What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-03 · 217 added, 104 removed, 255 unchanged (56% of the section changed)

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the effect that measures taken to mitigate the COVID-19 pandemic have on our operations, including our ability to timely deliver our titles and other products, and on the operations of our counterparties, including retailers, including digital storefronts and platform partners, and distributors;

the effects of the COVID-19 pandemic on consumer demand and the discretionary spending patterns of our customers;

the effects of the COVID-19 pandemic on consumer demand and the discretionary spending patterns of our customers as the situation with the pandemic continues to evolve;

the impact of reductions in interest rates by the Federal Reserve and other central banks, including on our short-term investment portfolio;

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Software titles published by our Rockstar Games label are primarily internally developed.

We expect Rockstar Games, our wholly-owned publisher of the Grand Theft Auto , Max Payne , Midnight Club , Red Dead Redemption , and other popular franchises, to continue to be a leader in the action/adventure product category and to create groundbreaking entertainment.

believe that Rockstar Games has established a uniquely original, popular cultural phenomenon with its Grand Theft Auto series, which is the interactive entertainment industry's most iconic and critically acclaimed brand and has sold-in over 350 million units.

We expect Rockstar Games, our wholly-owned publisher of the Grand Theft Auto , Max Payne , Midnight Club , Red Dead Redemption , and other popular

franchises, to continue to be a leader in the action/adventure product category and to create groundbreaking entertainment.

We believe that Rockstar Games has established a uniquely original, popular cultural phenomenon with its Grand Theft Auto series, which is the interactive entertainment industry's most iconic and critically acclaimed brand and has sold-in over 355 million units.

Our most recent installment, Grand Theft Auto V , which was released in 2013, has sold in over 155 million units worldwide and includes access to Grand Theft Auto Online .

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Rockstar Games continues to expand on our established franchises by developing sequels, offering downloadable episodes, and additional content.

Rockstar Game's titles are published across a number of platforms, including mobile.

Rockstar Game's titles are published across all key platforms, including mobile.

Our 2K label has published a variety of popular entertainment properties across all key platforms and across a range of genres including shooter, action, role-playing, strategy, sports and family/casual entertainment.

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The Humankind Odyssey .

T2 Mobile Games, which includes Socialpoint, Playdots, and Nordeus, which publish popular free-to-play mobile games that deliver high quality, deeply engaging entertainment experiences, generates revenue from in-game sales and in-game advertising.

T2 Mobile Games includes Socialpoint, Playdots, and Nordeus, which publish popular free-to-play mobile games that deliver high quality, deeply engaging entertainment experiences and generates revenue from in-game sales and in-game advertising.

T2 Mobile Games' titles include Dragon City , Monster Legends , Two Dots , and Top Eleven .

In addition, T2 Mobile Games has a number of exciting games planned for launch in the coming years.

We acquired Nordeus Limited on June 1, 2021, for consideration having an acquisition date fair value of $289.8 million, consisting of $132.9 million in cash, the issuance of 0.5 million shares of our common stock, and a contingent earn-out consideration arrangement that requires us to pay up to an aggregate of $153.0 million in cash if Nordeus achieves certain performance measures over the 12- and 24-month periods following the closing (See Note 15 - Acquisitions of our Condensed Consolidated Financial Statements).

Founded in 2010, Nordeus is a mobile games company based in Belgrade, Serbia, best known for Top Eleven, with over 240 million registered users.

We are continuing to execute on our growth initiatives in Asia, where our strategy is to broaden the distribution of our existing products and expand our online gaming presence, especially in China and South Korea.

Founded in 2010, Nordeus is a mobile games company based in Belgrade, Serbia, best known for Top Eleven, which has over 240 million registered users.

We are continuing our strategy in Asia to broaden the distribution of our existing products and expand our online gaming presence, especially in China and South Korea.

2K has secured a multi-year license from the NBA to develop an online version of the NBA simulation game in China, Taiwan, South Korea, and Southeast Asia.

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head-to-head competition throughout a regular season, followed by a bracketed playoff system and a finals match-up that was held in August of each of the NBA 2K League's first three seasons.

The NBA 2K League's fourth season began in May and is set to conclude in September.

The NBA 2K League's fourth season concluded in September 2021.

Trends and Factors Affecting our Business

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Our Grand Theft Auto products in particular have historically accounted for a significant portion of our revenue.

Sales of Grand Theft Auto products generated 33.7% of our net revenue for the three months ended June 30, 2021.

Sales of Grand Theft Auto products generated 31.2% of our net revenue for the six months ended September 30, 2021.

The timing of our Grand Theft Auto product releases may affect our financial performance on a quarterly and annual basis.

Economic Environment and Retailer Performance.

We continue to monitor economic conditions, including the impact of the COVID-19 pandemic, that may unfavorably affect our businesses, such as deteriorating consumer demand, pricing pressure on our products, credit quality of our receivables, and foreign currency exchange rates.

We continue to monitor the evolution of the COVID-19 pandemic, including economic conditions that may unfavorably affect our businesses, such as deteriorating consumer demand, pricing pressure on our products, credit quality of our receivables, and foreign currency exchange rates.

The COVID-19 pandemic has affected and may continue to affect our business operations, including our employees, customers, partners, and communities, and there is substantial uncertainty in the nature and degree of its continued effects over time.

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However, we cannot be certain as to the duration of these effects, the impact of vaccination efforts or of the lifting of certain restrictions, and the potential offsetting impacts of deteriorating economic conditions and decreased consumer spending generally.

We expect that engagement trends will continue to be higher than they were pre-pandemic.

However, as the return to normalcy continues, we expect a moderation of the trends that have benefited our industry.

We have developed and continue to develop plans to help mitigate the negative impacts of the pandemic on our business, such as our transition to working from home, based on our concern for the health and safety of our teams, for the vast majority of our teams, which to date has resulted in minimal disruption.

While we expect that engagement trends will continue to be higher than they were pre-pandemic, we expect a moderation of the trends that have benefited our industry as the return to normalcy continues to unfold.

Based on our concern for the health and safety of our teams, we have developed and continue to develop plans to help mitigate the negative impacts of the pandemic on our business, including transitioning the vast majority of our teams to working from home.

We are taking a prudent approach relating to our return to office cadence and planning.

Some of our offices are open, and we plan for the majority of our offices to reopen in the coming months.

Given the evolving dynamics of the COVID-19 pandemic, we continue to adhere to safety standards in the planning and implementation of our return to office.

To date, our plans have resulted in minimal disruption.

However, despite largely positive outcomes to date, these efforts may ultimately not be effective, and a protracted economic downturn may limit the effectiveness of our mitigation efforts.

