Q1 revenue up 41%, exceeding expectations; company raises 2021 revenue outlook to $1 billion
SAN FRANCISCO--May 11, 2021--Condensed Consolidated Statements of Cash Flows table was originally missing the “Maturities of marketable securities” row and corresponding information.
UNITY ANNOUNCES FIRST QUARTER 2021 FINANCIAL RESULTS
Q1 revenue up 41%, exceeding expectations; company raises 2021 revenue outlook to $1 billion
Unity Software Inc. (NYSE: U), the world’s leading platform for creating and operating interactive, real-time 3D content, today announced results for the first quarter ended March 31, 2021.
“Our first quarter results are reflective of the powerful transition from linear 2D to real-time 3D, which is one of the most important changes in how people interact with technology,” said John Riccitiello, President and Chief Executive Officer, Unity. “We believe that real-time 3D will continue to grow at an accelerated pace and achieve massive scale.”
Unity is the world’s leading platform for creating and operating interactive, real-time 3D (RT3D) content. With Unity, creators have the tools to become RT3D creators. Creators, ranging from game developers to artists, architects, automotive designers, filmmakers and others, use Unity to make their creative vision come to life. With this broad approach, we believe the opportunity to create and operate rich and immersive experiences is almost limitless, setting up Unity to not only anchor tomorrow’s most advanced applications but to enable and power the metaverse at the most foundational level.
“Execution in the first quarter was very strong with revenue of $234.8 million, an increase of 41% from last year. We are encouraged by the growth of our customers contributing more than $100K of trailing twelve-month revenue and the healthy dollar-based net expansion rate during the first quarter,” said Luis Visoso, Chief Financial Officer, Unity. “We continue to invest strategically in R&D and vertical expansion to enable Unity to lead the transition to real-time 3D.”
First Quarter 2021 Financial Highlights
Recent Business Highlights
Outlook
Unity is providing the following guidance for the second quarter of and full year ending December 31, 2021.
Q2 2021 2021 Guidance Guidance Revenue (in millions) $240 — $245 $1,000 — $1,015 Year-over-year revenue growth 30% — 33% 29% — 31% Non-GAAP loss from operations (in millions) ($30) — ($40) ($90) — ($100) Non-GAAP operating margin (12%) — (17%) (9)% — (10%) Weighted-average fully diluted shares outstanding 329M 334M
A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty of expenses that may be incurred in the future and cannot be reasonably determined or predicted at this time, although it is important to note that these factors could be material to Unity’s results computed in accordance with GAAP.
Long-Term View and Impact of IDFA
Earnings Webcast Details
Unity plans to host a video webcast for analysts and investors today to discuss its first quarter 2021 financial results and outlook for its second quarter and full year 2021. The video webcast is scheduled to begin at 2:00 p.m. Pacific Time/5:00 p.m. Eastern Time and can be accessed at the Unity Investor Relations website at investors.unity.com. The video webcast will be available live, and a replay will be available on the Investor Relations website following completion of the live broadcast for approximately 90 days.
About Unity
Unity is the world’s leading platform for creating and operating interactive, real-time 3D content. Our platform provides a comprehensive set of software solutions to create, run, and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices. We serve customers of all sizes, at every stage of maturity, from individual creators to large enterprises. For more information, visit unity.com.
Unity uses its Investor Relations website (investors.unity.com), filings with the SEC, press releases, public conference calls, and public webcasts as means of disclosing material nonpublic information and for complying with its disclosure obligations under Regulation FD.
Use of Non-GAAP Financial Measures
Reconciliations of non-GAAP financial measures to Unity’s financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled “About Non-GAAP Financial Measures.”
