Unity Software Inc

Item 1A. Risk Factors

Other than the risk factors listed below, there have been no material changes from the risk factors previously described under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 and Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025.

Purchasing or owning Unity common stock involves investment risks including, but not limited to, the risks described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, and Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, and below. Any one of those risks could harm our business, financial condition and results of operations or reputation, which could cause our stock price to decline. Additional risks, trends and uncertainties not presently known to us or that we currently believe are immaterial may also harm our business, financial condition, results of operations or reputation.

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We fail to timely release updates and new features to our platform and adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, or changing customer needs, requirements, or preferences, our platform may become less competitive.

The markets in which we compete are subject to rapid technological change, evolvare increasingly building AI into certain of our offering industry standardss, and changing regulations, as well as changing customer needs, requirements and preferences. Tissues raised by the successuse of our business will depend, in part, on oAI in our ability to adapt and respond eoffectively to these changes on a timely basis. For example, in the first quarter of 2025 we announced the roll out of our new machrings may adversely affect our busine-learning model, Unity Vector. While we expect related revenue to improve as Unity Vectss, reputation, or is implemented, this may be partfinancially or fully offset by declines results.

We are in select acreas of the business that do not utilize Unity Vector. In addition, if we fail ingly building AI into execute on the rebuild and launch certain of our machine learnoffering stack and data infrastructure, including Unity s, such as Vector, on a timely basis or at all, our business could be harmed. Similarly, emerging technologies like artificial intelligence could impact the way that customers utilizenew machine-learning model, our solutions as well as enhance the functionalinew Unity of our solutions. Accordingly, our ability to AI product line, which increase our revenue depends in large part on our ability to maintain, improve ludes AI Assistant and differentiate our existing platform and introduce new functionality promptly and effectively.

We must continue to improve existing features and add new features and functionality to our platform AI Generators, which are currently in order to retain our existing customers beta, and attract new ones. For example, if the technology underlying our high-definition rendering pipeline or our graphics, animation and audio tools become obsolete or do not address the needs of our custoUnity Inference Engine (formers, our business would suffer. In addition, if our investments in fundamental product enhancements do not increase performance in a sustainable manner, or fail to do so on the timelines we expect, then our revenue, particularly from our Grow Solutions, would be harmed.

Revenue growth from our offerings depends on our ability to continue to develop and offer effective features and functionalityly Unity Sentis), which allows creators to embed an AI model in the Unity Runtime for our customers and to respond to frequently changing privacy and data security laws and regulations, policies, advancements in competing technologies, and end-user demandstheir game or application, enhancing gameplay and expectations, which will require us to incur addiother functional costs to implement. If we do not continue to improve our platform with additional features and functionality in a timely fashion, or if intended improvements to our platform are ineffective or otherwise not well received by customers, our revenue could be adversely affected.

If we fail to delity. AI Generators leverage both Unity-developed and third-party models for AI-driver timely releases of our solutions that are ready for commercial use, release a new version, service, tool or update with material errors, or are unable to enhance our platform to keep pace wn assistance during creation. With rapid technological and regulatory changes or respond to new offerings by our competitors, or if new technologies emerge that are able to espect to third-party modeliver competitive solutions at lower prices, more efficiently, more s, we do not conveniently or more securelytrol than our solutions, or if new operating systems, gaming platforms or devices are developed and we are unable to support our customers' deployment of games and other applicatione data used to train such models ontor those systems, platforms or devices, our business, financial condition and results of operations could be adversely affected.

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Ipecific outputs they genternational trade policies, including tariffs, sanctions and trade barriers may adversely affect our business, financial condition, results of operations and prospects.

The recent announcements of substantial new tariffs and other restrictive trade policies have created a dynamic and unpredictable trade landscape, which may adversely impact our business. Although our current business model is not directly reliant on the import or export of physical goods, trade policies may indirectly adversely impact our business and operationerate; we act as a conduit for customer requests and return the responses from those third-party models. For example, current and future tariffs on hardware, networking infrastructure or other technology infrastructureThe datasets used by us or ourto train third-party vendors could raise costs, constrain supply or affect service reliability, which could harm our competitive position, reduce customer demand and damage customer relationships. In addition, many of our customers operate businesses that may be impacted by trade policies, which may resulmodels may inadvertently include content that in decreased demand for our servicfringes or extended sales cycles as customers assess the impact of evolving trade policies on their intellectual properations and face increased costs or decreased revenue due to tariffs and trade restrictions.