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Additionally, our business is dependent upon a limited number of customers that account for a significant portion of our revenue.

Our five largest customers accounted for 80.6% and 81.6% of net revenue during the three months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021 and March 31, 2021, our five largest customers comprised 74.2% and 77.6% of our gross accounts receivable, respectively, with our significant customers (those that individually comprised more than 10% of our gross accounts receivable balance) accounting for 65.3% and 69.2% of such balance at June 30, 2021 and March 31, 2021, respectively.

We had two customers who accounted for 47.7% and 17.6%, respectively, of our gross accounts receivable as of June 30, 2021 and two customers who accounted for 50.4% and 18.8%, respectively, of our gross accounts receivable as of March 31, 2021.

Our five largest customers accounted for 79.8% and 77.7% of net revenue during the six months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021 and March 31, 2021, our five largest custome rs comprised 76.9% and 77.6% of our gross accounts receivable, respectively, with our significant customers (those that individually comprised more than 10% of our gross accounts receivable balance) accounting for 64.3% and 69.2% of such balance at September 30, 2021 and March 31, 2021, respectively.

We had two customers who accounted for 45.4% and 18.9%, respectively, of our gross accounts receivable as of September 30, 2021 and two customers who accounted for 50.4% and 18.8%, respectively, of our gross accounts receivable as of March 31, 2021.

The economic environment has affected our customers in the past and may do so in the future, including as a result of the COVID-19 pandemic.

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Hardware Platforms.

We derive most of our revenue from the sale of products made for video game consoles manufactured by third parties, which comprised 74.1% of our net revenue by product platform for the three months ended June 30, 2021.

We derive most of our revenue from the sale of products made for video game consoles manufactured by third parties, which comprised 69.5% of our net revenue by product platform for the six months ended September 30, 2021.

The success of our business is dependent on consumer acceptance of these platforms and the continued growth in their installed base.

When new hardware platforms are introduced, such as those released in November 2020 by Sony and Microsoft, demand for interactive entertainment playable on older platforms typically declines, which may negatively affect our business during the market transition to the new consoles.

The new Sony and Microsoft consoles provide "backwards compatibility" (i.e.

the ability to play games for the previous generation of consoles), which could mitigate the risk of such a decline.

The new Sony and Microsoft consoles provide "backwards compatibility" (i.e., the ability to play games for the previous generation of consoles), which could mitigate the risk of such a decline.

However, we cannot be certain how backwards compatibility will affect demand for our products.

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We also publish an expanding variety of titles for tablets and smartphones, which are delivered to consumers through digital download.

As disclosed in our "Results of Operations," below, net revenue from digital online channels comprised 91.1% of our net revenue for the three months ended June 30, 2021.

We expect online delivery of games and game offerings to continue to grow and to continue to be the primary part of our business over the long term.

As disclosed in our "Results of Operations," below, net revenue from digital online channels comprised 90.8% of our net revenue for the six months ended September 30, 2021.

expect online delivery of games and game offerings to continue to grow and to continue to be the primary part of our business over the long term.

Content Release Highlights

To date we have announced that, during fiscal year 2022, Rockstar Games will release Grand Theft Auto V and a standalone version of Grand Theft Auto Online for the PS5 and Xbox Series X|S, Private Division will release OlliOlli World and Hades , and 2K will release NBA 2K22, WWE 2K22, and Tiny Tina's Wonderlands .

In addition, throughout the year, we expect our labels to deliver new content for our franchises.

During fiscal year 2022, 2K released NBA 2K22 , and Private Division released Hades physically on consoles.

The Trilogy , Private Division will release OlliOlli World , and 2K will release WWE 2K22 and Tiny Tina's Wonderlands .

In addition, throughout the year, we expect to continue to deliver new content for our franchises.

We will also continue to invest in opportunities that we believe will enhance and scale our business and have the potential to drive growth over the long-term.

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Net Bookings were as follows:

Three Months Ended June 30,

Three Months Ended September 30, Six Months Ended September 30,

2021 2020 Increase/

(decrease) % Increase/

(decrease) 2021 2020 Increase/

(decrease) % Increase/

Net Bookings $ 984,852 $ 957,534 $ 27,318 2.9 % $ 1,696,282 $ 1,953,784 $ (257,502) (13.2) %

For the three months ended June 30, 2021, Net Bookings decreased by $284.8 million as compared to the prior year period due primarily to a decrease in Net Bookings from Grand Theft Auto Online and Grand Theft Auto V , our NBA 2K franchise, Red Dead Redemption 2 , Borderlands 3 , and The Outer Worlds , partially offset by an increase in Net Bookings from Two Dots , which was part of the Playdots acquisition in September 2020.

For the three months ended September 30, 2021, Net Bookings increased by $27.3 million as compared to the prior year period due primarily to an increase in Net Bookings from Grand Theft Auto Online and Grand Theft Auto V;

Top Eleven , which was part of the Nordeus acquisition in June 2021;

our NBA 2K franchise;

Two Dots , which was part of the Playdots acquisition in September 2020;

and Borderlands 3.

These increases were partially offset by a decrease in Net Bookings from PGA TOUR 2K21, which released in August 2020;

our Mafia franchise;

The Outer Worlds;

and our WWE 2K franchise.

For the six months ended September 30, 2021, Net Bookings decreased by $257.5 million as compared to the prior year period due primarily to a decrease in Net Bookings from Grand Theft Auto V and Grand Theft Auto Online , our NBA 2K franchise, Red Dead Redemption 2 , PGA TOUR 2K21 , our Mafia franchise, The Outer Worlds , our WWE 2K franchise, and Borderlands 3 , partially offset by an increase in Net Bookings from Top Eleven and Two Dots .

