UNITY SOFTWARE INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

Please read the following discussion and analysis of our financial condition and
results of operations together with our consolidated financial statements and
related notes included under Part II, Item 8 of this Annual Report on Form 10-K.
The following discussion and analysis contains forward-looking statements that
involve risks and uncertainties. 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" 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 are statements
that attempt to forecast or anticipate future developments in our business,
financial condition or results of operations. See the section titled "Note
Regarding Forward-Looking Statements" in this report. These 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.

This section of this Form 10-K generally discusses 2021 and 2020 items and
year-to-year comparisons between 2021 and 2020. Discussion of 2019 and
year-over-year comparisons between fiscal 2020 and 2019 that are not included in
this Form 10-K can be found under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operation" in Part II, Item 7 of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, that
was filed with the SEC on March 5, 2021.

Overview

Unity is the world’s leading platform for creating and exploiting interactive RT3D content.

Our platform provides a complete set of software solutions to create, run and monetize real-time interactive 2D and 3D content for mobile phones, tablets, PCs, consoles and augmented and virtual reality devices.

Our platform consists of two distinct, but connected and synergistic, sets of
solutions: Create Solutions and Operate Solutions. Our Create Solutions are used
by content creators-developers, artists, designers, engineers, and architects-to
create interactive, real-time 2D and 3D content. Content can be created once and
deployed to more than 20 platforms, including Windows, Mac, iOS, Android,
PlayStation, Xbox, Nintendo Switch, and the leading augmented and virtual
reality platforms, among others. Our Operate Solutions offer customers the
ability to grow and engage their end-user base, as well as run and monetize
their content with the goal of optimizing end-user acquisition and operational
costs, while increasing the lifetime value of their end users.

We launched our first game development engine in 2004, bringing together a set
of tools, such as rendering, lighting, physics, sound, animation, and user
interface, that were designed to address the challenges faced by most game
developers. Prior to Unity, developers primarily created these tools
individually and repetitively across different target platforms, which was an
expensive and time-consuming process. Unity made game development easier and
faster.

In the year ended December 31, 2021, we built upon our history of innovation by
achieving a number of milestones that secured our position as the leading
platform for creating and operating interactive, RT3D content including those
identified below.

•Unity's Operate Solutions continued to command attention: In 2021, Operate
Solutions contributed to the stability and success of more than 200 thousand
games. Use of Unity monetization services drove more than 2 billion net-new
installs, and as cross-platform, multiplayer games became more mainstream, our
Multiplay and Vivox offerings continue to grow. They supported some of the most
successful game launches last year including Amazon's New World and Splitgate by
1,047 Games.

                                       64
--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


•Unity's Create Solutions accelerated throughout the year: Create Solutions
experienced a strong year across games and non-gaming. In late 2021
particularly, AAA publishers and platform providers launched made with Unity
games, including Riot Games' Ruined King: A League of Legends Story. Unity
continued to expand market share within the top 1,000 mobile games in 2021.
Outside of gaming, Unity's RT3D capabilities led to more customers across
industries and use-cases to implement Unity software as part of their digital
strategies. For example, Hyundai Motors and Unity partner to connect a physical
factory with its digital twin to enhance plant management, drive productivity
and innovate in the manufacturing process. eBay partnered with unity to enable
sellers to showcase the actual item they are selling in Unity's proprietary,
interactive 360-view.

•Unity expanded its addressable market through strategic acquisitions and
product innovations: In 2021, Unity added key capabilities and expanded its
addressable market with key acquisitions, heavily focused on supporting artists.
In the remote collaboration space, Unity brought on remote access platform
Parsec and SyncSketch, which enables cloud-based, secure collaboration between
separated creators and artists. With certain tools and technologies from Weta
Digital, Interactive Data Visualization (makers of SpeedTree), and most
recently, Ziva Dynamics, Unity aims to democratize access to some of artistry's
most exclusive tools and services via the cloud. On the product front, Unity
introduced Unity Game Services, which unifies existing solutions and introduces
new tools and services to simplify launching cross-platform, multiplayer games.
These initiatives expanded the company's total addressable market, increased its
serviceable market and strengthened the value of the Unity platform to
customers.

We continue to invest in research and development and seek selective acquisitions and partnerships to enhance and expand our platform.

Impact of COVID-19

While our total revenue, cash flows, and overall financial condition have not
been adversely impacted to date, the COVID-19 pandemic has caused general
business disruption worldwide beginning in January 2020. The full extent to
which the COVID-19 pandemic, including any new strains or mutations such as the
delta or omicron variants, will directly or indirectly impact our business,
results of operations, and financial condition will depend on future
developments that are highly uncertain and cannot be accurately predicted.
Although we experienced a modest adverse impact on our sales of Create Solutions
as well as our Strategic Partnerships in 2020, our pipeline of customer
opportunities for our Create Solutions and Strategic Partnerships were largely
back to normal levels by the end of 2020 and we have not experienced COVID-19
related impacts on our Create Solutions during 2021. We did see an increase in
demand for our portfolio of products and services within Operate Solutions
following the implementation of shelter-in-place orders to mitigate the outbreak
of COVID-19, which resulted in higher levels of end-user engagement in Operate
Solutions and an increase in revenue, along with a decrease in operating expense
due to materially reduced travel and spending on events and facilities, which
moderated over time. This increased demand for our Operate Solutions will likely
continue to moderate over time, particularly as vaccines are becoming widely
available, and as shelter-in-place orders and other related measures and
community practices evolve. As restrictions related to COVID-19 ease, we expect
travel and spending on events and facilities to increase. In response to the
COVID-19 pandemic, we are also requiring or have required substantially all of
our employees to work remotely to minimize the risk of the virus to our
employees and the communities in which we operate. We are currently planning for
most of our employees to return to in-person offices later in 2022, however our
plans may change if the number of COVID-19 cases rises where our offices are
located or if there is an increase in new strains such as the delta or omicron
variants, and we may take further actions as may be required by government
authorities or that we determine are in the best interests of our employees,
customers, and business partners.
                                       65

