Unity slides 12% as revenues narrowly miss, losses swell in Q3 (NYSE:U)

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Unity Software (NYSE:U) is 11.7% lower after hours in reaction to its third-quarter earnings report where it narrowly missed heavily lowered expectations for revenues.

The report comes fresh off the company’s merger with ironSource, completed on Monday.

Revenues grew by double digits but still missed estimates that had been revised lower by about 1%.

A decline in its Operate Solutions revenue of 7% was more than mitigate by a 54% gain in Create Solutions, to $128.6M.

Those Create results came in “reinforcing the value we bring in core gaming and digital twins,” CEO John Riccitiello said, while praising “continued progress” in Operate Solutions.

Loss from operations widened heavily, though, to $239.6M (74% of revenue) from a year-ago loss of $126.8M. On a non-GAAP basis, operating loss swelled to $37.4M from a year-ago loss of $6.2M.

Cash used in operating activities rose to $68.8M from a year-ago $43.6M, and free cash flow went negative: to -$80.8M from a prior-year gain of $34.2M. Liquidity at quarter-end was $1.3B.

After in-line results in Q3, the company’s taking a “prudent approach” for Q4 forecasts given the macro environment, Chief Financial Officer Luis Visoso said.

For the fourth quarter, the company is guiding to revenues of $425M-$445M, reflecting year-over-year growth of 35-41%, and adjusted operating income of $5M-$15M, with an operating margin of 1-3%.

For the full year, it expects revenue to finish in the range of $1.365B-$1.385B (year-over-year growth of 23-25%), with adjusted operating income of -$88M to -$98M.

Conference call to come at 6 p.m. ET.

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