Results of Operations

The following tables set forth, for the periods indicated, our Condensed Consolidated Statements of Operations, net revenue by geographic region, net revenue by platform, net revenue by distribution channel, and net revenue by content type:

Three Months Ended June 30,

Three Months Ended September 30, Six Months Ended September 30,

(thousands of dollars) 2021 2020 2021 2020

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Gross profit 401,516 46.8 % 408,637 48.6 % 885,147 53.0 % 763,258 45.6 %

General and administrative 104,447 12.8 % 102,173 12.3 %

Selling and marketing 136,019 15.8 % 113,691 13.5 % 239,873 14.4 % 198,470 11.9 %

General and administrative 127,331 14.8 % 91,433 10.9 % 231,778 13.9 % 193,606 11.6 %

Research and development 101,508 11.8 % 74,216 8.8 % 193,802 11.6 % 147,324 8.8 %

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Interest and other, net (572) (0.1) % 2,706 0.3 % (1,599) (0.1) % 10,924 0.7 %

Gain on long-term investments, net 1,997 0.2 % — — %

Gain (loss) on long-term investments, net 395 — % (655) (0.1) % 2,392 0.1 % (655) — %

Income before income taxes 19,974 2.3 % 117,418 14.0 % 191,418 11.5 % 207,779 12.4 %

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Net income $ 10,297 1.2 % $ 99,321 11.8 % $ 162,553 9.7 % $ 187,826 11.2 %

Three Months Ended June 30,

Three Months Ended September 30, Six Months Ended September 30,

2021 2020 2021 2020

Net revenue by geographic region:

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Full game and other 294,549 34.3 % 321,245 38.2 % 535,629 32.0 % 655,702 39.2 %

Three Months Ended June 30, 2021 Compared to June 30, 2020

Three Months Ended September 30, 2021 Compared to September 30, 2020

(thousands of dollars) 2021 % 2020 % Increase/

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Net revenue $ 858,198 100.0 % $ 841,142 100.0 % $ 17,056 2.0 %

Internal royalties 159,586 18.6 % 127,804 15.2 % 31,782 24.9 %

Software development costs and royalties (1)

144,869 16.9 % 142,771 17.0 % 2,098 1.5 %

Internal royalties 145,378 17.9 % 214,063 25.8 % (68,685) (32.1) %

Product costs 46,896 5.8 % 58,560 7.0 % (11,664) (19.9) %

Licenses 86,130 10.0 % 92,944 11.0 % (6,814) (7.3) %

Product costs 66,097 7.7 % 68,986 8.2 % (2,889) (4.2) %

Cost of goods sold 456,682 53.2 % 432,505 51.4 % 24,177 5.6 %

Gross profit $ 401,516 46.8 % $ 408,637 48.6 % $ (7,121) (1.7) %

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(1) Includes $10,336 and $19,396 of stock-based compensation expense in 2021 and 2020, respectively, in software development costs and royalties.

For the three months ended June 30, 2021, net revenue decreased by $18.0 million as compared to the prior year period.

The decrease was due to a decrease in net revenue of (i) $47.1 million from Red Dead Redemption 2 and (ii) $26.8 million from Borderlands 3.

These decreases were partially offset by an increase in net revenue of (i) $54.7 million from our NBA 2K franchise .

Net revenue from console games decreased by $9.2 million and accounted for 74.1% of our total net revenue for the three months ended June 30, 2021, as compared to 73.6% for the prior year period.

The decrease was due to a decrease in net revenue from Red Dead Redemption 2 , Borderlands 3, and our BioShock franchise, partially offset by an increase in net revenue from our NBA 2K franchise, Grand Theft Auto Online, and PGA TOUR 2K21 .

Net revenue from PC and other decreased by $36.6 million and accounted for 15.8% of our total net revenue for the three months ended June 30, 2021, as compared to 19.9% for the prior year period.

The decrease was due to a decrease in net revenue from Borderlands 3 , Grand Theft Auto V , and Red Dead Redemption 2 , partially offset by an increase in net revenue from our NBA 2K franchise.

Net revenue from Mobile increased by $27.9 million and accounted for 10.1% of our total net revenue for three months ended June 30, 2021, as compared to 6.5% for the prior year period.

The increase was due primarily to an increase in net revenue from Two Dots , Grand Theft Auto:

San Andreas , and Dragon City .

Net revenue from digital online channels increased by $5.2 million and accounted for 91.1% of our total net revenue for the three months ended June 30, 2021, as compared to 88.5% for the prior year period.

The increase was due to an increase in net revenue from our NBA 2K franchise, Grand Theft Auto Online, and Two Dots , partially offset by a decrease in net revenue from Red Dead Redemption 2 , Borderlands 3 , Civilization VI , and Grand Theft Auto V.

Net revenue from physical retail and other channels decreased by $23.2 million and accounted for 8.9% of our total net revenue for the three months ended June 30, 2021, as compared to 11.5% for the same period in the prior year period.

The decrease in net revenue from physical retail and other channels was due primarily to a decrease in net revenue from Red Dead Redemption 2, Borderlands 3 , Grand Theft Auto V , and our BioShock franchise.

For the three months ended September 30, 2021, net revenue increased by $17.1 million as compared to the prior year period.

The increase was due to an increase in net revenue of (i) $37.8 million from Two Dots, (ii) $12.3 million from Grand Theft Auto Online , (iii) $10.2 million from Top Eleven , (iv) $10.1 million from Red Dead Online , and (v) $8.6 million from our NBA 2K franchise .

These increases were partially offset by a decrease in net revenue of (i) $27.5 million from PGA TOUR 2K21 , (ii) $27.3 million from our Mafia franchise, and (iii) $9.6 million from Red Dead Redemption 2.

Net revenue from console games decreased by $45.2 million and accounted for 69.5% of our total net revenue for the three months ended September 30, 2021, as compared to 76.2% for the prior year period.

The decrease was due to a decrease in net revenue from PGA TOUR 2K21 , and our Mafia franchise.

Net revenue from PC and other increased by $8.3 million and accounted for 17.1% of our total net revenue for the three months ended September 30, 2021, as compared to 16.5% for the prior year period.

The increase was due to an increase in net revenue from Borderlands 3 , partially offset by a decrease in net revenue from our Mafia franchise, and our NBA 2K franchise.

Net revenue from mobile increased by $53.9 million and accounted for 13.4% of our total net revenue for three months ended September 30, 2021, as compared to 7.3% for the prior year period.

The increase was due primarily to an increase in net revenue from Two Dots and Top Eleven .

Net revenue from digital online channels increased by $53.4 million and accounted for 90.8% of our total net revenue for the three months ended September 30, 2021, as compared to 86.3% for the prior year period.

The increase was due to an increase in net revenue from Two Dots , Grand Theft Auto Online, Top Eleven , Red Dead Online , and Borderlands 3 , partially offset by a decrease in net revenue from our Mafia franchise and PGA TOUR 2K21.

Net revenue from physical retail and other channels decreased by $36.4 million and accounted for 9.2% of our total net revenue for the three months ended September 30, 2021, as compared to 13.7% for the same period in the prior year period.

The decrease in net revenue from physical retail and other channels was due primarily to a decrease in net revenue from our Mafia franchise, PGA TOUR 2K21 , our WWE 2K franchise, Borderlands 3 , and Red Dead Redemption 2 , partially offset by an increase in net revenue from Hades .