Trade disputes, trade restrictions, tariffs, and other political tensions between the U.S. and other countries may also exacerbate unfavorable macroeconomic conditions including inflationary pressures, foreign exchange volatility, financial market instability, and economic recessions or downturns, which may also negatively impact customer demand for our services, ty rights. Because we do not control the training data or modelay renewals or limit expansion opportunities with existing customers, limit our access to capital, or otherwise negatively impact our business and operations. Ongoing tariff and macroeconomic uncertainty has and may continue to contribute weights of third-party models, we may be subject to volatliability in the price of our common stock.

In addior reputation, retaliatory trade policies or anti-U.S. sentiment in certain regions whether driven by trade tensions, political disagreements, or regulatory concerns may make customers and governments more hesitant to adopt solutionsal harm if customers use outputs generated through our offered by U.S.-based providers. This may lead to increased preference for local competitors, changesings that are alleged to government procurement policies, heightened regulatory scrutiny, decreased infringe third-party intellectual property protections, delays in regulatory approvals or other retaliatory regulatory non-tariff policies, the introduction of trade barriers applicable to digital services, which may result in heightened international legal and operational risks and difficulties in attracting and retaining non-U.S. customers, suppliers, employees, partners and investors.

While we continue to monitor trade developments, the ultimate impact of these risks remains uncertain and any prolonged economic downturn, escalation in trade tensions, or deterioration in international perception of U.S.-based companies could materiallrights. Unity-developed models are trained exclusively on directly-licensed or open-licensed data; however, we rely on the accuracy and adversely affect our business, results scope of operations, financial condition and prospects. In addition, tariffs and other trade developments have and may continue to heighten the risks related tothose licenses as represented by the other risk factors described elsewhere in this reportlicensors, and in our Annual Report for the fiscal year ended December 31, 2024.

Risks Related to Our Convertible Notes

Our Notes and thf such representations are issuance of shares of our common stock upon conversion of the Notes, if any, may impancorrect our financial results, result in dilution to our stockholders, create downward pressure on the prir incomplete, we could face of our common stock, and restrictclaims that our ability to traise additional capital or to engage in a beneficial takeover.

In February 2025, we issuning data included content used approximately $690 million in aggregatewithout principal amount of 0% convertible senior notes due 2030 (toper authorization. The "2030 Notes"), in November 2022, we issued $1.0 billion in aggregate principal amountoutputs of 2.0% convertible senior notes due 2027 (the "2027 Notes"),both Unity-developed and in November 2021, we issued approximately $1.7 billion in aggregate principal amount of 0% conthird-party models may also inadvertible senior notes due 2026 (the "2026 Nently replicate protes," together with the 2030 Notes and 2027 Notes, the "Notes"). In the first quarter of 2025 and first quarter of 2024, we repurchased approximately $642 million and $480 million, respectively, aggregate principcted content, resulting in potential amountclaims of our 2026 Notes in privately negotiated transactions with holders of the 2026 Notes and as of March 31, 2025, we had approximately $558 million aggregate principal amount of 2026 Notes outstandinfringement.

We continue to advance machine learning. We are subject to a variety of risks related to the Notes, such as:

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serv algorithms icingn our debt requires a significant amount of cash, and we may not have sufficient cash flow from our businessGrow Solutions, which are designed to pay our substantial debt, and our ability to make scheduled payments of the principal and interest, or to refinance or repurchase our Notes depends on our future enable us to provide customers with better performance, which is subject to economic, financial, competitive and other factors beyond our control;

our ability to refinance or repurchase our indebtedness will depend on the capital markets. AI technologies are complex and our financial condition at such timerapidly evolving, and if we are unable to engage in any of these activities or engage in these activities on desirable terms, we may be unable to meet the obligaface significant competitions of our Notes;

if shares of ou from other common stock are issued to the holders of the Notes upon conversion, there will be dilution to our stockholders' equity panies as well as an evolving regulatory land the market price of our common stock may decrease due to tscape. The additional sellevolving pressure in the market. Any such downward pressure on the price of our common stock could also encourage shregulatory landscape and our product development effort sales by third parties, creating additional downward pressure on our share price;

certain provisions in the indenturess may result in new or enhanced governing the Notes may delay or prevent an otherwise beneficial takeover attempt of us;

we may from time to time seek to retire or purchase our outstanding debt, including the Notes, through cash purchases and/or exchanges fmental or regulatory scrutiny, litigation, ethical concerns, or other securities, in open market purchases, privately negotiated transactcomplications or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions,that could adversely affect our liquidity requirements, contractual restrictionbusiness, and other factors. The amounts involved in any such transactreputations, individually , or in the aggregate, may be materfinancial. Further, any such purchases  results. For exchanges may result in us acquiring and retiring a substantial amount of such indebtedness, which could impact the trading liquidity ample, the use of such indebtedness; and

the conditional conversion features of the 2030 Notes and the 2026 Notes, if triggered, datasets to develop and the conversion feature of the 2027 Notes may adversely affect our liquidity if we elect or are required to settle a portion or all of our conversion obligation through the payment of cash.

