic partners are non-exclusive and typically have multi-year terms. We may have disagreements or disputes with these parties that could negatively impact or threaten our relationship with them. We may not be successful in sourcing additional strategic partnerships or relationships or in retaining or extending our existing relationships with the parties with whom we currently have relationships, including as a result of acquisitions by competitors of our strategic partners or strategic partners themselves becoming competitors. If we are unable to source additional strategic relationships or the parties with whom we currently have strategic relationships were to terminate their relationship with us, our revenue could decline and our business could be adversely affected.
Our gaming customers are not the end users of our solutions, but rather they use our platform and solutions to create and/or operate their games, which are ultimately sold or distributed to an end user. As a result, our success depends in part on the ability of our customers to market and sell games that are created or operated with our solutions. If our customers' marketing efforts for their games are unsuccessful or if our customers experience a decrease in demand for their games, sales of our Create Solutions and our Grow Solutions could be reduced. The gaming market is characterized by intense competition, rapid technological change, increased focus by regulators, and economic uncertaintyuncertainty, and, as such,and there is no guarantee that any of our customers' games will gain any meaningful traction with end users. While our large and diverse customer portfolio has helped to reduce the fluctuations in our Grow Solutions revenue as a whole resulting from the success of customers' games and the timing of game releases, we cannot assure you that the size and diversification of our customer portfolio will sufficiently mitigate this risk. If our customers fail to create or operate popular games using our platform, and we are not able to maintain a diversified portfolio of "winners and losers," our results of operations may be adversely affected.
•fluctuations in demand for, usage of, or pricing of our platformsolutions;
•changes in the mix of solutions purchased by our customers;
Management's Discussion & Analysis (MD&A)
Removed heading “Customers Contributing More Than $100,000 of Revenue”
Removed heading “Dollar-Based Net Expansion Rate”
Largest changes
“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.”see in full comparison
“We define adjusted EPS as net income or loss excluding benefits or expenses associated with stock-based compensation, amortization of acquired intangible assets, depreciation, restructurings and reorganizations, and the income tax impact of the preceding adjustments (cumulatively "adjusted net income"), increased by the tax effected impacts from any relevant dilutive securities, divided by the diluted weighted-average outstanding shares. …”see in full comparison
“Further, during 2025 we had additional workforce reductions. In the year ended December 31, 2025, we incurred incremental employee separation costs related to these actions of approximately $33 million, primarily within research and development, and sales and marketing. In addition, we incurred approximately $14 million of non-employee charges associated with this restructuring in 2025.”see in full comparison
General and administrative expense for the year ended December 31,see in full comparison20242025increased,decreased, compared to the comparable prior year period, primarily due tohigherdecreases in personnel-relatedcosts,costs and in impairments of operating lease assets, both driven by lower employee separation costs and reductions intheourfirstrealquarterestateoffootprint2024.due to restructuring in 2025.
“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, even though we may enter into commercial agreements with multiple parties within that organization. …”see in full comparison
Full comparison: every changed paragraph (60)
Unity offers a suite of tools to create,develop, marketdeploy, 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,Solutions. Starting in the fourth quarter of 2023, we began to reset our product and service offerings to focus on our core businesses, which togetherwe compriserefer to as our "Strategic Portfolio": surroundingprimarily, the Unity Engine and related consumption services, and Monetization.monetization solutions.
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, 2024,2025, we beganhad reductions to substantially reduce our workforce and our office footprint.footprint, Thisthat resulted in approximately $214$33 million in employee separation costs, primarily related to the acceleration and modifications of equity awards, and $53$14 million of non-employee charges associated with these reductions. We arewill continuingcontinue to evaluate our facility needs, and expect more changes in 2025.needs.
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.
Key Metrics
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 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, 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 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.
Dollar-Based Net Expansion Rate
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 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. Prior period revenue is the trailing 12-month revenue measured as of such prior period end and includes revenue from all customers that contributed revenue during such trailing 12-month period. Current period revenue is the trailing 12-month revenue from these same customers as of the current period end. Our dollar-based net expansion rate includes the effect of any customer renewals, expansion, contraction, and churn but excludes revenue from new customers in the current period.
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.
The chart below illustrates that our dollar-based net expansion rate has been declining over the last year.
We generate Create Solutions revenue primarily through our suite of Create Solutions subscriptions inclusive of enterprise support, professional services, and consumption services. Our subscriptions provide customers access to technologies that allow them to edit, run, and iterate interactive, RT3D and 2D experiences that can be created once and deployed to a variety of platforms. Enhanced support services are provided to our enterprise customers and are generally sold separately from the Create Solutions subscriptions. Professional services are provided to our customers andwhich are primarily platform integrations, but also include consulting, platform integration, training, and custom application and workflow development. CloudConsumption services consist of cloud and hosting services are provided to our customers to simplify and enhance the way our users access and harness our solutions.
We generate Grow Solutions revenue primarily through our monetization solutions and game publishing services. Our monetization solutions allow publishers, original equipment manufacturers, and mobile carriers to sell available advertising inventory on their mobile applications or hardware devices to advertisers for in-application or on-device placements. Our revenue represents the amount we retain from the transaction we are facilitating through our Unified Auctionauction and mediation platform. Our game publishing services provide game developers with the infrastructure and expertise to launch their mobile games and manage their growth; this is achieved through marketability testing tools, live games management tools and game design support, and optimizing the implementation of the customer's commercial model. Through these publishing services, we generate revenue from in-app advertising and related purchases 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.games.
Total revenue increased in the year ended December 31, 2025, compared to the comparable prior year period, primarily due to an increase in Grow Solutions revenue driven by migrating one of our advertising networks, which we call the "Unity Ad Network", to our new AI Platform, which we call “Unity Vector”, partially offset by decreases in our other advertising network, which we call the "IronSource Ad Network". As a result of these changes the Unity Ad Network and IronSource Ad Network represent 56% and 11%, respectively, of total Grow Solutions revenue for the fourth quarter of 2025.