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


The global impact of the COVID-19 pandemic continues to rapidly evolve, and we
will continue to monitor the situation and the effects on our business and
operations closely. We do not yet know the full extent of potential impacts on
our business or operations or on the global economy as a whole, particularly as
the COVID-19 pandemic persists. The return of more in-person activities will
result in an increase in our expenses and could result in a range of impacts to
our customers, which could impact our business. Given the uncertainty, we cannot
reasonably estimate the impact on our future results of operations, cash flows,
or financial condition. For additional details, refer to the section titled
"Risk Factors."

Key indicators

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

Clients contributing more than $100,000 of sales

We have a history of strong growth in our customer base. We focus on the number
of customers that generated more than $100,000 of revenue in the trailing 12
months, as this segment of our customer base represents the majority of our
revenue and revenue growth. We expect that trend to continue. 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 1,052, 793, and 600 of such customers in the trailing 12 months as of
December 31, 2021, 2020, and 2019, respectively, demonstrating our ability to
grow our revenues with existing customers, and our strong and growing
penetration of larger enterprises, including AAA gaming studios and large
organizations in industries beyond gaming. While these customers represented the
substantial majority of revenue for the years ended December 31, 2021, 2020, and
2019, respectively, no one customer accounted for more than 10% of our revenue
for either year.

Net expansion rate in dollars

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
Operate 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 Operate Solutions revenue 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.

                                               As of December 31,
                                           2021            2020       2019
Dollar-based net expansion rate                 140  %     138  %     133  %


Our dollar-based net expansion rate as of December 31, 2021, 2020, and 2019 was
driven primarily by the sales of additional subscriptions and services to our
existing Create Solutions customers, expanded consumption among our existing
Operate Solutions customers, and improvements in cross-selling our solutions to
all of our customers.

                                       66
--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


The chart below illustrates our strong relationship with existing customers by
presenting our dollar-based net expansion rate as of the end of each of the past
eight quarters.

                    [[Image Removed: unity-20211231_g2.jpg]]

Operating results

The following table summarizes the historical data for our Consolidated Statements of Income for the periods indicated (in thousands):

                                                        Year Ended December 31,
                                                             2021             2020            2019
Revenue                                                  $ 1,110,526      $  772,445      $  541,779
Cost of revenue                                              253,630         172,347         118,597
Gross profit                                                 856,896         600,098         423,182
Operating expenses
Research and development                                     695,710         403,515         255,928
Sales and marketing                                          344,939         216,416         174,135
General and administrative                                   347,912         254,979         143,788
Total operating expenses                                   1,388,561         874,910         573,851
Loss from operations                                        (531,665)       (274,812)       (150,669)
Interest expense                                              (1,131)         (1,520)              -
Interest income and other expense, net                         1,566          (3,885)         (2,573)
Loss before provision for income taxes                      (531,230)       (280,217)       (153,242)
Provision for income taxes                                     1,377           2,091           9,948
Net loss                                                 $  (532,607)     $ (282,308)     $ (163,190)


                                       67
--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


The following table shows the data components of our Consolidated Statements of Income as a percentage of revenue for the periods indicated:

                                                            Year Ended December 31,
                                                                             2021       2020       2019
Revenue                                                                      100  %     100  %     100  %
Cost of revenue                                                               23         22         22
Gross margin                                                                  77         78         78
Operating expenses
Research and development                                                      63         52         47
Sales and marketing                                                           31         28         32
General and administrative                                                    31         33         27
Total operating expenses                                                     125        113        106
Loss from operations                                                         (48)       (36)       (28)
Interest expense                                                               -          -          -
Interest income and other expense, net                                         -         (1)         -
Loss before provision for income taxes                                       (48)       (37)       (28)
Provision for income taxes                                                     -          -          2
Net loss                                                                     (48) %     (37) %     (30) %


Revenue

We derive revenue from Creating Solutions, Operating Solutions, and Strategic and Other Partnerships.

Create Solutions

We generate revenue from Create Solutions primarily through the sale of subscription fee arrangements for the use of our products and related support services.

We offer subscription plans at various price points and recognize revenue over a
service period that generally ranges from one to three years. We typically bill
our customers on a monthly, quarterly or annual basis, depending on the size of
the contract. As a result of billing our customers in advance, we record
deferred revenue, and a portion of the revenue we report in each period is
attributable to the recognition of deferred revenue related to subscription and
support agreements that we entered into during previous periods.

We generate additional revenue from Create Solutions through the sale of professional services to our subscriber clients. These services primarily consist of consulting, integration, training, and development of custom applications and workflows, and can be billed in advance or on a time and material basis.

Operating solutions

We generate Operate Solutions revenue through a combination of revenue-share and
consumption-based business models that we manage as a portfolio of products and
services.

                                       68
--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


Our monetization products are primarily based on a revenue-share model. These
products were introduced in 2014 as our first set of Operate Solutions products
and currently account for a substantial majority of our Operate Solutions
revenue. We recognize monetization revenue when an end user installs an
application after seeing an advertisement (contracted on a cost-per-install
basis), and when an advertisement starts (contracted on a cost-per-impression
basis). Our revenue represents the amount we retain from the transaction we are
facilitating through our Unified Auction. Actions by operating system platform
providers or application stores such as Apple or Google may affect the manner in
which we or our customers collect, use and share data from end-user devices. For
example, Apple recently implemented a requirement for applications using its
mobile operating system, iOS, to affirmatively (on an opt-in basis) obtain an
end user's permission to "track them across apps or websites owned by other
companies" or access their device's advertising identifier for advertising and
advertising measurement purposes, as well as other restrictions. If end-users do
not opt-in to participate in such tracking as defined by Apple, our ability to
monetize through advertising could suffer. The long-term impact of these and
other privacy and regulatory changes remains uncertain.