Recurrent consumer spending is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases.

Net revenue from recurrent consumer spending increased by $75.4 million and accounted for 70.4% of net revenue for the three months ended June 30, 2021, as compared to 59.8% of net revenue for the prior year period.

The increase in net revenue from recurrent consumer spending is due primarily to an increase in net revenue from our NBA 2K franchise, Grand Theft Auto Online and Grand Theft Auto V, and Two Dots, partially offset by a decrease in net revenue from Borderlands 3 , Civilization VI , and Red Dead Redemption 2 and Red Dead Online .

Net revenue from full game and other decreased by $93.4 million and accounted for 29.6% of net revenue for the three months ended June 30, 2021 as compared to 40.2% of net revenue for the prior year period.

The decrease in net revenue from full game and other was due primarily to a decrease in net revenue from Red Dead Redemption 2, Grand Theft Auto V , and Borderlands 3 .

Gross profit as a percentage of net revenue for the three months ended June 30, 2021 was 59.5% as compared to 42.7% for the prior year period.

The increase in gross profit as a percentage of net revenue was due to lower internal royalties due to the timing of when royalties are earned, lower capitalized software amortization due primarily to the timing of releases, and lower development royalties due primarily to the timing of releases.

Net revenue earned outside of the United States decreased by $40.7 million and accounted for 39.4% of our total net revenue for the three months ended June 30, 2021, as compared to 43.4% in the prior year period.

The decrease in net revenue outside of the United States was due to a decrease in net revenue from Red Dead Redemption 2, Grand Theft Auto V , and Borderlands 3 , partially offset by an increase in net revenue from our NBA 2K franchise.

Changes in foreign currency exchange rates decreased net revenue by $1.1 million and increased gross profit by $0.3 million for the three months ended June 30, 2021 as compared to the prior year period.

Net revenue from recurrent consumer spending increased by $43.8 million and accounted for 65.7% of net revenue for the three months ended September 30, 2021, as compared to 61.8% of net revenue for the prior year period.

The increase in net revenue from recurrent consumer spending is due primarily to an increase in net revenue from Two Dots , Grand Theft Auto Online, and Top Eleven , partially offset by a decrease in net revenue from Borderlands 3.

Net revenue from full game and other decreased by $26.7 million and accounted for 34.3% of net revenue for the three months ended September 30, 2021 as compared to 38.2% of net revenue for the prior year period.

The decrease in net revenue from full game and other was due primarily to a decrease in net revenue from PGA TOUR 2K21 , our Mafia franchise, and our WWE 2K franchise, partially offset by an increase in net revenue from Borderlands 3 and our NBA 2K franchise.

Gross profit as a percentage of net revenue for the three months ended September 30, 2021 was 46.8% as compared to 48.6% for the prior year period.

The decrease in gross profit as a percentage of net revenue was due to higher internal royalties due to the timing of when royalties are earned, partially offset by lower development royalties due primarily to the timing of releases.

The decrease in gross profit as a percentage of net revenue was also impacted by impairments recognized against some of our capitalized software balances for three months ended September 30, 2021.

(See Note 8 - Software Development Costs and Licenses of our Condensed Consolidated Financial Statements).

Net revenue earned outside of the United States increased by $5.7 million and accounted for 40.0% of our total net revenue for the three months ended September 30, 2021, as compared to 40.1% in the prior year period.

The increase in net revenue outside of the United States was due to an increase in net revenue from Two Dots and Top Eleven , partially offset by a decrease in net revenue from our Mafia franchis e.

Changes in foreign currency exchange rates increased net revenue by $3.5 million and increased gross profit by $1.5 million for the three months ended September 30, 2021 as compared to the prior year period.

Operating Expenses

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(decrease) % Increase/

General and administrative $ 104,447 12.8 % $ 102,173 12.3 % 2,274 2.2 %

Selling and marketing $ 136,019 15.8 % $ 113,691 13.5 % $ 22,328 19.6 %

General and administrative 127,331 14.8 % 91,433 10.9 % 35,898 39.3 %

Research and development 101,508 11.8 % 74,216 8.8 % 27,292 36.8 %

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$ 381,365 44.4 % $ 293,270 34.9 % $ 88,095 30.0 %

_______________________________________________________________________________

(1) Includes stock-based compensation expense, which was allocated as follows (in thousands):

Selling and marketing $ 7,134 $ 4,439

General and administrative 16,666 13,830

Research and development 13,010 7,643

Changes in foreign currency exchange rates increased total operating expenses by $2.7 million for the three months ended September 30, 2021, as compared to the prior year period.

Selling and marketing

Selling and marketing expenses increased by $22.3 million for the three months ended September 30, 2021, as compared to the prior year period, due primarily to higher overall marketing expense for Grand Theft Auto Online , Two Dots , Top Eleven , and our NBA 2K franchise, partially offset by lower overall marketing expenses for our WWE 2K franchise, our Mafia franchise, and PGA TOUR 2K21 .

General and administrative

General and administrative expenses increased by $35.9 million for the three months ended September 30, 2021, as compared to the prior year period, due primarily to increases in (i) the fair value of the contingent earn-out liability related to our acquisition of Nordeus (refer to Note 15 - Acquisitions ), (ii) personnel expenses for additional headcount, (iii) IT expenses for cloud-based services, and (iv) transfer tax expense related to our acquisition of Nordeus.

The increase was partially offset due primarily to a decrease in professional fees in the prior year period related to our acquisition of Playdots.

General and administrative expenses for the three months ended September 30, 2021 and 2020 included occupancy expense (primarily rent, utilities and office expenses) of $8.4 million and $7.1 million, respectively, related to our development studios.

Research and development

Changes in foreign currency exchange rates decreased total operating expenses by $2.0 million for the three months ended June 30, 2021, as compared to the prior year period.

Research and development expenses increased by $27.3 million for the three months ended September 30, 2021, as compared to the prior year period, due primarily to increases in (i) personnel expenses due to increased headcount and (ii) IT expenses for cloud-based services.

Depreciation and Amortization

Depreciation and amortization expenses increased by $2.5 million for the three months ended September 30, 2021 as compared to the prior year period, due primarily to IT infrastructure and leasehold improvements for new office locations.

Business reorganization

For the three months ended September 30, 2021, business reorganization expense increased by $0.1 million as compared to the prior year period and was not material.

Interest and other, net

Interest and other, net was expense of $0.6 million for the three months ended September 30, 2021, as compared to income of $2.7 million for the prior year period.

The change was due primarily to (i) higher interest expense on our available-for-sale securities and (ii) lower foreign currency gains in the current year period as compared to the prior year period.