The increase in total revenue was further driven by an increase in Create Solutions revenue, driven by increases in subscription revenue, offset by decreases in consumption services revenue, driven by our portfolio reset.
Included in revenue in the years ended December 31, 2025 and 2024, are approximately $28 million and $90 million, respectively, of revenue associated with the non-strategic portfolio, primarily in Create Solutions, generated mainly in North America and Europe.
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 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 direct costs ofassociated relatedwith facilities.our advertising offerings.
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 termterm, 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.period as a percentage of revenue.
Cost of revenue for the year ended December 31, 2025 was roughly flat, compared to the comparable prior year period, due to a decrease in personnel costs, driven by our reductions in headcount, offset by an increase in hosting and other direct costs to support the revenue growth in our advertising networks.
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.
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, inIn January 2024, we committed tocommenced a plan to eliminate approximately 25% ofreduce 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.
Further, during 2025 we had additional workforce reductions. In the year ended December 31, 2025, we incurred incremental employee separation costs related to these actions of approximately $33 million, primarily within research and development, and sales and marketing. In addition, we incurred approximately $14 million of non-employee charges associated with this restructuring in 2025.
Additionally, starting in the third quarter of 2025 we revised down our estimate of the remaining useful life of certain intangible assets, due to those assets no longer being actively developed or planned for incorporation into future Unity offerings. These intangible assets primarily arose from our acquisition of Wētā FX Limited, and their useful lives were reduced from four to seven years, down to one to three years. This change in estimate increased the amortization expense in our consolidated financial statements by $77 million for the year ended December 31, 2025, primarily in research and development expense.
Research and development expenses primarily consist of personnel-related costs for the design and development of our platform, IT hosting and SaaS expenses, and amortization expenses related to intangible assets. We expect our research and development expenses to increase in absolute dollars in the long term, as we expandinvest our teams to developin new solutions, expand features and functionality with existing solutions, and enter new markets, but decrease in the short term as we reset our Strategic Portfolio.markets. 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, 20242025 decreased,was roughly flat, compared to the comparable prior year period, primarily due to a decrease in personnel costs driven by our reductions in headcountheadcount, offset by an increase in amortization costs from the firstchange quarterin useful lives of 2024.certain 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-baseduser marketing,acquisition spend, direct marketing and community outreach activities, and invest in additional tools and technologies, and continue to build brand awareness, but decrease in the short term as we reset our Strategic Portfolio.technologies. 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, 20242025 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.headcount.
Our general and administrative expenses primarily consist of personnel-related costs for finance, legal, human resources, IT and administrative employees; allocated overhead, and professional fees for external legal, accounting, and other professional services. We expect that our general and administrative expenses will increase in absolute dollars in the long term, as we scale to support the growth of our business but decrease in the short term as we reset our Strategic Portfolio.business. 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, 20242025 increased,decreased, compared to the comparable prior year period, primarily due to higherdecreases in personnel-related costs,costs and in impairments of operating lease assets, both driven by lower employee separation costs and reductions in theour firstreal quarterestate offootprint 2024.due to restructuring in 2025.
Interest expense for the year ended December 31, 20242025 decreased,increased, compared to the comparable prior year period, indue lineto withthe ouramortization outstandingof new debt obligations.issuance costs from the issuance of the 2030 Notes, partially offset by a reduction in the amortization of debt issuance costs, driven by the repurchase of a portion of the 2026 Notes.
Interest income and other income (expense), net, consists primarily of interest income earned on our cash and cash equivalents, 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.
Interest income and other income (expense), net, for the year ended December 31, 20242025 increased,decreased, compared to the comparable prior year period, primarily due to gainschanges onin the amount of gain recognized from the repurchase of convertible debtdebt. In the first quarter of 2024, we recognized $61.4 million of gain on repurchase of convertible debt, compared to $42.7 million in the first quarter of 2024.2025. This decrease was partially offset by gains from foreign exchange.
The benefitprovision fromfor income taxes for the year ended December 31, 20242025 changed as compared to the provisionbenefit forfrom income taxes in the comparable prior year period, primarily due to higher earnings in foreign jurisdictions and the absence of a tax benefit from our foreign losses in connection with employee separation costs recordedrecognized in the first quarter of 2024 andin connection with 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.activities.
Adjusted Gross Profit , Adjusted EBITDA, and Adjusted EBITDAEPS
We define adjusted gross profit as GAAP gross profit excluding expenses associated with stock-based compensation, amortization of acquired intangible assets, depreciation, and restructurings and reorganizations. We define adjusted gross margin as adjusted gross profit as a percentage of revenue. We define adjusted EBITDA as net income or loss excluding benefits or expenses associated with stock-based compensation, amortization of acquired intangible assets, depreciation, acquisitions, restructurings and reorganizations, insurance reimbursement for legal expenses, interest, income tax, and other non-operating activities, which primarily consist of foreign exchange rate gains or losses.
We define adjusted EPS as net income or loss excluding benefits or expenses associated with stock-based compensation, amortization of acquired intangible assets, depreciation, restructurings and reorganizations, and the income tax impact of the preceding adjustments (cumulatively "adjusted net income"), increased by the tax effected impacts from any relevant dilutive securities, divided by the diluted weighted-average outstanding shares. The effective tax rate used in calculating adjusted EPS is estimated for each period, based on the net income or loss adjusted for the items noted above, and may differ from the effective rate used in our financial statements. Shares of common stock that are excluded in our calculation of GAAP diluted net loss per share due to their antidilutive impact on such calculations, are included in the diluted weighted average outstanding shares used in our calculation of adjusted EPS, to the extent they have a dilutive impact on adjusted EPS given the adjusted net income in each period.