We also provide cloud-based services to support the ongoing operation of games
and applications. These include application hosting services, as well as
end-user engagement tools and voice chat services. These services are generally
sold based on consumption and billed monthly in arrears. Some of our
consumption-based contracts include a minimum fixed-fee consumption amount. We
expect that our Operate Solutions beyond monetization, including cloud
operations and hosting services, such as Multiplay, which we introduced in 2018,
will grow as a percentage of our revenue in the long term as we further scale
newer products and services and as we launch additional solutions for gaming
customers as well as customers in other industries.

Strategic and other partnerships

We generate Strategic Partnerships revenue primarily from partnership contracts
with hardware, operating system, device, game console, and other technology
providers. Typically, we recognize revenue from these contracts as services are
performed. These partnerships are typically multi-year software development
arrangements with payments that are either made in advance on a quarterly basis
or milestone-based. In addition, certain partners pay us royalties based on the
sales of applications sold on their platform that incorporate or use our
customized software.

We generate Other revenue primarily from our share of sales from our Asset
Store, a marketplace and scaled aggregator for software, content, and tools used
in the creation of real-time interactive games and applications, and from our
Verified Solutions Partners, which sell software and tools certified for quality
and compatibility with our platform.

                                       69

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


Our total revenue is summarized as follows (in thousands, except percentages):

                                  Year Ended                                                               Year Ended
                                 December 31,                            Change                           December 31,                           Change
                            2021                2020              Amount             %               2020               2019              Amount             %
Create Solutions       $   326,636          $ 231,314          $  95,322             41  %       $ 231,314          $ 168,626          $  62,688             37  %
Operate Solutions          709,140            471,161            237,979             51  %       $ 471,161          $ 293,317          $ 177,844             61  %
Strategic Partnerships
and Other                   74,750             69,970              4,780              7  %       $  69,970          $  79,836          $  (9,866)           (12) %
Total revenue          $ 1,110,526          $ 772,445          $ 338,081             44  %       $ 772,445          $ 541,779          $ 230,666             43  %


The increase in revenue in the year ended December 31, 2021 compared to the year
ended December 31, 2020 was substantially due to revenue growth among existing
customers. In the year ended December 31, 2021, the increase in revenue was
primarily due to an increase in revenue from our Create Solutions and Operate
Solutions. Create Solutions revenue growth was largely attributable to an
increase in new customers, as well as expansion of existing customers. Within
Operate Solutions, the substantial majority of our revenue growth was driven by
an increase in revenue per customer as customers increased their consumption
across our Operate portfolio of products and services due in part to the higher
levels of end-user engagement as a result of strong product and sales execution.
We also saw an increase in new customers within Operate Solutions.

Cost of revenue, gross profit and gross margin

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

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

Our cost of sales, gross profit and gross margin are summarized as follows (in thousands, except percentages):

                                                        Year Ended                                                                   Year Ended
                                         December 31,                      Change                               December 31,                               Change
                                                                  2021                2020               Amount                 %                 2020                2019                 Amount                %
Cost of revenue                                               $     253,630       $     172,347       $      81,283               47  %       $     172,347       $     118,597       $          53,750          45  %
Gross profit                                                  $     856,896       $     600,098       $     256,798               43  %       $     600,098       $     423,182       $         176,916          42  %
Gross margin                                                        77    %             78    %                                   (1) %             78    %             78    %                                   -  %


Cost of revenue for the year ended December 31, 2021 increased primarily due to
an increase of $43.0 million in personnel-related expense driven by higher
stock-based compensation expense of $14.2 million as headcount increased to
support our Create Solutions and Strategic Partnerships. IT hosting expense also
increased by $21.5 million to support growth in our Create and Operate
solutions.

Functionnary costs

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

                                       70

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


Research and Development

Research and development expenses primarily consist of personnel-related costs
for the design and development of our platform, third-party software services,
professional services, and allocated overhead. We expense research and
development expenses as they are incurred. We expect our research and
development expenses to increase in absolute dollars and may fluctuate as a
percentage of revenue from period to period as we expand our teams to develop
new products, expand features and functionality with existing products, and
enter new markets.

Research and development expense is summarized as follows (in thousands, except
percentages):

                                         Year Ended                                                              Year Ended
                                        December 31,                           Change                           December 31,                           Change
                                   2021               2020              Amount             %               2020               2019              Amount             %
Research and development       $ 695,710          $ 403,515          $ 292,195             72  %       $ 403,515          $ 255,928          $ 147,587             58  %


Research and development expense for the year ended December 31, 2021 increased
primarily due to an increase of $239.1 million in personnel-related expenses,
including higher stock-based compensation expense of $99.6 million as headcount
increased to support continued product innovation. IT hosting expense increased
by $26.7 million due to growing data and compute needs.

Sales and Marketing

Our sales and marketing expenses consist primarily of personnel-related costs;
advertising and marketing programs, including digital account-based marketing,
user events such as developer-centric conferences and our annual Unite user
conferences; and allocated overhead. We expect that our sales and marketing
expense will increase in absolute dollars as we hire additional personnel,
increase our account-based marketing, direct marketing and community outreach
activities, invest in additional tools and technologies, and continue to build
brand awareness. Our expenses may fluctuate as a percentage of revenue from
period to period.