Gain on long-term investments, net

Gain on long-term investments, net for the three months ended September 30, 2021 was $0.4 million and was due primarily to changes in value based on the observable price changes of our long-term investments.

Provision for Income Taxes

The provision for income taxes for the three months ended September 30, 2021 is based on our projected annual effective tax rate for fiscal year 2022, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The provision for income taxes was $9.7 million for the three months ended September 30, 2021 as compared to $18.1 million for the prior year period.

When compared to the statutory rate of 21.0%, the effective tax rate of 48.4% for the three months ended September 30, 2021 was due primarily to a tax expense of $2.4 million related to a nondeductible increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus, tax expense of $5.4 million from a shortfall on employee stock-based compensation offset by $2.6 million from the geographic mix of earnings.

In the prior year period, when compared to our statutory rate of 21%, the effective tax rate of 15.4% for the three months ended September 30, 2020 was due primarily to a tax benefit of $5.7 million from tax credits, excess tax benefits of $2.3 million from employee stock-based compensation, and offset by the geographic mix of earnings.

The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to decreases in tax benefits from tax credits and excess tax benefits from employee stock-based compensation the current period, partially offset by the geographic mix of earnings.

The accounting for share-based compensation will increase or decrease our effective tax rate based on the difference between our share-based compensation expense and the deductions taken on our tax return, which depends on the stock price at the time of the employee award vesting.

Since we recognize excess tax benefits on a discrete basis, we anticipate that our effective tax rate will vary from quarter to quarter depending on our stock price in each period.

We anticipate that additional excess tax benefits or shortfalls from employee stock compensation, tax credits, and changes in our geographic mix of earnings could have a significant impact on our effective tax rate in the future.

In addition, we are regularly examined by domestic and foreign taxing authorities.

Examinations may result in tax assessments in excess of amounts claimed and the payment of additional taxes.

We believe our tax positions comply with applicable tax law, and that we have adequately provided for reasonably foreseeable tax assessments.

It is possible that settlement of audits and/or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.

On March 11, 2021, The American Rescue Plan Act of 2021 (“ARPA”) was signed into law.

ARPA includes several revenue-raising and business provisions.

One such provision that impacts the Company is the expansion of the limitation of compensation deductions for certain covered employees of publicly held corporations.

Effective April 1, 2027, ARPA expanded the limitation to cover the next five most highly compensated employees.

As September 30, 2021, ARPA did not have a material impact on our Condensed Consolidated Financial Statements.

On March 27, 2020, the U.S.

enacted the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which provides numerous tax and other stimulus measures that generally support the U.S.

The CARES Act did not have a material impact on our Condensed Consolidated Financial Statements.

Net income and earnings per share

For the three months ended September 30, 2021, net income was $10.3 million, as compared to $99.3 million in the prior year period.

Diluted earnings per share for the three months ended September 30, 2021 was $0.09, as compared to diluted earnings per share of $0.86 in the prior year period.

Diluted weighted average shares of 116.8 million were 1.4 million shares higher as compared to the prior year period, due primarily to normal stock compensation activity, including vests as well as grants and forfeitures in the prior year being fully outstanding in the current year period, partially offset by shares repurchased.

See Note 11 - Earnings Per Share to our Condensed Consolidated Financial Statements for additional information.

Six Months Ended September 30, 2021 Compared to September 30, 2020

(thousands of dollars) 2021 % 2020 % Increase/

(decrease) % Increase/

Net revenue $ 1,671,544 100.0 % $ 1,672,452 100.0 % $ (908) (0.1) %

Internal royalties 304,964 18.2 % 341,867 20.4 % (36,903) (10.8) %

Software development costs and royalties (1)

231,906 13.9 % 290,818 17.4 % (58,912) (20.3) %

Licenses 136,534 8.2 % 148,963 8.9 % (12,429) (8.3) %

Product costs 112,993 6.8 % 127,546 7.6 % (14,553) (11.4) %

Cost of goods sold 786,397 47.0 % 909,194 54.4 % (122,797) (13.5) %

Gross profit $ 885,147 53.0 % $ 763,258 45.6 % $ 121,889 16.0 %

(1) Includes $22,386 and $48,429 of stock-based compensation expense in 2021 and 2020, respectively, in software development costs and royalties.

For the six months ended September 30, 2021, net revenue decreased by $0.9 million as compared to the prior year period.

The decrease was due to a decrease in net revenue of (i) $56.7 million from Red Dead Redemption 2 , (ii) $23.0 million from Borderlands 3 , (iii) $15.4 million from PGA TOUR 2K21 , and (iv) $11.3 million from Civilization VI .

These decreases were partially offset by an increase in net revenue of (i) $63.3 million from our NBA 2K franchise, (ii) $54.4 million from Two Dots , (iii) $31.9 million from Grand Theft Auto Online , (iv) $13.7 million from Red Dead Online , and (v) $12.2 million from Top Eleven .

Net revenue from console games decreased by $54.4 million and accounted for 71.7% of our total net revenue for the six months ended September 30, 2021, as compared to 74.9% for the prior year period.

The decrease was due to a decrease in net revenue from our Red Dead Redemption 2 , Borderlands 3 , our Mafia franchise, PGA TOUR 2K21 , and our WWE 2K franchise , partially offset by an increase in net revenue from our NBA 2K franchise, and Grand Theft Auto Online.

Net revenue from PC and other decreased by $28.3 million and accounted for 16.5% of our total net revenue for the six months ended September 30, 2021, as compared to 18.2% for the prior year period.

The decrease was due to a decrease in net revenue from Red Dead Redemption 2 , Grand Theft Auto V , and Civilization VI , partially offset by an increase in net revenue from our NBA 2K franchise.

Net revenue from mobile increased by $81.8 million and accounted for 11.8% of our total net revenue for six months ended September 30, 2021, as compared to 6.9% for the prior year period.

The increase was due primarily to an increase in net revenue from Two Dots and Top Eleven .

Net revenue from digital online channels increased by $58.6 million and accounted for 90.9% of our total net revenue for the six months ended September 30, 2021, as compared to 87.4% for the prior year period.

The increase was due to an increase in net revenue from our NBA 2K franchise, Two Dots , Grand Theft Auto Online, Red Dead Online , and Top Eleven , partially offset by a decrease in net revenue from Red Dead Redemption 2 , our Mafia franchise, Borderlands 3 , Civilization VI , PGA TOUR 2K21 , and our XCOM franchise.

Net revenue from physical retail and other channels decreased by $59.6 million and accounted for 9.1% of our total net revenue for the six months ended September 30, 2021, as compared to 12.6% for the prior year period.