We use adjusted gross profitprofit, adjusted EBITDA, and adjusted EBITDAEPS, in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that adjusted gross profitprofit, adjusted EBITDA, and adjusted EBITDAEPS 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.
Adjusted gross profitprofit, adjusted EBITDA, and adjusted EBITDAEPS 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. Some of these limitations are:
•adjusted gross profitprofit, adjusted EBITDA, and adjusted EBITDAEPS 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 profitprofit, adjusted EBITDA, and adjusted EBITDAEPS does not reflect cash expenditure for such replacements;
•adjusted EBITDAEBITDA, excludesand adjusted EPS exclude costs incurred from our acquisitions;
•adjusted gross profitprofit, adjusted EBITDA, and adjusted EBITDAEPS excludesexclude costs incurred from restructuring activities;
•adjusted EBITDAEBITDA, excludesand adjusted EPS exclude costs incurred from legal settlements that we anticipate recovering through insurance, and subsequent recoveries of those amounts;
•the expenses and other items that we exclude in our calculation of adjusted gross profitprofit, adjusted EBITDA, and adjusted EBITDAEPS may differ from the expenses and other items, if any, that other companies may exclude from this measure or similarly titled measures, which reduces their usefulness as comparative measures.
The following table presents a reconciliation of adjusted EPS to diluted net loss per share attributable to Unity Software Inc., the most directly comparable measures as determined in accordance with GAAP, for the periods presented (in thousands):
As of December 31, 2024,2025, our principal sources of liquidity were cash and cash equivalents totaling $1.5$2.1 billion, which were primarily held for working capital purposes. Our cash equivalents are invested primarily in time deposits and in government money market funds and time deposits.funds.
In connection with the ironSourcefirst Mergerquarter inof November 2022,2025 we issued $1.0$690 billionmillion in aggregate principal amount of the 20272030 Notes, the proceeds of which were used to fund repurchases underof ouroutstanding share2026 repurchase program.Notes. We previously issued approximately $1.7 billion in aggregate principal amount of the 2026 Notes in November 2021, of which approximately$688 million in aggregate principal amount was repurchased in first quarter 2025 for $642 million, and $480 million in aggregate principal amount was repurchased in March 2024 for approximately $415 million. We also previously issued $1.0 billion in aggregate principal amount of the 2027 Notes. 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, which expired in November 2024.
We believe our existing sources of liquidity will be sufficient to meet our working capital and capital expenditures for at least the next 12 months.months, including our current intent to settle the principal amount of the 2026 Notes with cash upon maturity in November 2026. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and potential future equity or debt transactions. Our future capital requirements, however, will depend on many factors, including our growth rate; the timing and extent of spending to support our research and development efforts; capital expenditures to build out new facilities and purchase hardware and software; the expansion of sales and marketing activities; and our continued need to invest in our IT infrastructure to support our growth. In addition, we may enter into additional strategic partnerships as well as agreements to acquire or invest in complementary offerings, teams and technologies, including intellectual property rights, which could increase our cash requirements. As a result of these and other factors, we may choose or be required to seek additional equity or debt financing sooner than we currently anticipate. In addition, depending on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors, we may also from time to time seek to retire or purchase our outstanding debt, including the Notes, through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all, including as a result of macroeconomic conditions such as high interest rates, volatility in the capital markets and liquidity concerns at, or failures of, banks and other financial institutions. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, and financial condition would be adversely affected.
During the year ended December 31, 2024,2025, 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, offsetand byto a decreaselesser extent, an increase in operating assets and liabilities. Our cash flows can fluctuate from period to period due to revenue seasonality, timing of billings, collections, and publisher payments, and historical cash flows are not necessarily indicative of our results in any future period.
During the year ended December 31, 2024,2025, net cash used in investing activities consisted primarily of purchases of property and equipment, and purchases of intangible assets.equipment.
Cash UsedProvided inby Financing Activities
During the year ended December 31, 2024,2025, net cash usedprovided inby financing activities consisted of repaymentsproceeds from issuance of convertible notes, offset by the proceeds fromand the issuance of common stock underupon ourexercise employeeof equitystock plans.options and purchase of ESPP shares, offset by repayments of convertible notes and the purchase of capped calls.
The critical accounting estimates, assumptions and judgementsjudgments that we believe have the most significant impact on our consolidated financial statements are described below.
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 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.
What changed in the latest 10-Q
Risk Factors
Removed heading “AI is becoming an increasingly important part of our strategy and product roadmap, and our failure to successfully develop, deploy, maintain, manage, or commercialize AI-enabled capabilities and products, our reliance on third-party AI models, and the costs associated with such efforts may adversely affect our business, financial results, or competitiveness.”
Removed heading “We are increasingly building AI into our offerings, and issues arising from our development or use of AI, or the use of AI by our customers, personnel, vendors, and competitors may adversely affect our business, reputation, or financial results.”