Sales and marketing expense is summarized as follows (in thousands, except
percentages):

                                                         Year Ended                                                             Year Ended
                                          December 31,                  Change                             December 31,                            Change
                                                                2021               2020               Amount               %               2020               2019             Amount             %
Sales and marketing                                         $ 344,939          $ 216,416          $    128,523             59  %       $ 216,416          $ 174,135          $ 42,281             24  %


Sales and marketing expense for the year ended December 31, 2021 increased
primarily due to an increase of $97.9 million in personnel-related expenses,
including higher stock-based compensation expense of $46.9 million as headcount
increased to support the growth of our sales and marketing teams. In addition,
advertisement expenditures on various social media platforms increased by
$8.4 million.

                                       71

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


General and Administrative

Our general and administrative expenses primarily consist of personnel-related
costs for finance, legal, human resources, IT, and administrative employees;
professional fees for external legal, accounting, and other professional
services; and allocated overhead. We expect that our general and administrative
expenses will increase in absolute dollars and may fluctuate as a percentage of
revenue from period to period as we scale to support the growth of our business.

General and administrative expense is summarized as follows (in thousands,
except percentages):

                                           Year Ended                                                             Year Ended
                                          December 31,                           Change                          December 31,                           Change
                                     2021               2020             Amount             %               2020               2019              Amount             %
General and administrative       $ 347,912          $ 254,979          $ 92,933             36  %       $ 254,979          $ 143,788          $ 111,191             77  %


General and administrative expense for the year ended December 31, 2021
increased primarily due to a one-time charge of $49.8 million for the
termination of a future lease contract, including associated construction in
progress write-offs. Personnel-related costs also increased $80.6 million,
including higher stock-based compensation expense of $51.9 million primarily
related to an increase in headcount to support the growth of our finance,
accounting, human resources, IT, and legal functions, as well as the incremental
equity award modification expense associated with the separation of our former
Chief Financial Officer. In addition, professional and insurance expense
increased $30.9 million due to increased administrative costs as part of being a
public company, in addition an increase in costs related to our business
combinations. The increase in expense was partially offset by a one-time charge
of $63.6 million related to the donation of our common stock to a charitable
foundation during the year ended December 31, 2020.

                                       72

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


Interest Expense

Interest expense consists primarily of interest expense associated with our
Credit Agreement. Interest expense is summarized as follows (in thousands,
except percentages):

                                                           Year Ended                                                              Year Ended
                                            December 31,                  Change                             December 31,                               Change
                                                                  2021              2020                Amount                %               2020        2020       2019           Amount             %
Interest expense                                               $ (1,131)         $ (1,520)         $     389                  (26) %       $ (1,520)   $ (1,520)   $   -          $ (1,520)               *


*   Not meaningful

Interest expense was accrued during the year ended December 31, 2021 on the outstanding balance of our $125.0 million credit facility and on the amortization of debt issuance costs related to the issuance of our convertible notes in
November 2021. The credit facility was terminated in April 2021.

Interest income and other expenses, net

Interest income and other expense, net, consists primarily of interest income
earned on our cash, cash equivalents, and marketable securities, amortization of
premium arising at acquisition of marketable securities, foreign currency
remeasurement gains and losses, and foreign currency transaction 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 expense, net, is summarized as follows (in thousands,
except percentages):

                                                   Year Ended                                                           Year Ended
                                     December 31,                  Change                           December 31,                            Change
                                                           2021             2020              Amount                %               2020              2019             Amount             %
Interest income and
other expense, net                                      $ 1,566          $ (3,885)         $    5,451              (140) %       $ (3,885)         $ (2,573)         $ (1,312)            51  %


Interest income and other charges, net, for the year ended December 31, 2021
increased mainly due to currency revaluation gains.

Provision for income taxes

Provision for income taxes consists primarily of income taxes in certain foreign
jurisdictions where we conduct business. We have a valuation allowance against
certain of our deferred tax assets, including NOL carryforwards and tax credits
related primarily to research and development. Our overall effective income tax
rate in future periods may be affected by the geographic mix of earnings in the
countries in which we operate. Our future effective tax rate may also be
affected by changes in the valuation of our deferred tax assets or liabilities,
or changes in tax laws, regulations, or accounting principles in the
jurisdictions in which we conduct business. See Note 14, "Income Taxes," of the
Notes to Consolidated Financial Statements.

Provision for income taxes is summarized as follows (in thousands, except
percentages):

                                               Year Ended                                                        Year Ended
                                 December 31,                 Change                          December 31,                          Change
                                                       2021             2020             Amount              %               2020             2019            Amount             %
Provision for
income taxes                                        $ 1,377          $ 2,091          $    (714)             (34) %       $ 2,091          $ 9,948          $ (7,857)           (79) %


Provision for income taxes for the year ended December 31, 2021 decreased
primarily due to the tax benefit recognized as a result of a partial release of
our valuation allowance against our deferred tax assets in connection with
business combinations, partially offset by a one time tax expense recognized
from an intercompany transaction with our subsidiary in Israel.

                                       73

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.



Non-GAAP Financial Measures

To supplement our consolidated financial statements prepared and presented in
accordance with GAAP, we use certain non-GAAP performance financial measures, as
described below, to evaluate our ongoing operations and for internal planning
and forecasting purposes. We believe the following non-GAAP measures are useful
in evaluating our operating performance. We are presenting these non-GAAP
financial measures because we believe, when taken collectively, they may be
helpful to investors because they provide consistency and comparability with
past financial performance. In the future, we may also exclude non-recurring
expenses and other expenses that do not reflect our overall operating results.

However, non-GAAP financial measures have limitations in their usefulness to
investors because they have no standardized meaning prescribed by GAAP and are
not prepared under any comprehensive set of accounting rules or principles. In
addition, other companies, including companies in our industry, may calculate
similarly-titled non-GAAP financial measures differently or may use other
measures to evaluate their performance, all of which could reduce the usefulness
of our non-GAAP financial measures as tools for comparison. As a result, our
non-GAAP financial measures are presented for supplemental informational
purposes only and should not be considered in isolation or as a substitute for
our consolidated financial statements presented in accordance with GAAP.

Non-GAAP gross profit and non-GAAP operating loss

We define non-GAAP gross profit as gross profit excluding stock-based
compensation expense, employer tax related to employee stock transactions, and
amortization of acquired intangible assets expense. We define non-GAAP loss from
operations as loss from operations excluding stock-based compensation expense,
employer tax related to employee stock transactions, and amortization of
acquired intangible assets expense.

We use non-GAAP gross profit and non-GAAP loss from operations in conjunction
with traditional GAAP measures to evaluate our financial performance. We believe
that non-GAAP gross profit and non-GAAP loss from operations 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 stock-based compensation expense, employer tax related to
employee stock transactions, amortization of acquired intangible assets expense,
a one-time expense for the termination of a future lease agreement, and non-cash
charitable contribution expense, which we do not consider to be indicative of
our overall operating performance.

Non-GAAP gross profit and non-GAAP operating loss have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analyzing our results as reported under the GAAPs. Some of these limitations are:

•they exclude expense associated with our equity compensation plan, although
equity compensation has been, and will continue to be, an important part of our
compensation strategy;

•non-GAAP loss from operations excludes the expense of amortization of acquired
intangible assets, and although these are non-cash expenses, the assets being
amortized may have to be replaced in the future and non-GAAP loss from
operations does not reflect cash expenditure for such replacements;

•non-GAAP loss from operations excludes the expense associated with the
charitable contribution of common stock to a donor-advised fund, and although
this is a non-cash expense, we may make similar charitable contributions in the
future;

•non-GAAP loss from operations excludes the one-time expense for the termination
of a future lease agreement, although there is no guarantee that the company
will not incur similar expenses in the future; and

                                       74

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


•the expenses and other items that we exclude in our calculation of non-GAAP
gross profit and non-GAAP loss from operations 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 our non-GAAP gross profit to
our GAAP gross profit, the most directly comparable measure as determined in
accordance with GAAP, for the periods presented (in thousands):

                                                                         Year Ended
                                                                        December 31,
                                                                      2021                   2020                   2019
GAAP gross profit                                               $       

856 896 $600,098 $423,182
Add: Stock-based compensation expense

                                          24,811                 10,626       $          3,198
Employer tax related to employee stock
transactions                                                               5,434                  1,117                    193
Amortization of intangible assets expense                                  2,274                      -                      -
Non-GAAP gross profit                                           $        889,415       $        611,841       $        426,573
GAAP gross margin                                                        77    %                78    %                78    %
Non-GAAP gross margin                                                    80    %                79    %                79    %

The year-over-year increase in non-GAAP gross margin in 2021 compared to 2020 was primarily due to strong product optimizations and lower unit costs in Operate Solutions as well as lower platform costs to support strategic partnerships.

The following table presents a reconciliation of our non-GAAP loss from
operations to our GAAP loss from operations, the most directly comparable
measure as determined in accordance with GAAP, for the periods presented (in
thousands):

                                                                       Year Ended
                                                                      December 31,
                                                                   2021                 2020                 2019
GAAP loss from operations                                     $  (531,665)         $  (274,812)         $  (150,669)
Add:
Stock-based compensation expense                                  347,159              134,629               44,480
Employer tax related to employee stock
transactions                                                       50,574                8,176                2,808
Amortization of intangible assets expense                          33,483               17,755               11,570
Lease termination expense                                          49,795                    -                    -
Charitable contribution to donor-advised fund                           -               63,615                    -
Non-GAAP loss from operations                                 $   (50,654)         $   (50,637)         $   (91,811)


The year-over-year change in our non-GAAP loss from operations in 2021 compared
to 2020 was relatively flat due to strong product optimizations and lower unit
costs in Operate Solutions as well as lower platform costs to support Strategic
Partnerships. This was partially offset by higher personnel-related costs,
driven by an increase in headcount across the entire company to support the
growth in the business, as well as an increase in IT hosting costs to support
growth in our Operate Solutions and our growing data and compute needs.

                                       75

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


Non-GAAP net loss and non-GAAP net loss per share

We define non-GAAP net loss and non-GAAP net loss per share as net loss and net
loss per share excluding stock-based compensation expense, employer tax related
to employee stock transactions, and amortization of acquired intangible assets
expense, a one-time expense for the termination of a future lease agreement, and
non-cash charitable contribution expense, as well as the related tax effects of
these items. Non-GAAP net loss per share also adds back expense relating to
deemed dividends representing excess paid over initial issuance price to
repurchase convertible preferred stock. We use non-GAAP net loss and non-GAAP
net loss per share in conjunction with traditional GAAP measures to evaluate our
financial performance. We believe that these non-GAAP measures provide our
management and investors consistency and comparability with our past financial
performance and facilitates period-to-period comparisons of operations.

Non-GAAP net loss and non-GAAP net loss per share have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations are:

•they exclude expense associated with our equity compensation plan, although
equity compensation has been, and will continue to be, an important part of our
compensation strategy;

•they exclude the expense of amortization of acquired intangible assets, and
although these are non-cash expenses, the assets being amortized may have to be
replaced in the future and non-GAAP loss from operations does not reflect cash
expenditure for such replacements;

•they exclude the expense associated with the charitable contribution of common
stock to a donor-advised fund, and although this is a non-cash expense, we may
make similar charitable contributions in the future;

•they exclude the one-time expense for the termination of a future lease, although there is no guarantee that the company will not incur similar expenses in the future;

• as described in more detail below, we must make certain assumptions in order to determine the tax effect adjustment for non-GAAP net loss, which assumptions may not turn out to be accurate; and

•the expenses and other items that we exclude in our calculation of non-GAAP net
loss and non-GAAP net loss per share 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.

Tax implications of non-GAAP adjustments

We utilize a fixed projected tax rate in our computation of non-GAAP income tax
effects to provide better consistency across interim reporting periods. In
projecting this non-GAAP tax rate, we utilize a financial projection that
excludes the direct impact of the non-GAAP adjustments described above, and
eliminates the effects of non-recurring and period specific items which can vary
in size and frequency. The projected rate considers other factors such as our
current operating structure, existing tax positions in various jurisdictions,
and key legislation in major jurisdictions where we operate. For the years ended
December 31, 2021, December 31, 2020, and December 31, 2019, the non-GAAP tax
rate was (22)%, (17)%, and (20)%, respectively.

                                       76

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


The following table presents a reconciliation of our non-GAAP net loss and
non-GAAP net loss per share to our GAAP net loss and GAAP net loss per share,
respectively, which are the most directly comparable measures as determined in
accordance with GAAP, for the periods presented (in thousands, except per share
data):

                                                                        Year Ended
                                                                       December 31,
                                                                    2021                 2020                 2019
GAAP net loss                                                  $  (532,607)         $  (282,308)         $  (163,190)
Add:
Stock-based compensation expense                                   347,159              134,629               44,480
Employer tax related to employee stock
transactions                                                        50,574                8,176                2,808
Amortization of intangible assets expense                           33,483               17,755               11,570
Lease termination expense                                           49,795                    -                    -
Charitable contribution to donor-advised fund                            -               63,615                    -
Income tax effect of non-GAAP adjustments                          (10,182)              (7,437)              (8,671)
Non-GAAP net loss                                              $   (61,778) 

($65,570) $(113,003)

GAAP net loss per share attributable to our common stockholders, basic and diluted

                                $       (1.89)       $       (1.66)       $       (2.39)
Total impact on net loss per share, basic and
diluted, from non-GAAP adjustments                                       1.67                 1.27                 0.44
Non-GAAP net loss per share attributable to our
common stockholders, basic and diluted                         $       

(0.22) $(0.39) $(1.95)

Weighted-average common shares used in GAAP net
loss per share computation, basic and diluted                         282,195              169,973              114,442
Weighted-average common shares used in non-GAAP
net loss per share computation, basic and diluted                     282,195              169,973              114,442


Free Cash Flow

We define free cash flow as net cash provided by (used in) operating activities
less cash used for purchases of property and equipment. We believe that free
cash flow is a useful indicator of liquidity as it measures our ability to
generate cash, or our need to access additional sources of cash, to fund
operations and investments.

Free cash flow has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations are:

•it does not replace the net cash used in operating activities;

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

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

                                       77

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


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

                                                                       Year Ended
                                                                      December 31,
                                                                  2021                  2020                 2019
Net cash provided by (used in) operating
activities                                                   $   (111,449)         $    19,913          $   (67,936)
Less:
Purchase of property and equipment                                (41,938)             (40,156)             (27,035)
Free cash flow                                               $   (153,387)         $   (20,243)         $   (94,971)
Net cash used in investing activities                        $ (1,837,360)         $  (575,190)         $  (219,541)
Net cash provided by financing activities                    $  1,721,002   

$1,701,455 $161,472


The year-over-year decrease in free cash flow was primarily due to the payment
of the corporate bonus for the year ended December 31, 2020, our net loss,
higher payroll taxes on stock-based compensation, a one-time payment related to
our real estate, prepayments of software licenses, and an increase in working
capital as our business grows.

Cash and capital resources

Since inception, we have financed our operations primarily through the net
proceeds we have received from the sales of our convertible preferred stock and
common stock and through payments received from customers using our platform. As
of December 31, 2021, our principal sources of liquidity were cash, cash
equivalents, and marketable securities totaling $1.7 billion, which were
primarily held for working capital purposes. Our cash equivalents and marketable
securities are invested primarily in fixed income securities, including
government and investment-grade debt securities and money market funds. In
November 2021, we also received net proceeds of approximately $1.7 billion from
the issuance of convertible notes, after deducting $22.6 million of debt
issuance costs and $48.1 million of payments made to enter into the related
capped call transactions.

Our significant cash requirements arising from contractual and other obligations known to December 31, 2021 is as follows (in thousands):

                                                                          Payments Due by Period
                                                          Less than 1                                                    More than 5
                                        Total                 Year              1-3 Years           3-5 Years               Years
Operating leases (1)                $   132,533          $    28,193          $   62,619          $    10,174          $     31,547
Purchase commitments (2)                692,215              116,865             279,744              295,606                     -
Convertible note (3)                  1,725,000                    -       
           -            1,725,000                     -
Total (4)                           $ 2,549,748          $   145,058          $  342,363          $ 2,030,780          $     31,547

(1) Obligations under operating leases mainly consist of obligations relating to real estate.

(2) The vast majority of our purchase commitments relate to agreements with our data center hosting providers.

(3) Convertible note maturing in 2026. Refer to footnote 10 for more details.

(4)  This table excludes amounts related to income tax liabilities for uncertain
tax positions, since we cannot predict with reasonable reliability the timing of
cash settlements to the respective taxing authorities.

Since our inception, we have generated losses from our operations as reflected
in our accumulated deficit of $1.3 billion as of December 31, 2021. We expect to
continue to incur operating losses 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.

                                       78

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


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. 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 products, 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. If additional financing is required from outside sources, we may not
be able to raise it on terms acceptable to us, or at all. 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.

Changes in our cash flows are as follows (in thousands):

                                                                   Year 

Ended the 31st of December,

                                                        2021                 2020                2019
Net cash provided by (used in) operating
activities                                         $  (111,449)         $    19,913          $  (67,936)
Net cash used in investing activities               (1,837,360)            (575,190)           (219,541)
Net cash provided by financing activities            1,721,002            1,701,455             161,472
Effect of foreign exchange rate changes on cash,
cash equivalents, and restricted cash                      459                  673                (172)
Net change in cash, cash equivalents, and
restricted cash                                    $  (227,348)         $ 

1,146,851 ($126,177)

Cash provided by (used in) operating activities

During the year ended December 31, 2021, net cash used in operating activities
was $111.4 million and was primarily due to the payment of the corporate bonus
for our fiscal year ended December 31, 2020, our net loss, higher payroll taxes
on stock-based compensation, prepayments of software licenses, an increase in
working capital as our business grows, and a one-time payment related to our
real estate.

During the year ended December 31, 2020, cash provided by operating activities
was $19.9 million, which consisted of a net loss of $282.3 million, adjusted by
non-cash charges of $244.5 million and net cash inflows from the change in net
operating assets and liabilities of $57.8 million. The non-cash charges
primarily consisted of depreciation and amortization of $43.0 million,
stock-based compensation of $134.6 million, and a common stock charitable
donation expense of $63.6 million.The net cash inflows from the change in our
net operating assets and liabilities was primarily due to a $41.6 million
increase in accrued expenses and other current liabilities, a $44.6 million
increase in publisher payables, and a $37.4 million increase in deferred
revenue. This was partially offset by a $63.3 million increase in accounts
receivable and a $13.0 million increase in other current assets.

For the years ended December 31, 2021 and 2020, a substantial portion of our
accounts receivable balance comes from advertising partners and is offset by an
accounts payable amount due to our publishers (Operate Solutions customers).
However, the payment terms that we offer our advertising partners are generally
shorter than the payment terms with our publishers (Operate Solutions
customers). As such, our cash flows fluctuate from period to period due to
revenue seasonality, timing of billings, collections, and publisher payments.
Historical cash flows are not necessarily indicative of our results in any
future period.

                                       79

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


Cash used in investing activities

During the year ended December 31, 2021, cash used in investing activities was
$1.8 billion, consisting of the purchase of marketable securities of
$519.7 million, cash used in acquisitions of $1.6 billion, and capital
expenditures of $41.9 million, partially offset by proceeds of $309.0 million
from marketable security principal repayments and maturities.

During the year ended December 31, 2020cash allocated to investing activities was
$575.2 millionconsisting of the purchase of securities of
$482.5 millioncash used in the acquisitions of $53.2 million and the capital expenditure of $40.2 million.

Cash provided by financing activities

During the year ended December 31, 2021, cash provided by financing activities
was $1.7 billion and consisted of $1.7 billion in net proceeds received from the
issuance of the convertible notes, after deducting debt issuance costs of $22.6
million and $48.1 million of payments made to enter into the related capped call
transactions, and $66.7 million of proceeds from the exercise of stock options.

During the year ended December 31, 2020, cash provided by financing activities
was $1.7 billion, primarily consisting of net proceeds of $1.4 billion from our
initial public offering, net proceeds of $250.0 million from the issuance of
convertible preferred stock and common stock, proceeds of $125.0 million from
the revolving credit facility, and proceeds of $25.4 million from the exercise
of stock options. The net cash outflows from financing activities was primarily
due to the $125.0 million repayment of principal on our revolving credit
facility.

Significant Accounting Policies and Estimates

Management's discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with U.S. GAAP. These principles require us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, expenses and related disclosures. Our estimates are based
on our historical experience and on various other assumptions that we believe
are reasonable under the circumstances. To the extent that there are material
differences between these estimates and our actual results, our future financial
statements will be affected.

The critical accounting estimates, assumptions and judgements that we believe
have the most significant impact on our consolidated financial statements are
described below.

Revenue Recognition

We generate revenue through three sources: (1) Create Solutions, which is
composed primarily of our subscription offerings and professional services; (2)
Operate Solutions, which includes our monetization services, hosting, and
multiplayer services, and voice services; and (3) Strategic Partnerships and
Other, which are primarily arrangements with strategic hardware, operating
system, device, game console, and other technology providers for the
customization and development of our software to enable interoperability with
these platforms.

We measure and recognize revenue by:

• identify the contract(s) with the customer;

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

•determine the price of the transaction;

• allocate the transaction price to the performance obligations in the contract(s); and

•recognize revenue as each performance obligation is satisfied by transferring a promised good or service to a customer, which we call a transfer of control.

                                       80

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


Our contracts are generally non-cancellable. Once we have determined the
transaction price, the total transaction price is allocated to each performance
obligation in the contract on a relative stand-alone selling price basis, or
SSP. The determination of SSP for each distinct performance obligation requires
judgment. Generally, we determine SSP using observable pricing, which takes into
consideration market conditions and customer specific factors. When observable
pricing is not available, we use cost plus margin analysis to determine SSP.

Revenue is recognized upon the transfer of control of promised products and
services to customers in an amount that reflects the consideration we expect to
receive in exchange for those products or services. We use the output method for
our Create Solutions and Operate Solutions contracts, and generally use the
input method for our Strategic Partnership contracts. We determined that these
methods are the most appropriate measure of progress as they faithfully
represent when the value of the services are simultaneously received and
consumed by the customer, and control is transferred.

For advertisements placed through the Unified Auction, we evaluate whether we
are the principal (i.e., report revenue on a gross basis) or the agent (i.e.,
report revenue on a net basis). The evaluation to present revenue on a gross
versus net basis requires significant judgment. We have concluded that the
publisher is our customer and we are the agent in facilitating the fulfillment
of the advertising inventory in the Unified Auction primarily because we do not
control the advertising inventory prior to the placement of an advertisement.
Typically we do not retain a share of the revenue generated through Unity IAP
(In-App Purchases).

Stock-Based Compensation

Stock-based compensation expense related to our employees and non-employee
directors is calculated based on the fair value on the grant date. For
restricted stock units ("RSUs"), fair value is based on the closing price of our
common stock on the grant date. The fair value of stock options and purchases
made under the 2020 Employee Stock Purchase Plan ("2020 ESPP") is estimated
using the Black-Scholes pricing model. This model requires certain assumptions
be used as inputs, such as the fair value of the underlying common stock,
expected term of the option before exercise, expected volatility of our common
stock, expected dividend yield, and a risk-free interest rate. Options granted
during the year have a maximum contractual term of ten years. We have limited
historical stock option activity and therefore estimate the expected term of
stock options granted using the simplified method, which represents the average
of the contractual term of the stock option and its weighted-average vesting
period. The expected volatility of stock options is based upon the historical
volatility of a number of publicly traded companies in similar industry. We have
historically not declared or paid any dividends and does not currently expect to
do so in the foreseeable future. The risk-free interest rates used are based on
the U.S. Department of Treasury ("U.S. Treasury") yield in effect at the time of
grant for zero-coupon U.S. Treasury notes with maturities approximately equal to
the expected term of the stock options.

We recognize stock-based compensation expense for stock options and RSUs, on a
straight-line basis, over the requisite service period, generally, a vesting
period of one year to four years. We recognize stock-based compensation expense
related to the 2020 ESPP on a straight-line basis over the offering period. We
have elected to account for forfeitures as they occur.

Accounting for business combinations

We allocate the fair value of purchase consideration to the tangible assets
acquired, liabilities assumed, and intangible assets acquired based on their
estimated fair values as of the acquisition date. The excess of the fair value
of purchase consideration over the fair values of these identifiable assets and
liabilities is recorded as goodwill.

Accounting for business combinations requires us to make significant estimates
and assumptions, especially with respect to intangible assets. Although we
believe the assumptions and estimates we have made are reasonable, they are
based in part on historical experience and information obtained from the
management of the acquired companies and are inherently uncertain. Examples of
critical estimates used in valuing certain of the intangible assets we have
acquired or may acquire in the future include but are not limited to:

                                       81

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


•the income and future cash flows expected from the intangible assets acquired;

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

•the expected use of the intangible fixed assets acquired; and

•discount percentages.

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

Good will and intangible assets

We evaluate and test the recoverability of our goodwill for impairment at least
annually during our fourth quarter of each calendar year or more often if and
when circumstances indicate that goodwill may not be recoverable. We use
judgments when assessing qualitative factors of impairment that include
macroeconomic conditions, other relevant events and factors affecting the market
and industry, our financial performance, and other factors. To the extent we
determine that it is more likely than not that the fair value of our single
reporting unit is less than its carrying value, a quantitative test is then
performed.

We evaluate intangible assets other than goodwill for possible impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. This includes but is not limited to
significant adverse changes in business climate, market conditions or other
events that indicate an asset's carrying amount may not be recoverable.
Recoverability of the intangible assets is measured by comparing the carrying
amount of each asset to the future undiscounted cash flows the asset is expected
to generate. If the undiscounted cash flows used in the test for recoverability
are less than the carrying amount of these assets, the carrying amount of such
assets is reduced to fair value. We also evaluate the estimated remaining useful
lives of intangible assets for changes in circumstances that warrant a revision
to the remaining periods of amortization.

Income taxes

We are subject to income tax in United States and many foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and income tax assets and liabilities, including the assessment of uncertainties in the application of accounting principles and complex tax laws.

We use the asset and liability method under Financial Accounting Standards Board
("FASB") Accounting Standards Codification ("ASC") Topic 740, Income Taxes, when
accounting for income taxes. Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Deferred tax expense or benefit is the result of changes in the deferred tax
asset and liability.

We record a valuation allowance to reduce our deferred tax assets to the net
amount that we believe is more likely than not to be realized. We consider all
available evidence, both positive and negative, including historical levels of
income, expectations and risks associated with estimates of future taxable
income, and ongoing tax planning strategies in assessing the need for a
valuation allowance.

                                       82

--------------------------------------------------------------------------------
Table of Contents           Unity Software Inc.


We recognize tax benefits from uncertain tax positions only if we believe that
it is more likely than not that the tax position will be sustained on
examination by the taxing authorities based on the technical merits of the
position. Although we believe that we have adequately reserved for our uncertain
tax positions (including net interest and penalties), we can provide no
assurance that the final tax outcome of these matters will not be materially
different. We make adjustments to these reserves in accordance with the income
tax accounting guidance when facts and circumstances change, such as the closing
of a tax audit or the refinement of an estimate. To the extent that the final
tax outcome of these matters is different from the amounts recorded, such
differences will affect the provision for income taxes in the period in which
such determination is made, and could have a material impact on our financial
condition and operating results. We recognize interest and penalties related to
unrecognized tax benefits within income tax expense in the accompanying
consolidated statement of operations.

Accounting election of the JOBS law

Effective December 31, 2021, we are no longer an "emerging growth company," as
defined in the JOBS Act. Prior to losing our status as an emerging growth
company, the JOBS ACT allowed us to delay adoption of new or revised accounting
pronouncements applicable to public companies until such pronouncements were
made to private companies, and we had elected to use this extended transition
period. We can no longer take advantage of this extended transition period.

Recent accounting pronouncements

See Note 2, “Summary of Accounting Pronouncements,” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

© Edgar Online, source Previews