Forward-Looking Statements
This press release contains “forward-looking statements,” as that term is defined under federal securities laws, including, but not limited to, statements regarding Unity’s second quarter and full year 2021 outlook and future financial performance, including the transition from linear 2D to real-time 3D; Unity’s belief that real-time 3D will continue to grow at an accelerated pace and massively scale; Unity being set up to anchor tomorrow’s most advanced applications and help enable and power the metaverse at the most foundational level; Unity’s continued investment in R&D and vertical expansion; strategies, business plans, priorities and objectives, potential market and growth opportunities, including Unity’s goal to be a company that delivers revenue growth of approximately 30% over the long run and the achievability of that goal; the effect of Apple’s iOS14’s privacy modifications on IDFA; product features, functionality, and expected benefits to the business and our customers; competitive position; product strategies and future product and platform features; technological or market trends; and industry environment. The words “believe,” “may,” “will,” “estimate,” “continue,” “intend,” “expect,” “plan,” “project,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and assumptions. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. Risks include, but are not limited to: (i) the impact of the ongoing COVID-19 pandemic on our business, as well as our customers, prospects, partners, and service providers; (ii) our ability to achieve profitability and the timing for any such achievement; (iii) our ability to retain existing customers and expand the use of our platform; (iv) our ability to further expand into new industries and attract new customers; (v) the impact of any changes of terms of service, policies or technical requirements from operating system platform providers or application stores which may result in changes to our or our customers’ business practices; (vi) our ability to maintain favorable relationships with hardware, operating system, device, game console and other technology providers; (vii) our ability to compete effectively in the markets in which we participate; (viii) breaches in our security measures, unauthorized access to our platform, our data, or our customers’ or other users’ personal data; (ix) our ability to manage growth effectively; and (x) the rapidly changing and increasingly stringent laws, contractual obligations and industry standards that relate to privacy, data security and the protection of children. Further information on these and additional risks that could affect Unity’s results is included in our filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K filed with the SEC on March 5, 2021, and our future reports that we may file with the SEC from time to time, which could cause actual results to vary from expectations. Copies of reports filed with the SEC are available on the Unity Investor Relations website. Unity assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.
Any unreleased services, features, or functions referenced in this document, our website, or other press releases or public statements that are not currently available are subject to change at Unity’s discretion and may not be delivered as planned or at all. Customers who purchase Unity services should make their purchase decisions based upon services, features, and functions that are currently available.
© 2021 Unity Software Inc. All rights reserved. The Unity design logos, “Unity” and our other registered or common law trademarks, service marks, or trade names are the property of Unity Software Inc. or its affiliates. Other trade names, trademarks, and service marks are the property of their respective owners.
About Non-GAAP Financial Measures
To supplement our consolidated financial statements prepared and presented in accordance with generally accepted accounting principles in the United States (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.
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, Non-GAAP Operating Expenses, and Non-GAAP Loss from Operations
We define non-GAAP gross profit as gross profit excluding stock-based compensation expense and employer tax related to employee stock transactions. We define non-GAAP research and development expense and non-GAAP sales and marketing expense as research and development expense and sales and marketing expense, respectively, excluding stock-based compensation expense, employer tax related to employee stock transactions, and amortization of acquired intangible assets expense. We define non-GAAP general and administrative expense as general and administrative expense excluding stock-based compensation expense and employer tax related to employee stock transactions. 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 provides 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, and non-cash charitable contribution expense, which we do not consider to be indicative of our overall operating performance.
Non-GAAP gross profit, non-GAAP operating expenses, and non-GAAP loss from operations have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
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, amortization of acquired intangible assets expense, 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 analysis of our results as reported under GAAP. Some of these limitations are:
Income Tax Effects 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 year ended December 31, 2020, the non-GAAP tax rate was (17)%. For the year ending December 31, 2021, we have determined the projected non-GAAP tax rate to be (22)%. We will periodically re-evaluate this tax rate, as necessary, for significant events, based on relevant tax law changes, material changes in the forecasted geographic earnings mix, and any significant acquisitions.
Free Cash Flow
We define free cash flow as net cash 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 analysis of our results as reported under GAAP. Some of these limitations are:
Key Metrics
We monitor the following key metrics to help us evaluate the health of our business, identify trends affecting our growth, formulate goals and objectives, and make strategic decisions.
Customers Contributing More Than $100,000 of Revenue
We focus on the number of customers that generated more than $100,000 of revenue in the trailing 12 months, as this segment of our customer base represents the majority of our revenue and revenue growth. 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.
Dollar-Based Net Expansion Rate
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.