The decrease was due to a decrease in net revenue from Red Dead Redemption 2, our Mafia franchise, Borderlands 3, PGA TOUR 2K21 , Grand Theft Auto V , and our WWE 2K franchise.

Recurrent consumer spending is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases.

Net revenue from recurrent consumer spending increased by $119.2 million and accounted for 68.0% of net revenue for the six months ended September 30, 2021, as compared to 60.8% of net revenue for the prior year period.

The increase was due to an increase in net revenue from Two Dots , our NBA 2K franchise, Grand Theft Auto Online , and Top Eleven , partially offset by a decrease in net revenue from Borderlands 3 .

Net revenue from full game and other decreased by $120.1 million and accounted for 32.0% of net revenue for the six months ended September 30, 2021 as compared to 39.2% of net revenue for the prior year period.

The decrease was due to a decrease in net revenue from Red Dead Redemption 2, our Mafia franchise, Grand Theft Auto V , and PGA TOUR 2K21.

Gross profit as a percentage of net revenue for the six months ended September 30, 2021 was 53.0% as compared to 45.6% for the prior year period.

The increase in gross profit as a percentage of net revenue was due to lower development royalties due primarily to the timing of releases and lower internal royalties due primarily to the timing of when royalties are earned.

Offsetting the increase in gross profit as a percentage of net revenue were impairments recognized against some of our capitalized software balances for six months ended September 30, 2021.

(See Note 8 - Software Development Costs and Licenses of our Condensed Consolidated Financial Statements).

Net revenue earned outside of the United States decreased by $34.9 million, and accounted for 39.7% of our total net revenue for the six months ended September 30, 2021, as compared to 41.8% in the prior year period.

The decrease in net

revenue outside of the United States was due to a decrease in net revenue from Red Dead Redemption 2 , our Mafia franchise, Grand Theft Auto V , and Borderlands 3 , partially offset by an increase in net revenue from Two Dots , Top Eleven , and our NBA 2K franchise.

Changes in foreign currency exchange rates increased net revenue by $2.3 million and increased gross profit by $1.7 million for the six months ended September 30, 2021 as compared to the prior year period.

Operating Expenses

(thousands of dollars) 2021 % of net revenue 2020 % of net revenue Increase/

(decrease) % Increase/

Selling and marketing $ 239,873 14.4 % $ 198,470 11.9 % $ 41,403 20.9 %

General and administrative 231,778 13.9 % 193,606 11.6 % 38,172 19.7 %

General and administrative expenses increased by $2.3 million for the three months ended June 30, 2021, as compared to the prior year period, due primarily to increases in (i) personnel expenses for additional headcount, (ii) professional fees related to our acquisition of Nordeus, (iii) rent expense, and (iv) IT expenses for cloud-based services.

The increase was partially offset due primarily to a decrease in charitable contributions in the prior year period related to our COVID-19 response and relief efforts.

General and administrative expenses for the three months ended June 30, 2021 and 2020 included occupancy expense (primarily rent, utilities and office expenses) of $7.8 million and $7.3 million, respectively, related to our development studios.

Research and development 193,802 11.6 % 147,324 8.8 % 46,478 31.5 %

Depreciation and amortization 28,646 1.7 % 26,109 1.6 % 2,537 9.7 %

Business reorganization 423 — % 239 — % 184 77.0 %

Total operating expenses (1)

$ 694,522 41.5 % $ 565,748 33.8 % $ 128,774 22.8 %

(1) Includes stock-based compensation expense, which was allocated as follows (in thousands):

Selling and marketing $ 15,167 $ 9,167

Selling and marketing expenses increased by $19.1 million for the three months ended June 30, 2021, as compared to the prior year period, due primarily to (i) higher overall marketing expense for Two Dots , Top Eleven , Red Dead Online , Dragon City , and Word Life , partially offset by lower marketing expenses for Disintegration and Grand Theft Auto Online and (ii) personnel expenses due to increased headcount.

General and administrative 33,863 27,030

Research and development 24,780 14,093

Research and development expenses increased by $19.2 million for the three months ended June 30, 2021, as compared to the prior year period, due primarily to increases in personnel expenses due to increased headcount.

Changes in foreign currency exchange rates increased total operating expens es by $0.7 million for the six months ended September 30, 2021, as compared to the prior year period.

Selling and marketing

Selling and marketing expenses increased by $41.4 million for the six months ended September 30, 2021, as compared to the prior year period, due primarily to higher overall marketing expenses for Two Dots , Grand Theft Auto Online , Top Eleven , and our NBA 2K franchise.

General and administrative

General and administrative expenses increased by $38.2 million for the six months ended September 30, 2021, as compared to the prior year period, due to increases in (i) the fair value of the contingent earn-out liability related to our acquisition of Nordeus (refer to Note 15 - Acquisitions ), (ii) personnel expenses for additional headcount (iii) IT expenses for cloud-based services (iv) professional fees related to our acquisition of Nordeus, and (v) rent expense.

The increase was partially offset by a decrease in charitable contributions as compared to the prior year period primarily due to our COVID-19 response and relief efforts in the prior year period.

General and administrative expenses for the six months ended September 30, 2021 and 2020 included occupancy expense (primarily rent, utilities and office expenses) of $15.9 million and $13.7 million, respectively, related to our development studios.

Research and development

Research and development expenses increased by $46.5 million for the six months ended September 30, 2021, as compared to the prior year period, due primarily to increases in personnel expenses for higher headcount.

Depreciation and Amortization

Depreciation and amortization expenses was relatively consistent year-on-year for the three months ended June 30, 2021 as compared to the prior year period.

Depreciation and amortization expenses for the six months ended September 30, 2021 increased by $2.5 million, as compared to the prior year period, due primarily to IT infrastructure.

Business reorganization

For the three months ended June 30, 2021, business reorganization expense increased by $0.1 million as compared to the prior year period and was not material.

During the six months ended September 30, 2021, as compared to the prior year period, business reorganization expense increased $0.2 million and was not material.

Interest and other, net

Interest and other, net was expense of $1.0 million for the three months ended June 30, 2021, as compared to income of $8.2 million for the prior year period.

The change was due primarily to (i) foreign currency losses in the current year period as compared to gains in the prior year period, including a $3.1 million reclassification from Accumulated other comprehensive loss as a result of discontinuing our cash flow hedge related to our cross-currency swap, and (ii) lower interest income due to lower interest rates.

Interest and other, net was expense of $1.6 million for the six months ended September 30, 2021, as compared to income of $10.9 million f or the prior year period.

