Unity Software(U) - 2024 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Unity Software Inc.'s unaudited condensed consolidated financial statements for Q1 2024, including core financial statements and comprehensive notes Condensed Consolidated Balance Sheets The balance sheets show a decrease in total assets and liabilities from December 31, 2023, to March 31, 2024, with stable stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Total Assets | $6,753,263 | $7,243,441 | | Total Liabilities | $3,338,539 | $3,829,063 | | Total Stockholders' Equity | $3,189,988 | $3,188,581 | | Cash and cash equivalents | $1,179,962 | $1,590,325 | | Convertible notes (liability) | $2,236,415 | $2,711,750 | Condensed Consolidated Statements of Operations Statements of operations indicate an increased net loss for Q1 2024, driven by higher operating expenses despite decreased revenue Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $460,380 | $500,361 | | Gross profit | $315,993 | $338,397 | | Total operating expenses | $690,922 | $593,381 | | Loss from operations | $(374,929) | $(254,984) | | Net loss | $(291,478) | $(253,703) | | Basic and diluted net loss per share attributable to Unity Software Inc. | $(0.75) | $(0.67) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss increased in Q1 2024 due to net loss and a negative foreign currency translation adjustment Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss | $(291,478) | $(253,703) | | Change in foreign currency translation adjustment | $(3,461) | $3,157 | | Other comprehensive income (loss) | $(3,461) | $2,830 | | Comprehensive loss | $(294,939) | $(250,873) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased from employee equity plans and stock-based compensation, partially offset by accumulated deficit Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | Balance at Dec 31, 2023 | Issuance from employee equity plans | Stock-based compensation expense | Net loss | Other comprehensive loss | Balance at Mar 31, 2024 | | :----------------------- | :---------------------- | :---------------------------------- | :------------------------------- | :------- | :----------------------- | :---------------------- | | Additional Paid-In Capital | $6,259,479 | $25,997 | $269,288 | — | — | $6,554,787 | | Accumulated Deficit | $(3,071,830) | — | — | $(291,074) | — | $(3,362,904) | | Accumulated Other Comprehensive Loss | $(5,009) | — | — | — | $(2,751) | $(7,760) | Condensed Consolidated Statements of Cash Flows Cash flows shifted from net cash provided by investing and financing in Q1 2023 to cash used in financing in Q1 2024, due to convertible note repayments Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(7,373) | $(5,099) | | Net cash provided by (used in) investing activities | $(7,190) | $88,111 | | Net cash provided by (used in) financing activities | $(389,001) | $21,971 | | Repayments of convertible note | $(414,999) | — | | Increase (decrease) in cash, cash equivalents, and restricted cash | $(409,766) | $108,134 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, revenue, financial instruments, and borrowings 1. Accounting Policies This section outlines the basis of presentation for the financial statements, the use of estimates, and the accounting for employee separation and restructuring costs incurred in Q1 2024 - The company prepared its unaudited condensed consolidated financial statements in accordance with U.S. GAAP and SEC rules for interim financial reporting[29] - In Q1 2024, the company incurred approximately $193 million in employee separation costs, including $126 million of incremental stock-based compensation, and $19 million in restructuring costs, primarily due to a 25% workforce reduction and the departure of ironSource Ltd. founders[31] 2. Revenue Revenue is disaggregated by source (Create and Grow Solutions) and geography, showing a decline in total revenue Revenue Disaggregated by Source (in thousands) | Revenue Source | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------- | :-------------------------------- | :-------------------------------- | | Create Solutions | $163,670 | $187,369 | | Grow Solutions | $296,710 | $312,992 | | Total revenue | $460,380 | $500,361 | Revenue Disaggregated by Geography (in thousands) | Geography | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------- | :-------------------------------- | :-------------------------------- | | United States | $139,119 | $132,994 | | Greater China | $59,690 | $59,548 | | EMEA | $166,770 | $186,724 | | APAC | $84,036 | $107,528 | | Other Americas | $10,765 | $13,567 | | Total revenue | $460,380 | $500,361 | - Revenue recognized during Q1 2024 that was included in deferred revenue balances at January 1, 2024, was $76.3 million[37] - As of March 31, 2024, remaining performance obligations for contracts exceeding one year totaled $357 million, with approximately $205 million (57%) expected to be recognized in the next 12 months[38] 3. Financial Instruments This section details the fair value measurement of cash, cash equivalents, and restricted cash, and notes that no adjustments were made to the carrying value of equity investments in unconsolidated entities during the reporting periods Cash, Cash Equivalents, and Restricted Cash (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | Cash | $888,092 | $834,877 | | Restricted cash and cash equivalents | $306,409 | $769,390 | | Total cash, cash equivalents, and restricted cash | $1,194,501 | $1,604,267 | - Equity investments in certain unconsolidated entities without a readily determinable fair value totaled $33.6 million as of March 31, 2024, and December 31, 2023, with no adjustments to carrying value in Q1 2024 or Q1 2023[40] 4. Investment in Unity China This section provides information on the redeemable noncontrolling interests in Unity China, where third-party investors hold a 20.5% ownership, and the changes in these interests during the period Changes in Redeemable Noncontrolling Interests (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Balance at beginning of period