UNITY SOFTWARE INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) (Unaudited) As of March 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 1,119,935 $ 1,272,578 Marketable securities 527,300 479,406 Accounts receivable, net of allowances of $4,579 and $2,714 as of March 31, 2021 and December 31, 2020, respectively 298,200 274,255 Prepaid expenses 41,913 32,025 Other current assets 22,839 22,396 Total current assets 2,010,187 2,080,660 Property and equipment, net 97,597 95,544 Operating lease right‑of‑use assets 116,409 103,609 Goodwill 306,160 286,251 Intangible assets, net 57,940 57,459 Restricted cash 18,137 21,369 Other assets 44,012 26,333 Total assets $ 2,650,442 $ 2,671,225 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 15,958 $ 11,303 Accrued expenses and other current liabilities 91,932 106,306 Publisher payables 186,316 182,269 Income and other taxes payable 54,231 64,116 Deferred revenue 116,718 113,853 Operating lease liabilities 25,437 25,375 Total current liabilities 490,592 503,222 Long-term deferred revenue 22,256 20,523 Long-term operating lease liabilities 109,996 98,532 Other long-term liabilities 10,386 11,805 Total liabilities 633,230 634,082 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.000005 par value; 100,000 shares authorized, and no shares issued and outstanding as of March 31, 2021; 100,000 shares authorized, no shares issued and outstanding as of December 31, 2020 — — Common stock, $0.000005 par value; 1,000,000 and 1,000,000 shares authorized as of March 31, 2021 and December 31, 2020, respectively; 279,170 and 273,537 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively 2 2 Additional paid-in capital 2,927,242 2,838,057 Accumulated other comprehensive loss (3,552 ) (3,418 ) Accumulated deficit (906,480 ) (797,498 ) Total stockholders’ equity 2,017,212 2,037,143 Total liabilities and stockholders’ equity $ 2,650,442 $ 2,671,225 UNITY SOFTWARE INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share amounts) (Unaudited) Three Months Ended March 31, 2021 2020 Revenue $ 234,772 $ 166,994 Cost of revenue 58,734 31,868 Gross profit 176,038 135,126 Operating expenses Research and development 154,015 81,751 Sales and marketing 69,793 43,259 General and administrative 63,132 37,553 Total operating expenses 286,940 162,563 Loss from operations (110,902 ) (27,437 ) Interest expense (115 ) (132 ) Interest income and other expense, net 1,565 1,856 Loss before provision for income taxes (109,452 ) (25,713 ) Provision for (benefit from) income taxes (1,992 ) 1,023 Net loss (107,460 ) (26,736 ) Other comprehensive loss, net of taxes: Change in foreign currency translation adjustment (31 ) (95 ) Change in unrealized losses on marketable securities (103 ) — Comprehensive loss $ (107,594 ) $ (26,831 ) Basic and diluted net loss per share: Net loss per share attributable to our common stockholders, basic and diluted $ (0.39 ) $ (0.21 ) Weighted-average shares used in per share calculation attributable to our common stockholders, basic and diluted 276,068 127,783 UNITY SOFTWARE INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended March 31, 2021 2020 Operating activities Net loss $ (107,460 ) $ (26,736 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 11,832 9,810 Stock-based compensation expense 64,424 9,691 Stock-based compensation expense in connection with modified awards for certain employees 2,137 — Other 1,441 41 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net (25,061 ) (13,470 ) Prepaid expenses (9,888 ) (6,084 ) Other current assets (2,318 ) (9,216 ) Operating lease right-of-use ("ROU") assets 5,907 5,855 Deferred tax, net (1,824 ) 280 Other assets (11,569 ) 229 Accounts payable 6,303 (437 ) Accrued expenses and other current liabilities (13,767 ) (3,174 ) Publisher payables 4,047 10,154 Income and other taxes payable (10,104 ) (3,366 ) Operating lease liabilities (7,492 ) (7,756 ) Other long-term liabilities 309 1,255 Deferred revenue 4,201 923 Net cash used in operating activities (88,882 ) (32,001 ) Investing activities Purchase of marketable securities (129,082 ) — Proceeds from principal repayments on marketable securities 2,017 — Maturities of marketable securities 78,000 — Purchase of non-marketable investments (4,000 ) — Purchase of property and equipment (11,744 ) (7,566 ) Acquisition of intangible assets — (325 ) Business acquisitions, net of cash acquired (24,817 ) — Net cash used in investing activities (89,626 ) (7,891 ) Financing activities Proceeds from revolving loan facility — 125,000 Payment of debt issuance costs — (247 ) Proceeds from issuance of convertible preferred stock, net of issuance costs — 149,970 Proceeds from issuance of common stock — 100,000 Purchase and retirement of treasury stock — (110 ) Proceeds from exercise of stock options 22,624 2,429 Net cash provided by financing activities 22,624 377,042 Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash 9 (72 ) Increase (decrease) in cash, cash equivalents, and restricted cash (155,875 ) 337,078 Cash and restricted cash, beginning of period 1,293,947 147,096 Cash, cash equivalents, and restricted cash, end of period $ 1,138,072 $ 484,174 UNITY SOFTWARE INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES (In thousands, except percentages and per share data) (Unaudited) Three Months Ended March 31, 2021 2020 Gross profit reconciliation GAAP gross profit $ 176,038 $ 135,126 Add: Stock-based compensation expense 5,117 557 Employer tax related to employee stock transactions 2,761 9 Non-GAAP gross profit $ 183,916 $ 135,692 GAAP gross margin 75 % 81 % Non-GAAP gross margin 78 % 81 % Operating expenses reconciliation Research and development GAAP research and development expense $ 154,015 $ 81,751 Add: Stock-based compensation expense (31,650) (4,789) Employer tax related to employee stock transactions (10,098) (130) Amortization of intangible assets expense (3,177) (3,126) Non-GAAP research and development expense $ 109,090 $ 73,706 GAAP research and development expense as a percentage of revenue 66 % 49 % Non-GAAP research and development expense as a percentage of revenue 46 % 44 % Sales and marketing GAAP sales and marketing expense $ 69,793 $ 43,259 Add: Stock-based compensation expense (12,037) (1,847) Employer tax related to employee stock transactions (2,228) (12) Amortization of intangible assets expense (1,282) (1,018) Non-GAAP sales and marketing expense $ 54,246 $ 40,382 GAAP sales and marketing expense as a percentage of revenue 30 % 26 % Non-GAAP sales and marketing expense as a percentage of revenue 23 % 24 % General and administrative GAAP general and administrative expense $ 63,132 $ 37,553 Add: Stock-based compensation expense (17,757) (2,498) Employer tax related to employee stock transactions (1,371) (4) Non-GAAP general and administrative expense $ 44,004 $ 35,051 GAAP general and administrative expense as a percentage of revenue 27 % 22 % Non-GAAP general and administrative expense as a percentage of revenue 19 % 21 % Loss from operations reconciliation GAAP loss from operations $ (110,902) $ (27,437) Add: Stock-based compensation expense 66,561 9,691 Employer tax related to employee stock transactions 16,458 155 Amortization of intangible assets expense 4,459 4,144 Non-GAAP loss from operations $ (23,424) $ (13,447) GAAP operating margin (47) % (16) % Non-GAAP operating margin (10) % (8) % Net loss and net loss per share reconciliation GAAP net loss $ (107,460) $ (26,736) Add: Stock-based compensation expense 66,561 9,691 Employer tax related to employee stock transactions 16,458 155 Amortization of intangible assets expense 4,459 4,144 Income tax effect of non-GAAP adjustments (7,337) (821) Non-GAAP net loss $ (27,319) $ (13,567) GAAP net loss per share attributable to our common stockholders, basic and diluted $ (0.39) $ (0.21) Total impact on net loss per share, basic and diluted, from non-GAAP adjustments 0.29 0.10 Non-GAAP net loss per share attributable to our common stockholders, basic and diluted $ (0.10) $ (0.11) Weighted-average common shares used in GAAP net loss per share computation, basic and diluted 276,068 127,783 Weighted-average common shares used in non-GAAP net loss per share computation, basic and diluted 276,068 127,783 Free cash flow reconciliation Net cash used in operating activities $ (88,882) $ (32,001) Less: Purchase of property and equipment (11,744) (7,566) Free cash flow $ (100,626) $ (39,567) Net cash used in investing activities $ (89,626) $ (7,891) Net cash provided by financing activities $ 22,624 $ 377,042
Source: Unity
Contacts
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