The conditional conversion features of the 2030 Notes and 2026 Notebe referenced by AI models, the content generated by AI systems, if triggered, and or the conversapplication feature of the 2027 NoteAI systems may adversely affect our financial condition and operating results.

In the event the conditional conversion featuresbe found to be insufficient, of the 2030 Notes or 2026 Notes is triggerefensive, biased, holders of the 2030 Notes or 2026 Notes will be entitled under the indenture governing the 2030 Notes or 2026 Notes to convertor harmful, or violate current or future laws and regulations or their 2030 Notes or 2026 Notes, as applicable, at any time during specified periods at their option. Holders of the 2027 Noteird-party rights. Governments are entitled under the indenture governiincreasingly scrutinizing the 2027 Notes to convert their 2027 Notes at any time prior to maturity. If one or more holders elect to convert their 2030 Notgenerative AI technologies for 2026 Npotes, unless we elntial intellect to satisfy ourual property and conversion obligation by delivering solely stent-related hares of our common stock (other than paying cash in lieu of deliveringms, and any fractional share), we would be required to settle a portion or all of our conversion obliregulatory enforcement or litigation throughin the payment of cash, which cis area could adversely affect our liquidity. As of December 31, 2024, no 2030 Notes were outstanding and the 2026 Notes were not convertible at the option of the holders thereofbusiness, reputation, or financial results. In addition, even if holders do not elect to convert their 2030 Notes or 2026 Notes, we could be required under applicable accountAI and machine learning rules to classify or reclassify all or a portion of the outstanding pr("ML") models may create flawed, incipal of the 2030 Notesomplete, or 2026 Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The cainaccurate outputs, some of which may apped call transactions may affar correct the value of the 2030 Notes or 2026 Notes and our common stock.

In addition, in connection with the issuance of the 2030 Notes a. If our technology is used by an end the 2026 Notes, we entereduser into capped call transactions (the "Capped Call Transactions") with certain of the initi a controversial purchasers of the 2030 Notes and 2026 Notes or affiliates thereof and other financial institutions (manner due to the "option counterparties").The Capped Call Transactions cover, subject to customary adjustments, the number of shares of our common

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sir perceived or actock initially underlying the 2030 Notes and the 2026 Notes. The Capped Call Transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of 2030 Notes or 2026 Notes and/or offset any cash payments ual impact on society, we are required to make in excess of the principal amount of converted 2030 Notes or 2026 Notes, as the case may be, with such reduction may experience brand/ or offset subject to a cap. In connecreputation with establishing their initial hedges of the Capped Call Transactions, the option counterpartiesal harm, competitive harm or their respective afflegal liabiliates likely entered into various derivative transactions with respect to our common stock and/or purchased shares of our common stock concurrently with or shortly after the pricing ty.

In addition, market acceptance of the 2030 Notes or the 2026 Notes, including with certain investors in the 2030 Notes or the 2026 Notes. The option counterpartiesAI technologies is uncertain, and/or their respective affiliates  we may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactbe unsuccessful in product development efforts. Our solutions prior to the maturity of the 2030 Notes or the 2026 Notes (and are likelythat use AI could fail to do so on each exercise date of the Capped Call Transactions or, to the extent we exercise the relevant election underieve market acceptance, the Capped Call Transactions, following any repurchase, redemption or conversionperformance or suitability of the 2030 Notes or the 2026 Notes). We cannot make any prediction aird-party models could change in ways to the direction or magnitude of any potential ehat negatively affect that the transactions described above may have on the prices of the 2030 Notes, 2026 Notes, the 2027 Notes or the shares of oe customer experience, or our common stock. Any of these activities could adversely affect the value of the 2030 Notes, 2026 Notes, the 2027 Notes and our common stock.

We apetitors may use AI technologies more subject to counterparty risk with respect to the Capped Call Transactions.

In addition,efficiently than we do. Our reliance on the option counterird-parties are financial institutions, and we will be subject to the risk that any oy models may also limit our all of them might default under the Capped Call Transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If an option counterparty becomes subject to insolvency proceedings, we will become an unsebility to differentiate our offerings or control cost and performance characteristics. We may incured creditor in those proceedings with a claim equal to our exposure at that time under the Capped Call Transaction with such option counterparty. Our exposure will depend on m significant costs and may not achieve any factors but, generally, an increase in our exposure will be correlated to an increasignificant revenue from these in the market price and in offerings. Any of the volatility of ourse factors common stock. In addition, upon a default by an option counterparty, we may suuld adversely affer more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the ct our business, reputation, or financial stability or viability of the option counterpartieresults.