The change was due primarily to (i) foreign currency losses in the current year period as compared to gains in the prior year period, (ii) higher interest expense on our available-for-sale investments, and (iii) lower interest income on our investments due to lower rates.

Gain on long-term investments, net

Gain on long-term investments, net for the three months ended June 30, 2021 was $2.0 million and was due primarily to changes in value based on the observable price change of our long-term investments.

Gain on long-term investments, net for the six months ended September 30, 2021 was $2.4 million and was due primarily to changes in value based on the observable price change of our long-term investment.

Provision for Income Taxes

The provision for income taxes for the three months ended June 30, 2021 is based on our projected annual effective tax rate for fiscal year 2022, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The provision for income taxes was $19.2 million for the three months ended June 30, 2021 as compared to $1.9 million for the prior year period.

When compared to the statutory rate of 21.0%, the effective tax rate of 11.2% for the three months ended June 30, 2021 was due primarily to a tax benefit of $12.1 million from tax credits and excess tax benefits of $9.4 million from employee stock-based compensation offset by the geographic mix of earnings.

In the prior year period, when compared to our statutory rate of 21%, the effective tax rate of 2.1% for the three months ended June 30, 2020 was due primarily to excess tax benefits of $7.9 million from employee stock-based compensation, tax benefits of $4.9 million from tax credits and the geographic mix of earnings.

The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to increased expense related to the geographic mix of earnings and decreased excess tax benefits from employee stock-based compensation in the current period, partially offset by increased tax credits.

The provision for income taxes for the six months ended September 30, 2021 is based on our projected annual effective tax rate for fiscal year 2021, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The provision for income taxes was $28.9 million for the six months ended September 30, 2021 as compared to a provision for income taxes of $20.0 million for the prior year period.

When compared to the statutory rate of 21.0%, the effective tax rate of 15.1% for the six months ended September 30, 2021 was due primarily to a tax benefit of $11.4 million as a result of tax credits anticipated to be utilized and excess tax benefits of $4.0 million from employee stock-based compensation offset by a tax expense of $2.4 million related to a nondeductible increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus and by the geographic mix of earnings.

In the prior year period, when compared to our blended statutory rate of 21%, the effective tax rate of 9.6% for the six months ended September 30, 2020 was due primarily to a benefit of $10.7 million as a result of tax credits anticipated to be utilized and excess tax benefits of $10.2 million from employee stock-based compensation.

The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to decreased tax benefits from employee stock-based compensation in the current period, partially offset by the geographic mix of earnings.

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Effective April 1, 2027, ARPA expanded the limitation to cover the next five most highly compensated employees.

As June 30, 2021, ARPA did not have a material impact on our Condensed Consolidated Financial Statements.

As September 30, 2021, ARPA did not have a material impact on our Condensed Consolidated Financial Statements.

On March 27, 2020, the U.S.

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Net income and earnings per share

For the three months ended June 30, 2021, net income was $152.3 million, as compared to $88.5 million in the prior year period.

Diluted earnings per share for the three months ended June 30, 2021 was $1.30, as compared to diluted earnings per share of $0.77 in the prior year period.

Diluted weighted average shares of 117.1 million were 2.2 million shares higher as compared to the prior year period, due primarily to normal stock compensation activity, including vests as well as grants and forfeitures in the prior year being fully outstanding in the current year period.

See Note 11 - Earnings Per S hare to our Condensed Consolidated Financial Statements for additional information.

For the six months ended September 30, 2021, net income was $162.6 million, as compared to $187.8 million in the prior year period.

For the six months ended September 30, 2021, diluted earnings per share was $1.39 as compared to diluted earnings per share of $1.63 in the prior year period.

Diluted weighted average shares of 116.9 million were 1.6 million shares higher as compared to the prior year period, due primarily to normal stock compensation activity, including vests as well as grants and forfeitures in the prior year being fully outstanding in the current year period, partially offset by shares repurchased.

See Note 11 - Earnings Per Share to our Condensed Consolidated Financial Statements for additional information regarding earnings per share.

Liquidity and Capital Resources

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Short-term Investments

As of June 30, 2021, we had $1,135.2 million of short-term investments, which are highly liquid in nature and represent an investment of cash that is available for current operations.

As of September 30, 2021, we had $1,440.6 million of short-term investments, which are highly liquid in nature and represent an investment of cash that is available for current operations.

From time to time, we may purchase additional short-term investments depending on future market conditions and liquidity needs.

As of June 30, 2021, based on the composition of our investment portfolio and relatively lower interest rates as a result of the actions by central banks around the world, including the interest rate cuts by the U.S.

As of September 30, 2021, based on the composition of our investment portfolio and relatively lower interest rates as a result of the actions by central banks around the world, including the interest rate cuts by the U.S.

Federal Reserve, in response to the COVID-19 pandemic and related adverse economic conditions, we anticipate investment yields may remain low, which would lower our future interest income.

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Credit Agreement

On February 8, 2019, we entered into an unsecured Credit Agreement (the “Credit Agreement”), and on June 28, 2021, we amended our unsecured Credit Agreement solely to increase the commitments under the facility by $50 million (as

amended, the “Credit Agreement”) that runs through February 8, 2024.

The Credit Agreement provides for an unsecured five-year revolving credit facility with commitments of $250 million, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $25 million and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros, and Canadian Dollars in an aggregate principal amount of up to $25 million.

In addition, the Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional $200 million in term loans or revolving credit facilities.

Loans under the Credit Agreement will bear interest at a rate of (a) 0.250% to 0.750% above a certain base rate (3.25% at June 30, 2021) or (b) 1.125% to 1.750% above LIBOR (approximately 0.10% at June 30, 2021), which rates are determined by reference to our consolidated total net leverage ratio.

As of June 30, 2021, there was $247.9 million available to borrow under the Credit Agreement, and we had $2.1 million of letters of credit outstanding.

At June 30, 2021, we had no outstanding borrowings under the Credit Agreement.

Loans under the Credit Agreement will bear interest at a rate of (a) 0.250% to 0.750% above a certain base rate (3.25% at September 30, 2021) or (b) 1.125% to 1.750% above LIBOR (approximately 0.09% at September 30, 2021), which rates are determined by reference to our consolidated total net leverage ratio.

The LIBOR benchmark rate is expected to be phased out by the end of June 2023.

We do not expect that the discontinuation of the LIBOR rate will have a material impact on our liquidity or results of operations.

As of September 30, 2021, there was $247.8 million available to borrow under the Credit Agreement, and we had $2.2 million of letters of credit outstanding.

