Unity Software(US:U)2025-08-06 20:02PART I—FINANCIAL INFORMATION Item 1. Financial Statements Unity's unaudited condensed consolidated financial statements for the period ended June 30, 2025, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, are presented with accompanying notes detailing accounting policies and financial instrument values Condensed Consolidated Balance Sheets As of June 30, 2025, Unity's total assets were $6.72 billion, a slight decrease from $6.74 billion at the end of 2024, with cash and cash equivalents increasing to $1.69 billion, total liabilities at $3.28 billion, and total stockholders' equity at $3.19 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $6,716,424 | $6,737,407 | | Cash and cash equivalents | $1,691,045 | $1,517,672 | | Goodwill | $3,166,304 | $3,166,304 | | Total Liabilities | $3,282,349 | $3,310,259 | | Convertible notes | $2,233,255 | $2,238,922 | | Total Stockholders' Equity | $3,193,378 | $3,196,521 | Condensed Consolidated Statements of Operations For Q2 2025, Unity reported revenue of $440.9 million, a decrease from $449.3 million in Q2 2024, with net loss narrowing to $107.4 million from $125.7 million year-over-year, and H1 2025 revenue at $875.9 million with a net loss of $185.3 million, a significant improvement from a $417.2 million loss in H1 2024 Q2 and H1 2025 Statement of Operations (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $440,944 | $449,259 | $875,944 | $909,639 | | Gross Profit | $326,733 | $340,384 | $647,776 | $656,377 | | Loss from Operations | $(118,752) | $(129,420) | $(246,687) | $(504,349) | | Net Loss | $(107,365) | $(125,738) | $(185,272) | $(417,216) | | Diluted Net Loss Per Share | $(0.26) | $(0.32) | $(0.45) | $(1.07) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities was $146.1 million, a significant increase from $81.0 million in the prior year, with net cash used in investing activities at $14.2 million, and net cash provided by financing activities at $22.0 million, a major shift from $377.7 million used in H1 2024, primarily due to convertible notes Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $146,122 | $81,003 | | Net cash used in investing activities | $(14,164) | $(16,316) | | Net cash provided by (used in) financing activities | $22,031 | $(377,697) | | Increase (decrease) in cash | $173,626 | $(322,470) | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, revenue recognition, financial instruments, borrowings, and other key financial statement items, highlighting a change in intangible asset useful life, revenue disaggregation, and details on convertible notes and restructuring costs - Effective July 1, 2025, the company revised the estimated useful life for certain intangible assets (primarily developed technology from the Wētā FX acquisition) from 4-7 years down to 1-3 years, expected to increase amortization expense by approximately $77 million for the year ending December 31, 202533 Revenue by Source (in thousands) | Revenue Source | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Create Solutions | $153,782 | $150,777 | $304,160 | $314,447 | | Grow Solutions | $287,162 | $298,482 | $571,784 | $595,192 | | Total revenue | $440,944 | $449,259 | $875,944 | $909,639 | - In H1 2025, the company incurred approximately $20 million in employee separation costs and $11 million in other restructuring costs, compared to $201 million in employee separation costs and $38 million in other restructuring costs in H1 202434 - In February 2025, Unity issued $690 million of 0% Convertible Senior Notes due 2030, using proceeds to purchase capped calls and repurchase a portion of the 2026 notes, leading to a pre-tax gain of $42.7 million from repurchasing $688 million of 2026 notes for $642 million during Q1 20255058 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion covers Unity's financial performance, key business metrics, and operational results for Q2 2025, analyzing revenue trends, cost structures, and profitability, while highlighting the impact of restructuring, strategic shifts to the 'Strategic Portfolio' and 'Unity Vector' AI platform, non-GAAP measures, and liquidity Key Metrics The company's key performance indicators show mixed results, with a slight year-over-year increase in customers contributing over $100,000 in trailing 12-month revenue, and the dollar-based net expansion rate improving to 100% from 96% in the prior year, driven by reduced declines in Grow Solutions revenue offset by subscription growth - Customers contributing more than $100,000 of revenue in the trailing 12 months increased to 1,270 as of June 30, 2025, from 1,254 a year prior86 Dollar-Based Net Expansion Rate | As of | Rate | | :--- | :--- | | June 30, 2025 | 100% | | June 30, 2024 | 96% | Results of Operations Total revenue decreased in Q2 and H1 2025 compared to the prior year, primarily due to a decline in Grow Solutions revenue from competition and resource allocation changes, though the migration of the Unity Ad Network to the new 'Unity Vector' AI platform led to 15% sequential growth for that network, and operating expenses decreased significantly in H1 2025 due to headcount reductions from restructuring - Total revenue decreased in Q2 and H1 2025, mainly due to a drop in Grow Solutions revenue, partially offset by an increase in subscription revenue and a $12 million term license sale in Q2 20259798 - The migration of the Unity Ad Network to the new AI platform, 'Unity Vector', resulted in 15% growth from Q1 2025 to Q2 2025, with this network now representing 49% of total Grow Solutions revenue for Q2 202597 - Operating expenses for H1 2025 decreased significantly compared to H1 2024, primarily due to lower personnel-related costs following workforce reductions, with H1 2024 including approximately $201 million in incremental employee separation costs104109111 Non-GAAP Financial Measures Unity provides non-GAAP metrics to supplement its GAAP results, with Adjusted EBITDA for Q2 2025 at $90.5 million, down from $113.5 million in Q2 2024, and Adjusted EPS at $0.18, compared to $0.22 in the prior-year quarter Reconciliation of GAAP Net Loss to Adjusted EBITDA (in thousands) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | GAAP net loss | $(107,365) | $(125,738) | | Stock-based compensation expense | 101,435 | 113,766 | | Amortization of intangible assets | 86,218 | 88,432 | | Depreciation expense | 10,710 | 12,977 | | Restructuring and reorganization costs | 10,886 | 27,714 | | Other adjustments | (11,357) | (3,682) | | Adjusted EBITDA | $90,497 | $113,469 | Adjusted EPS | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | | Adjusted EPS | $0.18 | $0.22 | Liquidity and Capital Resources As of June 30, 2025, Unity's principal source of liquidity was $1.7 billion in cash and cash equivalents, with the company generating positive free cash flow of $134.0 million in H1 2025, a substantial improvement from $65.0 million in the prior year, and management believes existing liquidity is sufficient to meet needs for at least the next 12 months - Principal sources of liquidity as of June 30, 2025, were cash and cash equivalents totaling $1.7 billion129 Free Cash Flow Reconciliation (in thousands) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $146,122 | $81,003 | | Less: Purchases of property and equipment | (12,164) | (15,956) | | Free cash flow | $133,958 | $65,047 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that its assessment of exposures to market risk has not materially changed since the disclosure in its Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no material changes to the company's market risk exposures since its 2024 Annual Report141 Item 4. Controls and Procedures Management, including the principal executive and financial officers, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the reporting period143 - No material changes to internal control over financial reporting were identified during the quarter ended June 30, 2025144 PART II—OTHER INFORMATION Item 1. Legal Proceedings Legal matters involving the company are detailed, including the dismissal of a securities class action in March 2025 and related federal and Delaware derivative actions in July 2025, with the company not expecting a material adverse effect from their resolution - The securities class action lawsuit (In re Unity Software Inc. Securities Litigation) was dismissed with prejudice on March 12, 2025146 - Related federal derivative actions were dismissed without prejudice on July 1, 2025, and Delaware derivative actions were dismissed with prejudice on July 22, 2025147 Item 1A. Risk Factors Unity highlights a new risk factor concerning the increasing integration of Artificial Intelligence (AI) into its offerings, noting potential risks related to intellectual property infringement from training data, regulatory scrutiny, competition, and market acceptance of its AI technologies like Vector and the Unity AI product line - A new risk factor has been added regarding the use of AI in the company's offerings150152 - Key AI-related risks include potential liability from third-party models trained on infringing data, regulatory scrutiny of generative AI, and uncertain market acceptance of new AI products152153154 Item 5. Other Information The adoption and termination of Rule 10b5-1 trading plans by the company's directors and officers during Q2 2025 are disclosed, noting new plans adopted by the CEO, COO, and Chief Legal Officer, alongside other terminated plans Rule 10b5-1 Trading Plan Activity (Q2 2025) | Name | Title | Action | Date | | :--- | :--- | :--- | :--- | | Anirma Gupta | SVP, Chief Legal Officer | Termination | May 9, 2025 | | Anirma Gupta | SVP, Chief Legal Officer | Adoption | May 9, 2025 | | Alexander Blum | SVP, Chief Operating Officer | Adoption | May 9, 2025 | | Matthew Bromberg | President and CEO | Adoption | May 14, 2025 | | David Helgason | Director | Termination | June 9, 2025 | | David Helgason | Director | Adoption | June 9, 2025 |