Largest changes
“AI technologies are complex and rapidly evolving, and we face significant competition from other companies as well as an evolving regulatory landscape. AI technologies, including generative AI and interactive chatbots, are subject to existing laws of various states and countries, including those regarding privacy, data security, and consumer protection, and our product development efforts may result in new or enhanced governmental or regulatory scrutiny, litigation, ethical concerns, or other complications that could adversely affect our business, reputation, or financial results. …”see in full comparison
“Additionally, certain privacy and data security laws extend rights to consumers and regulate automated decision making in ways that may be incompatible with our use of AI/ML. These obligations may make it harder for us to conduct our business using AI/ML, lead to litigation or regulatory fines or penalties, require us to change our business practices, retrain our AI/ML, delete our models, or prevent or limit our use of AI/ML. …”see in full comparison
“Governments are increasingly scrutinizing generative AI technologies for potential intellectual property and content-related harms, and any regulatory enforcement or litigation in this area could adversely affect our business, reputation, or financial results. In addition, AI and ML models may create flawed, incomplete, or inaccurate outputs, some of which may appear correct. …”see in full comparison
“AI is becoming an increasingly important part of our strategy and product roadmap, and our failure to successfully develop, deploy, maintain, manage, or commercialize AI-enabled capabilities and products, our reliance on third-party AI models, and the costs associated with such efforts may adversely affect our business, financial results, or competitiveness.”see in full comparison
“We are increasingly building AI into our offerings, and issues arising from our development or use of AI, or the use of AI by our customers, personnel, vendors, and competitors may adversely affect our business, reputation, or financial results.”see in full comparison
“Market acceptance of AI technologies is uncertain, and we may allocate resources toward technologies or products that do not align with customer needs, fail to achieve market acceptance, or are rapidly rendered obsolete by further advances in AI. Our announced or perceived AI roadmap and product strategy may create heightened expectations among customers, and if we fail to meet those expectations, our business, operating results, financial condition, and future prospects could be adversely affected. …”see in full comparison
Full comparison: every changed paragraph (18)
Other than the risk factors listed below, there have been no material changes from the risk factors previously described under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025.2025 and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2026.
Purchasing or owning Unity common stock involves investment risks including, but not limited to, the risks described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025.2025, and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2026. Any one of those risks could harm our business, financial condition and results of operations or reputation, which could cause our stock price to decline. Additional risks, trends and uncertainties not presently known to us or that we currently believe are immaterial may also harm our business, financial condition, results of operations or reputation.
AI is becoming an increasingly important part of our strategy and product roadmap, and our failure to successfully develop, deploy, maintain, manage, or commercialize AI-enabled capabilities and products, our reliance on third-party AI models, and the costs associated with such efforts may adversely affect our business, financial results, or competitiveness.
AI is becoming an increasingly important part of our broader platform strategy and product roadmap, and our failure to successfully develop, deploy, maintain, manage, or commercialize AI-enabled products could impair our ability to execute that strategy and remain competitive.
While we have made, and expect to continue to make, investments to integrate AI into our platform and product offerings, our ability to remain competitive will require increasing levels of such investment over time. There can be no assurance that these investments will enhance our product offerings, improve our competitiveness, efficiency or profitability, or provide an adequate return, and we may not realize the anticipated benefits of these investments in a timely or cost-effective manner, or at all, especially in light of the rapid development of AI technologies in general. In addition, our AI investments and related spending may adversely impact our cost of revenue, research and development expenses, and sales and marketing expenses, which may, in turn, negatively impact our gross margins and operating margins.
We generally rely on third-party models for our AI products and features, and our ability to continue to use such technologies at scale depends on access to a limited number of foundational model providers whose availability, pricing, and terms we cannot control. These providers may experience capacity constraints, prioritize other customers, impose usage restrictions, change their terms unfavorably, or terminate their relationship with us, any of which could delay, degrade, or limit the availability of our AI features or make our product offerings less appealing to customers. Our reliance on such models may limit our ability to differentiate our offerings or manage cost and performance characteristics. Customer expectations regarding the speed, availability, and quality of our AI features may also increase over time, requiring us to incur higher infrastructure and model costs (whether for Unity-developed or third party models) that we may be unable to recover through pricing. Any failure to maintain adequate access to third-party AI models on commercially reasonable terms, or to meet rising customer performance expectations with regards to our models and AI features generally, could adversely affect our business, reputation, or financial results.
We are increasingly building AI into our offerings, and issues arising from our development or use of AI, or the use of AI by our customers, personnel, vendors, and competitors may adversely affect our business, reputation, or financial results.
We are increasingly building AI into our offerings, including Unity Vector, our new machine learning model, our new Unity AI product line, which includes AI Assistant and AI Generators, and Unity Sentis, which allows creators to embed an AI model in the Unity Runtime for their game or application, enhancing gameplay and other functionality, and we are developing new, AI-native products. We continue to advance ML algorithms in our Grow Solutions, which are designed to enable us to provide customers with better performance.
AI Assistant and AI Generators leverage third-party models for AI-driven assistance during creation. With respect to third-party models, we do not control the data used to train such models or the specific outputs they generate; we act as a conduit for customer requests and return the responses from those third-party models. The datasets used to train third-party models may inadvertently include content that infringes intellectual property rights. Because we do not control the training data or model weights of third-party models, we may be subject to liability or reputational harm if customers use outputs generated through our offerings that are alleged to infringe third-party intellectual property rights. In addition, customer inputs transmitted to third-party models may include proprietary, personal, or confidential information, and our contractual protections with third-party model providers may not fully mitigate the risk of data exposure, secondary use, or retention of such data by those providers. Proprietary, sensitive, or confidential information of the Company or our customers could be leaked, disclosed, or revealed as a result of or in connection with the use of AI technologies by our personnel or vendors. Unity-developed models have been and will be trained exclusively on directly-licensed or open-licensed data; however, we rely on the accuracy and scope of those licenses as represented by the licensors, and if such representations are incorrect or incomplete, we could face claims that our training data included content used without proper authorization. The outputs of both Unity-developed and third-party models may also inadvertently replicate protected content, resulting in potential claims of infringement.
AI technologies are complex and rapidly evolving, and we face significant competition from other companies as well as an evolving regulatory landscape. AI technologies, including generative AI and interactive chatbots, are subject to existing laws of various states and countries, including those regarding privacy, data security, and consumer protection, and our product development efforts may result in new or enhanced governmental or regulatory scrutiny, litigation, ethical concerns, or other complications that could adversely affect our business, reputation, or financial results. Global AI regulatory frameworks remain highly uncertain, rapidly changing, and inconsistent across jurisdictions, and frequently have extraterritorial reach, and, as a result may apply to our AI offerings regardless of where they are developed or deployed. For example, the EU AI Act sets out a risk-based framework, subjecting certain AI technologies to numerous compliance obligations, including transparency, conformity and risk assessment, monitoring and human oversight requirements, and noncompliance could lead to fines of up to 35 million Euros or 7% of our total worldwide annual turnover. Certain provisions of the EU AI Act could require us to alter or restrict our use of AI both in features or products available to our users and in our systems that interact with our users. In addition, certain U.S. states have proposed, enacted, or are considering laws governing the development and use of AI technologies, such as the Colorado Artificial Intelligence Act, California Bot Disclosure Law, the Utah Artificial Intelligence Policy Act, and the California Consumer Privacy Act ("CCPA") regulations on automated decision-making technology.
Additionally, certain privacy and data security laws extend rights to consumers and regulate automated decision making in ways that may be incompatible with our use of AI/ML. These obligations may make it harder for us to conduct our business using AI/ML, lead to litigation or regulatory fines or penalties, require us to change our business practices, retrain our AI/ML, delete our models, or prevent or limit our use of AI/ML. For example, the Federal Trade Commission ("FTC") has required other companies to delete algorithms and models derived from or trained on allegedly unlawfully collected data, where it has alleged the company has violated privacy or consumer protection laws. As these requirements continue to emerge or change, we may be required to modify, restrict, or disable certain AI features; implement new technical, governance and other controls; or incur significant compliance and operational costs. Failure to anticipate or comply with evolving AI regulatory obligations could adversely affect our ability to develop and deliver AI-enabled offerings, reduce the competitiveness of our products, or negatively impact our business, reputation, or financial results.
Governments are increasingly scrutinizing generative AI technologies for potential intellectual property and content-related harms, and any regulatory enforcement or litigation in this area could adversely affect our business, reputation, or financial results. In addition, AI and ML models may create flawed, incomplete, or inaccurate outputs, some of which may appear correct. This may result from inaccurate, incomplete or flawed inputs, including if a bad actor "poisons" the AI/ML with bad inputs or logic, or if the model’s underlying logic is flawed, resulting in outputs that may appear plausible but are inaccurate (a so-called "hallucination"). We may use AI/ML outputs to make certain decisions. Due to these potential inaccuracies or flaws, the model could lead us to make decisions that could bias certain individuals or classes of individuals and adversely impact their rights. Our AI-enabled technology could be used by an end user in a manner publicly perceived as controversial. The foregoing can cause us to face adverse consequences, including reputational harm, competitive harm, customer loss or legal liability.
The increasing use of AI and ML, including AI-driven automation tools or our own AI-based offerings, may enable customers to reduce their reliance on human developers, and therefore paid seat licenses, or otherwise circumvent usage- and seat-based licensing metrics by obfuscating the number of users accessing our products. Any such shift could materially reduce demand for our core subscription-based products and adversely affect our revenues and business model.
Advances in AI and 2D and 3D content generation technologies may enable our customers to use AI to automate or replicate aspects of content, content creation, simulation, or runtime functionality provided by our platform and solutions, and allow competitors to develop solutions that reduce the competitiveness of our platform and solutions. Even where such activities are unauthorized or prohibited, our ability to prevent, detect, or stop it may be limited. To the extent such advances reduce the need for our products, or otherwise disintermediate Unity from the content creation process, our business and financial condition could be materially adversely affected.
Market acceptance of AI technologies is uncertain, and we may allocate resources toward technologies or products that do not align with customer needs, fail to achieve market acceptance, or are rapidly rendered obsolete by further advances in AI. Our announced or perceived AI roadmap and product strategy may create heightened expectations among customers, and if we fail to meet those expectations, our business, operating results, financial condition, and future prospects could be adversely affected. Our competitors may use AI technologies more efficiently than we do or make technology choices in integrating AI technology or developing AI-based products that prove superior to ours, reducing the competitiveness of our offerings. Decisions as to if and how to integrate or develop AI technologies are difficult, and we, or our customers, may choose, or be required, not to use certain high-performing or lower-cost AI models, including certain open-source models, due to security, compliance, export control, or reputational considerations, which could place us at a competitive disadvantage if our competitors adopt such models without comparable constraints and our business, operating results, and financial condition may be harmed as a result.
WeIn the first quarter of 2026, we announced we would sunset the ironSource Ads Network, one of our monetization networks, effective April 30, 2026, and we began the process of exiting our Supersonic game publishing business. The sunset of the ironSource Ads Network,Network effectivewas Aprilsubstantially 30,completed in the second quarter of 2026, and engaged a financial advisor to assist with the planned divestituresale of our Supersonic gamebusiness publishingwas business.completed on August 4, 2026. These actions have caused and may continue to cause disruption and uncertainty for our employees, customers, publishers, advertisers, and strategic partners, and have resulted and may continue to result in employee attrition and difficulties in maintaining business relationships. Customers or partners have delayed, reduced, or terminated and may continue to delay, reduce, or terminate their use of our offerings as a result.
The sunset of the ironSource Ads Network has resulted and may continue to result in higher-than-expected customer and revenue attrition, and we may face operational challenges in migrating or offboarding customers.attrition.
The planned divestiture of the Supersonic business is dependent on factors beyond our control, including market conditions and identifying a suitable buyer. If a transaction is not completed, is delayed, or occurs on unfavorable terms, we may continue to be exposed to the costs of that business and may need to consider other alternatives.
Management's Discussion & Analysis (MD&A)
Largest changes
“Sales and marketing expense for the six months ended June 30, 2026 was approximately flat, compared to the comparable prior year period, primarily due to an impairment of long-lived intangible assets recognized in the first quarter of 2026, offset by decreases in amortization of intangible assets, driven by the same impairment, and personnel costs.”see in full comparison
“Interest income and other income (expense), net, for the six months ended June 30, 2026 decreased, compared to the comparable prior year period, primarily due to gains on the repurchase of convertible debt of $42.7 million in the first quarter of 2025, and an impairment of an equity investment of $15.0 million in the first quarter of 2026.”see in full comparison
Interest income and other income (expense), net, for the three months endedsee in full comparisonMarchJune31,30, 2026 decreased, compared to the comparable prior year period, primarily due togainslossesonfromtheforeignrepurchaseexchange,ofoffsetconvertiblebydebt of $42.7 millionincreases intheinterestfirst quarter of 2025, and an impairment of an equity investment of $15.0 million in the first quarter of 2026.income.
“Cost of revenue for the six months ended June 30, 2026 increased, compared to the comparable prior year period, primarily due to an impairment of long-lived intangible assets in the first quarter of 2026.”see in full comparison
General and administrative expense for the three and six months endedsee in full comparisonMarchJune31,30, 2026 decreased, compared to the comparable prior yearperiod,periods, primarily due to decreases in allocated overhead and personnel-related costs, both driven by reductions in ourreductionsreal estate footprint and in headcount,andduedecreasesto restructuring inour allocated overhead.2025.
In the first quarter of 2026, we announced we would sunset the ironSource Ads Network, effective April 30, 2026, andsee in full comparisonengagedwea financial advisor to assist withbegan theplanned divestitureprocess of exiting our Supersonic game publishing business. Following these announcements, we incurred incremental impairment charges of $279 million, in thethreesix months endedMarchJune31,30, 2026, associated with these decisions. The impairment charges include $227 million within cost of revenue, and $47 million within sales and marketing expense. Furthermore, in the six months ended June 30, 2026, we incurred employee separation costs and other non-employee charges of approximately$7$38million, in the three months ended March 31, 2026,million from our ongoing global restructuringefforts.efforts, primarily related to the planned closure of Unity France. These incremental charges areprimaryprimarily in research anddevelopment, and sales and marketing.development.
Full comparison: every changed paragraph (32)
Please read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition, or results of operations. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K filed with the SEC on February 11, 20262026, “Part II, Item 1A. Risk Factors” of our Form 10-Q filed with the SEC on May 7, 2026, and "Part II, Item 1A. Risk Factors" included elsewhere in this report. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements, like all statements in this report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments. See the section titled "Note Regarding Forward-Looking Statements" in this report.
In the first quarter of 2026, we announced we would sunset the ironSource Ads Network, one of our monetization networks, effective April 30, 2026, and engagedwe a financial advisor to assist withbegan the planned divestitureprocess of exiting our Supersonic game publishing business. As a result, revenue from these businesses is now included in non-strategic revenue for all periods presented. The sunset of the ironSource Ads Network was substantially completed in the second quarter of 2026, and the sale of our Supersonic business was completed on August 4, 2026.
As a result of these decisions, we incurred impairments on related long-lived assets of $279 million, in the threesix months ended MarchJune 31,30, 2026, associated with these decisions.2026. The impairment charges include $227 million within cost of revenue, and $47 million within sales and marketing expense.
The following table summarizes our condensed consolidated statements of operations data for the periods indicated (in thousands):
As a result of the sunsetting of the ironSource Ads Network (one of our monetization networks), and planned divestiture of our Supersonic game publishing services, we expect Grow Solutions revenue to consist primarily of our "Unity AdAds Network" (our principal monetization network), by the end of 2026.
Total revenue increased in the three and six months ended MarchJune 31,30, 2026, compared to the comparable prior year period,periods, primarily due to an increase in Grow Solutions revenue from growth in the Unity AdAds Network, driven by “Unity Vector”, partially offset by decreases in revenue from the IronSourceironSource AdAds Network.
The increase in total revenue was further driven by ana slight increase in Create Solutions revenue, primarily due to increases in subscription revenue, partially offset by decreases in cloud and hosting services revenue, driven by our portfolio reset in 2025. Create Solutions subscription revenue in 2025 also benefited from the sale of a term license for approximately $12 million in the second quarter of that year.
Included in revenue in the threesix months ended MarchJune 31,30, 2026 and 2025, are approximately $76$136 million and $115$204 million, respectively, of non-strategic portfolio revenue, primarily in Grow Solutions.
Cost of revenue for the three months ended MarchJune 31,30, 2026 increased,was approximately flat, compared to the comparable prior year period, primarily due to andecreases in amortization of intangible assets, driven by the impairment ofwe long-lived intangible assetsrecognized in the first quarter of 2026, offset by increases in hosting expenses, and in direct costs associated with the sunsetting of the ironSource Ads Network, and planned divestiture of our Supersonicadvertising game publishing services.offerings.
Cost of revenue for the six months ended June 30, 2026 increased, compared to the comparable prior year period, primarily due to an impairment of long-lived intangible assets in the first quarter of 2026.
During 2025 we had workforce reductions from our ongoing restructuring efforts. In the threesix months ended MarchJune 31,30, 2025, we incurred incremental employee separation costs related to these actions of approximately $14$20 million, primarily within research and development, and sales and marketing. In addition, we incurred approximately $6$11 million of non-employee charges associated with this restructuring in 2025.
In the first quarter of 2026, we announced we would sunset the ironSource Ads Network, effective April 30, 2026, and engagedwe a financial advisor to assist withbegan the planned divestitureprocess of exiting our Supersonic game publishing business. Following these announcements, we incurred incremental impairment charges of $279 million, in the threesix months ended MarchJune 31,30, 2026, associated with these decisions. The impairment charges include $227 million within cost of revenue, and $47 million within sales and marketing expense. Furthermore, in the six months ended June 30, 2026, we incurred employee separation costs and other non-employee charges of approximately $7$38 million, in the three months ended March 31, 2026,million from our ongoing global restructuring efforts.efforts, primarily related to the planned closure of Unity France. These incremental charges are primaryprimarily in research and development, and sales and marketing.development.
Research and development expenses primarily consist of personnel-related costs for the design and development of our platform, amortization expenses related to intangible assetsassets, and hosting expenses. We expect our research and development expenses to increase in absolute dollars in the long term, as we invest in new solutions, expand features and functionality with existing solutions, support our artificial intelligence ("AI") and machine learning ("ML") initiatives, and enter new markets. We expect research and development expenses to fluctuate as a percentage of revenue from period to period.
Research and development expense for the three and six months ended MarchJune 31,30, 2026 increased, compared to the comparable prior year period,periods, primarily due to an increase in amortization costs from the change in useful lives of certain intangible assets in 2025.2025, and an increase in hosting expenses.
Our sales and marketing expenses consist primarily of personnel-related costs, the amortization and impairment of intangible assets, personnel-related costs, 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 decrease as a result of the divestiture of the Supersonic business.
Sales and marketing expense for the three months ended MarchJune 31,30, 2026 increased,decreased, compared to the comparable prior year period, primarily due to andecreases in amortization of intangible assets, driven by the impairment ofwe long-lived intangible assetsrecognized in the first quarter of 2026, partially offset by a decrease in personnel costs.2026.
Sales and marketing expense for the six months ended June 30, 2026 was approximately flat, compared to the comparable prior year period, primarily due to an impairment of long-lived intangible assets recognized in the first quarter of 2026, offset by decreases in amortization of intangible assets, driven by the same impairment, and personnel costs.
Our general and administrative expenses primarily consist of personnel-related costs for finance, legal, human resources, IT and administrative employees; allocated overhead,overhead; and professional fees for external legal, accounting, and other professional services.
General and administrative expense for the three and six months ended MarchJune 31,30, 2026 decreased, compared to the comparable prior year period,periods, primarily due to decreases in allocated overhead and personnel-related costs, both driven by reductions in our reductionsreal estate footprint and in headcount, anddue decreasesto restructuring in our allocated overhead.2025.
Interest expense for the three and six months ended June 30, 2026 was approximately flat, compared to the comparable prior year periods.
Interest expense for the three months ended March 31, 2026 increased, compared to the comparable prior year period, due to the amortization of new debt issuance costs, from the issuance of the 2030 Notes, partially offset by a reduction in the amortization of debt issuance costs, driven by the repurchase of a portion of the 2026 Notes.
Interest income and other income (expense), net, consists primarily of interest income earned on our cash and cash equivalents, and impairments of equity investments.investments, Asand weforeign havecurrency expandedgains ourand globallosses. operations, ourOur exposure to fluctuations in foreign currencies hasresults increased,primarily from our global operations, and werelated expectpersonnel this to continue.expense.
Interest income and other income (expense), net, for the three months ended MarchJune 31,30, 2026 decreased, compared to the comparable prior year period, primarily due to gainslosses onfrom theforeign repurchaseexchange, ofoffset convertibleby debt of $42.7 millionincreases in theinterest first quarter of 2025, and an impairment of an equity investment of $15.0 million in the first quarter of 2026.income.
Interest income and other income (expense), net, for the six months ended June 30, 2026 decreased, compared to the comparable prior year period, primarily due to gains on the repurchase of convertible debt of $42.7 million in the first quarter of 2025, and an impairment of an equity investment of $15.0 million in the first quarter of 2026.
Benefit from income taxes for the threesix months ended MarchJune 31,30, 2026 changed, compared to the provision for income taxes in the comparable prior year period, primarily due to a larger current yearcurrent-year tax benefit in foreign jurisdictions resulting from restructuring activities initiated in the first quarter of 2026. For the three months ended June 30, 2026, the provision for income taxes was approximately flat compared to the prior year period.
As of MarchJune 31,30, 2026, our principal sources of liquidity were cash and cash equivalents totaling $2.1$2.4 billion, which were primarily held for working capital purposes. Our cash equivalents are invested primarily in time deposits and in government money market funds.
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.operations, and our commitment to acquire shares of AppsFlyer. See Part I, Item I, Note 7 — "Commitments and Contingencies" for additional discussion of our principal contractual commitments.
Since our inception, we have generated losses from our operations as reflected in our accumulated deficit of $4.5 billion as of MarchJune 31,30, 2026. We expect to continue to incur operating losses on a GAAP basis for the foreseeable future due to the investments we will continue to make in research and development, sales and marketing, and general and administrative. As a result, we may require additional capital to execute our strategic initiatives to grow our business.
We believe our existing sources of liquidity will be sufficient to meet our working capital and capital expenditures for at least the next 12 months, including our current intent to settle the principal amountrepayment of the 2026 Notes within cash upon their maturity in November 2026. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and potential future equity or debt transactions. Our future capital requirements, however, will depend on many factors, including our growth rate; the timing and extent of spending to support our research and development efforts; capital expenditures to build out new facilities and purchase hardware and software; the expansion of sales and marketing activities; and our continued need to invest in our IT infrastructure to support our growth. In addition, we have in the past entered into, and may in the future enter intointo, additional strategic partnerships as well as agreements to acquire or invest in complementary offerings, teams and technologies, including intellectual property rights, which could increase our cash requirements. As a result of these and other factors, we may choose or be required to seek additional equity or debt financing sooner than we currently anticipate. In addition, depending on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors, we may also from time to time seek to retire or purchase our outstanding debt, including the Notes, through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all, including as a result of macroeconomic conditions such as high interest rates, volatility in the capital markets and liquidity concerns at, or failures of, banks and other financial institutions. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, and financial condition would be adversely affected.
During the threesix months ended MarchJune 31,30, 2026, net cash provided by operating activities was primarily due to a decrease in our net loss, adjusted for certain non-cash items, which include impairments, depreciation and amortization, stock-based compensation, and other, and to a lesser extent, an increase in operating assets and liabilities. Our cash flows can fluctuate from period to period due to revenue seasonality, timing of billings, collections, and publisher payments, and historical cash flows are not necessarily indicative of our results in any future period.
During the threesix months ended MarchJune 31,30, 2026, net cash used in investing activities consisted primarily of purchases of property and equipment.
During the threesix months ended MarchJune 31,30, 2026, net cash provided by financing activities consisted of proceeds from the issuance of common stock under our employee equity plans.
U insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 10 filings (5 insiders, 5 trade dates, 307,868 shares, about $10.3M; 2 of these filings say the sales were made under a Rule 10b5-1 trading plan). Net open-market shares: -307,868 (purchases minus sales); net value about -$10.3M.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-28 | Blum Alexander |
Open-market sale |
11,947 | $43.86 | $524.0K |
| 2026-08-28 | Blum Alexander |
Open-market sale |
31,609 | $43.38 | $1.4M |
| 2026-08-27 | Blum Alexander |
Open-market sale |
1,964 | $44.81 | $88.0K |
| 2026-08-25 | Blum Alexander |
Open-market sale |
19,455 | $45.27 | $880.7K |
| 2026-08-25 | Blum Alexander |
Open-market sale |
1,140 | $45.93 | $52.4K |
| 2026-08-25 | Boyden Rebecca Berenice |
Open-market sale | 92 | $45.92 | $4.2K |
| 2026-08-25 | Boyden Rebecca Berenice |
Open-market sale | 940 | $45.26 | $42.5K |
| 2026-08-25 | Bromberg Matthew S |
Open-market sale | 15,713 | $45.28 | $711.5K |
| 2026-08-25 | Bromberg Matthew S |
Open-market sale | 670 | $45.96 | $30.8K |
| 2026-08-25 | Yahes Jarrod |
Open-market sale | 24,817 | $45.28 | $1.1M |
| 2026-08-25 | Yahes Jarrod |
Open-market sale | 1,200 | $45.95 | $55.1K |
| 2026-08-07 | Durban Egon |
Other | 21,537 | — | — |
| 2026-08-07 | Botha Roelof |
Other | 461,106 | — | — |
| 2026-08-04 | Lieb Michael |
Grant/award | 38,948 | — | — |
| 2026-05-28 | Blum Alexander |
Open-market sale | 2,099 | $27.37 | $57.4K |
| 2026-05-26 | Yahes Jarrod |
Open-market sale | 24,021 | $27.18 | $652.9K |
| 2026-05-26 | Bromberg Matthew S |
Open-market sale | 138,993 | $27.18 | $3.8M |
| 2026-05-26 | Boyden Rebecca Berenice |
Open-market sale | 952 | $27.20 | $25.9K |
| 2026-05-26 | Blum Alexander |
Open-market sale | 19,009 | $27.18 | $516.7K |
| 2026-05-26 | Barrysmith Mark |
Open-market sale | 13,247 | $27.18 | $360.1K |
| 2026-05-13 | Botha Roelof |
Grant/award | 13,201 | — | — |
| 2026-05-13 | Schuler Barry |
Grant/award | 13,015 | — | — |
| 2026-05-13 | Slp Union Gp, L.l.c. |
Grant/award | 16,176 | — | — |
| 2026-05-13 | Whitehurst James M |
Grant/award | 8,181 | — | — |
| 2026-05-13 | Kim Bernard Jin |
Grant/award | 7,995 | — | — |
| 2026-05-13 | Dovrat Shlomo |
Grant/award | 12,086 | — | — |
| 2026-05-13 | Sisco Daly Robynne |
Grant/award | 7,995 | — | — |
| 2026-05-13 | Smith Keisha |
Grant/award | 10,226 | — | — |
| 2026-05-01 | Kim Bernard Jin |
Grant/award | 14,743 | — | — |
Well-known investors holding U (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| D. E. Shaw & Co. | 2026-06-30 | 9,082,560 | $259.6M | 0.16% | Added 13% |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 7,248,193 | $207.2M | 0.07% | Added 2421% |
| Point72 Asset Management (Steve Cohen) | 2026-06-30 | 6,805,922 | $194.5M | 0.3% | Added 2% |
| Two Sigma Investments | 2026-06-30 | 6,750,900 | $192.9M | 0.15% | Reduced 15% |
| Millennium Management (Israel Englander) | 2026-06-30 | 4,551,519 | $130.1M | 0.09% | Added 41% |
| D1 Capital Partners (Dan Sundheim) | 2026-06-30 | 3,572,473 | $102.1M | 0.29% | Added 10% |
| Millennium Management (Israel Englander) | 2026-06-30 | 0 | $65.3M | 0.04% | No change |
| D. E. Shaw & Co. | 2026-06-30 | 0 | $57.1M | 0.04% | No change |
| Oaktree Capital Management (Howard Marks) | 2026-06-30 | 0 | $48.6M | 0.92% | No change |
| Renaissance Technologies | 2026-06-30 | 1,527,297 | $43.7M | 0.06% | Reduced 39% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 615,901 | $17.6M | 0.01% | Reduced 88% |
| Millennium Management (Israel Englander) | 2026-06-30 | 0 | $13.1M | 0.01% | No change |
| Gotham Asset Management (Joel Greenblatt) | 2026-06-30 | 404,166 | $11.6M | 0.03% | Added 21% |
| PRIMECAP Management | 2026-06-30 | 152,710 | $4.4M | 0.0% | Reduced 8% |
| Duquesne Family Office (Stanley Druckenmiller) | 2026-06-30 | 738,785 | $21.1K | 0.48% | No change |