At September 30, 2021, we had no outstanding borrowings under the Credit Agreement.

The Credit Agreement also includes, among other terms and conditions, maximum leverage ratio, minimum cash reserves and, in certain circumstances, minimum interest coverage ratio financial covenants, as well as limitations on the Company’s and each of its subsidiaries’ ability to:

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A majority of our trade receivables are derived from sales to major retailers, including digital storefronts and platform partners, and distributors.

Our five largest customers accounted for 80.6% and 81.6% of net revenue during the three months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021 and March 31, 2021, five customers accounted for 74.2% and 77.6% of our gross accounts receivable, respectively.

Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 65.3% and 69.2% of such balances at June 30, 2021 and March 31, 2021, respectively.

We had two customers who accounted for 47.7% and 17.6% of our gross accounts receivable as of June 30, 2021, respectively, and two customers who accounted for 50.4% and 18.8% of our gross accounts receivable as of March 31, 2021, respectively.

Our five largest customers accounted for 79.8% and 77.7% of net revenue during the six months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021 and March 31, 2021, five customers accounted for 76.9% and 77.6% of our gross accounts receivable, respectively.

Customers that individually accounted for more than 10% of

our gross accounts receivable balance comprised 64.3% and 69.2% of such balances at September 30, 2021 and March 31, 2021, respectively.

We had two customers who accounted for 45.4% and 18.9% of our gross accounts receivable as of September 30, 2021, respectively, and two customers who accounted for 50.4% and 18.8% of our gross accounts receivable as of March 31, 2021, respectively.

Based upon performing ongoing credit evaluations, maintaining trade credit insurance on a majority of our customers and our past collection experience, we believe that the receivable balances from these largest customers do not represent a significant credit risk, although we actively monitor each customer's credit worthiness and economic conditions that may affect our customers' business and access to capital.

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For further discussion regarding the potential future impacts of the COVID-19 pandemic and related economic conditions on our business, refer to Item 1A, Risk Factors of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

As of June 30, 2021, the amount of cash and cash equivalents held outside of the U.S.

As of September 30, 2021, the amount of cash and cash equivalents held outside of the U.S.

by our foreign subsidiaries was $306.9 million.

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The Tax Cuts and Jobs Act, as enacted in December 2017, includes a number of provisions, which generally establish a territorial-style system for taxing foreign income of domestic multinational corporations.

Our current intention is to reinvest

indefinitely earnings of our foreign subsidiaries, and therefore we have not recorded any tax liabilities associated with the repatriation of foreign earnings.

Our current intention is to reinvest indefinitely earnings of our foreign subsidiaries, and therefore we have not recorded any tax liabilities associated with the repatriation of foreign earnings.

Our Board of Directors has authorized the repurchase of up to 14.2 million shares of our common stock.

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The program does not require us to repurchase shares and may be suspended or discontinued at any time for any reason.

During the three months ended June 30, 2021, we did not make any repurchases of our common stock in the open market.

We have repurchased a total of 10.4 million shares of our common stock under the program, and as of June 30, 2021, 3.8 million shares of our common stock remained available for repurchase under the share repurchase program.

During the three months ended September 30, 2021, we repurchased 1.3 million shares of our common stock in the open market for $200.0 million, including commissions, as part of the program.

We have repurchased a total of 11.7 million shares of our common stock under the program, and as of September 30, 2021, 2.6 million shares of our common stock remained available for repurchase under the share repurchase program.

Our changes in cash flows were as follows:

Three Months Ended

Six Months Ended

September 30,

(thousands of dollars) 2021 2020

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Net change in cash, cash equivalents, and restricted cash and cash equivalents $ (345,541) $ 91,388

At June 30, 2021, we had $2,157.4 million of cash and cash equivalents and restricted cash and cash equivalents, compared to $2,060.2 million at March 31, 2021.

The increase was due to Net cash provided by operating activities from sales of our products, partially offset by the timing of payments.

This net increase was partially offset by (1) Net cash used in financing activities, which was primarily for tax payments related to net share settlements of our restricted stock awards and (2) Net cash used in investing activities primarily related to (i) net purchases of available for sale securities, (ii) our acquisition of Nordeus, and (iii) purchases of fixed assets, including our acquisition of two office buildings in the UK (refer to Note 15 - Acquisitions ), partially offset by changes in bank time deposits.

At September 30, 2021, we had $1,714.7 million of cash and cash equivalents and restricted cash and cash equivalents, compared to $2,060.2 million at March 31, 2021.

The decrease was due to (1) Net cash used in investing activities primarily related to (i) net purchases of available for sale securities, (ii) our acquisition of Nordeus (refer to Note 15 - Acquisitions ), and (iii) purchases of fixed assets, including our acquisition of two office buildings in the UK (refer to Note 15 - Acquisitions ) and (2) Net cash used in financing activities, which was primarily for (i) repurchase of our common stock and (ii) tax payments related to net share settlements of our restricted stock awards.

This net increase was partially offset by Net cash provided by operating activities from sales of our products, partially offset by the timing of payments.

Contractual Obligations and Commitments

Refer to N ote 13 - Commitments and Contingencies to our Condensed Consolidated Financial Statements for disclosures regarding our commitments.

Refer to Note 13 - Commitments and Contingencies to our Condensed Consolidated Financial Statements for disclosures regarding our commitments.

Capital Expenditures

In fiscal year 2022, we anticipate capital expenditures to be $170 million.

During the three months ended June 30, 2021, capital expenditures were $86.4 million, which includes our acquisition of two office buildings in the UK (refer to Note 15 - Acquisitions ).

During the six months ended September 30, 2021, capital expenditures were $111.2 million, which includes our acquisition of two office buildings in the UK (refer to Note 15 - Acquisitions ).

Off-Balance Sheet Arrangements

As of June 30, 2021 and March 31, 2021, we did not have any material relationships with unconsolidated entities or financial parties, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of September 30, 2021 and March 31, 2021, we did not have any material relationships with unconsolidated entities or financial parties, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As such, we are not exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.

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Net revenue earned outside of the United States is principally generated by our operations in Europe, Asia, Australia, Canada, and Latin America.

For the three months ended June 30, 2021 and 2020, 39.4% and 43.4%, respectively, of our net revenue was earned outside of the United States.

For the three months ended September 30, 2021 and 2020, 40.0% and 40.1%, respectively, of our net revenue was earned outside of the United States.

We are subject to risks inherent in foreign trade, including increased credit risks, tariffs and duties, fluctuations in foreign currency exchange rates, shipping delays, and international political, regulatory and economic developments, all of which can have a significant effect on our operating results.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis