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Item 7. Management’s Discussion and Analysis

2023-05-26 compared with 2022-05-17 · 219 added, 196 removed, 165 unchanged (72% of the section changed)

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We are a leading developer, publisher, and marketer of interactive entertainment for consumers around the globe.

We develop and publish products principally through Rockstar Games, 2K, Private Division, and T2 Mobile Games.

Our products are currently designed for console gaming systems and PC, including smartphones and tablets.

We develop, operate, and publish products principally through Rockstar Games, 2K, Private Division, and Zynga.

Our products are currently designed for console gaming systems, PC, and mobile including smartphones and tablets.

We deliver our products through physical retail, digital download, online platforms, and cloud streaming services.

Recent Developments

Pending Acquisition.

On January 9, 2022, we entered into a definitive merger agreement to acquire Zynga Inc.

("Zynga"), a leading developer of mobile games.

Under the terms and subject to the conditions of the merger agreement, Zynga stockholders will receive $3.50 in cash and a number of shares of our common stock equal to the exchange ratio for each share of Zynga common stock outstanding at the closing.

The transaction is valued at $9.86 per share of Zynga common stock based on the market closing as of January 7, 2022, implying an enterprise value of $12.7 billion.

The transaction includes a collar mechanism on the equity consideration, so that if the volume weighted average price ("VWAP") of Take-Two common stock on the Nasdaq Global Select Market for the consecutive period beginning at 9:30 a.m.

New York time on the twenty-third trading day immediately preceding the closing date of the transaction and concluding at 4:00 p.m.

New York time on the third trading day preceding such closing date is in a range from $156.50 to $181.88, the exchange ratio would be adjusted to deliver total consideration of $9.86 per Zynga share.

If the VWAP of our common stock for the period noted in the prior sentence exceeds the higher end of that range the exchange ratio would be 0.0350 per share, and, if the VWAP is below the lower end of that range, the exchange ratio would be 0.0406 per share.

The transaction, which is currently anticipated to close on Monday May 23, 2022, is subject to approval by Take-Two and Zynga stockholders and the satisfaction of the other customary closing conditions.

In connection with the transaction, on April 14, 2022, we completed our offering and sale of $2.7 billion aggregate principal amount of our senior notes, consisting of $1.0 billion principal amount of our 3.300% Senior Notes due 2024 (the “2024 Notes”), $600 million principal amount of our 3.550% Senior Notes due 2025 (the “2025 Notes”), $600 million principal amount of our 3.700% Senior Notes due 2027 (the “2027 Notes”) and $500 million principal amount of our 4.000% Senior Notes due 2032 (the “2032 Notes” and, together with the 2024 Notes, the 2025 Notes and the 2027 Notes, the “Notes”).The Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee (the “Trustee”).

The Notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations.

Refer to Item 1 - Business for additional discussion.

Zynga Acquisition and Related Debt Transactions

We acquired Zynga on May 23, 2022, for consideration having an acquisition date fair value of $9,521.8, consisting of $3,992.4 in cash, the issuance of 46.3 shares of our common stock, valued at $5,377.7, and $151.7 of replacement equity awards attributable to the pre-acquisition service period.

Refer to Note 2 0 - Acquisitions of our Consolidated Financial Statements.

Zynga is a leading developer of mobile games with a mission to connect the world through games.

Also, in connection with the Zynga Acquisition, we entered into several debt transactions (refer to Note 11 - Debt ).

On April 14, 2022, we completed our offering and sale of $2,700.0 aggregate principal amount of our senior notes, consisting of $1,000.0 principal amount of our 3.300% Senior Notes due 2024 (the “2024 Notes”), $600.0 principal amount of our 3.550% Senior Notes due 2025 (the “2025 Notes”), $600.0 principal amount of our 3.700% Senior Notes due 2027 (the “2027 Notes”), and $500.0 principal amount of our 4.000% Senior Notes due 2032 (the “2032 Notes” and, together with the 2024 Notes, the 2025 Notes and the2027 Notes, the “Senior Notes”).

The Senior Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee (the “Trustee”).

The 2024 Notes mature on March 28, 2024, and bear interest at an annual rate of 3.300%.

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We will pay interest on the 2024 Notes semiannually on March 28 and September 28 of each year, commencing September 28, 2022.

During the fiscal year ended March 31, 2023, we made interest payments of $31.5.

We will pay interest on each of the 2025 Notes, 2027 Notes, and 2032 Notes semi-annually on April 14 and October 14 of each year, commencing October 14, 2022.

During the fiscal year ended March 31, 2023, we made interest payments of $31.8.

The proceeds of the Senior Notes were used to finance a portion of our acquisition of Zynga.

On May 23, 2022, we entered into a new unsecured Credit Agreement (the "2022 Credit Agreement"), which replaced in its entirety the Company's prior Credit Agreement and provides for an unsecured five-year revolving credit facility with commitments of $500.0, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $100.0 and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros, and Canadian Dollars in an aggregate principal amount of up to $100.0.

In addition, the 2022 Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional amount not to exceed the greater of $250.0 and 35.0% of the Company's Consolidated Adjusted EBITDA (as defined in the 2022 Credit Agreement).

Loans under the 2022 Credit Agreement will bear interest at a rate of (a) 0.000% to 0.625% above an alternate base rate (8.00% at March 31, 2023) or (b) 1.000% to 1.625% above Secured Overnight Financing Rate ("SOFR"), approximately 4.80% at March 31, 2023, which rates are determined by the Company's credit rating.

On June 22, 2022, we drew down approximately $200.0 at 3.28% from our facility under the 2022 Credit Agreement.

In December 2022, we fully repaid the $200.0 drawdown, and, at March 31, 2023, there were no borrowings under the 2022 Credit Agreement.

On June 22, 2022, we entered into an unsecured 364-Day Term Loan Credit Agreement ("Term Loan").

The Term Loan provides for an unsecured 364-day term loan credit facility in the aggregate principal amount of $350.0 and matures on June 21, 2023, and will bear interest at our election at a margin of (a) 0.000% to 0.375% above an alternate base rate (defined on the basis of prime rate) or (b) 0.750% to 1.375% above SOFR, which rates are determined by reference to our credit rating.

We fully drew down on the Term Loan on June 22, 2022 at 3.6%.

In April 2023, we fully repaid the $350.0 Term Loan.

The proceeds from our draw-downs of the 2022 Credit Agreement and Term Loan were used to finance a portion of the settlement of the Convertible Notes acquired from Zynga.

In total, we paid $321.62 for the tendered or converted 2024 Convertible Notes, including interest, and $845.14 for the tendered 2026 Convertible Notes in cash, and we issued 3.7 shares of our common stock upon the conversion of the 2024 Convertible Notes.

After settlement of all Convertible Notes tendered or surrendered for conversion, $21.4 aggregate principal amount of the 2024 Convertible Notes remained outstanding and $29.40 aggregate principal amount of the 2026 Convertible Notes remained outstanding at March 31, 2023.

Cybersecurity Incident

In September 2022, we experienced a network intrusion in which an unauthorized third party illegally accessed and downloaded confidential information from our systems, including early development footage of the next installment in the Grand Theft Auto franchise.

We immediately took steps to isolate and contain the incident.

Rockstar Games did not experience and does not anticipate any disruption to its current services nor any long-term effect on its development timelines as a result of this incident.

Subsequently, also in September 2022, we became aware that an unauthorized third party illegally accessed credentials for a vendor platform that 2K Games uses to provide help desk support to its customers.

The unauthorized party sent a communication to certain players containing a malicious link.

2K Games immediately notified all affected users and took steps to restrict further unauthorized activity until service was restored.

In connection with this activity (the “Cybersecurity

Incident”), we have incurred certain immaterial incremental one-time costs related to consultants, experts and data recovery efforts and expect to incur additional costs related to cybersecurity protections in the future.

We are in the process of implementing a variety of measures to enhance further our cybersecurity protections.

Popcore Acquisition

We acquired Popcore on November 16, 2022 for initial consideration of $116.9 in cash, 0.6 shares of our common stock, and a contingent earn-out consideration arrangement that requires us to pay up to an aggregate of $105.0 in cash if Popcore achieves certain performance measures over each of the three calendar years following the closing.

Refer to Note 20 - Acquisitions of our Consolidated Financial Statements.

Founded in 2018, Popcore is a mobile games company based in Berlin best known for Parking Jam 3D and Pull the Pin .

Trends and Factors Affecting our Business

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Economic Environment and Retailer Performance.

We continue to monitor economic conditions, including the impact of the COVID-19 pandemic, that may affect our businesses, such as 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.

During fiscal year 2021, as in the final quarter of fiscal year 2020, we noted a positive impact to our results that we believe was partly due to increased consumer engagement with our products because of the COVID-19 related business closures and movement restrictions, such as "shelter in place" and "lockdown" orders, implemented around the world, as well as the online accessibility and social nature of our products.

expected, during fiscal year 2022, we experienced a moderation in engagement from the all-time highs experienced in fiscal year 2021, but overall engagement continued to be notably higher than it was pre-pandemic.

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 impact of the pandemic on our business, including transitioning the vast majority of our teams to working from home.

The majority of our offices either have reopened or are scheduled 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.

Any of these considerations described above could cause or contribute to the risks described, above, in Item 1A of this Form 10-K and could materially adversely affect our business, financial condition, results of operations, or stock price.

Therefore, the effects of COVID-19 may not be fully reflected in our financial results until future periods, and, at this time, we are not able to predict its ultimate impact on our business.

We continue to monitor various macroeconomic and geopolitical factors that may affect our business in several areas, including consumer demand, pricing pressure on our products, credit quality of our receivables, and foreign currency exchange rates.

For example, in response to the conflict in Ukraine, we suspended sales of our products in Russia and Belarus, which had a negative impact on our financial results.

Actions taken to date and other potential actions could result in additional negative impact in future periods.

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

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As of March 31, 2023, and 2022, five customers comprised 61.1% and 72.8% 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 50.3% and 63.8% of such balance at March 31, 2023, and 2022, respectively.

We had two customers who accounted for 43.5% and 20.3% of our gross accounts receivable as of March 31, 2022, and two customers who accounted for 50.4% and 18.8% of our gross accounts receivable as of March 31, 2021.

We had three customers who accounted for 21.6%, 14.5%, and 14.2% of our gross accounts receivable as of March 31, 2023, and two customers who accounted for 43.5% and 20.3% of our gross accounts receivable as of March 31, 2022.

We did not have any additional customers that exceeded 10% of our gross accounts receivable as of March 31, 2023, and 2022.

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.

Bankruptcies or consolidations of our large retail customers could seriously hurt our business, due to uncollectible accounts receivables and the concentration of purchasing power among the remaining large retailers.

The COVID-19 pandemic has led, and may continue to lead, to increased consolidation as larger, better capitalized competitors will be in a stronger position to withstand prolonged periods of economic downturn and sustain their business through the financial volatility.

Certain of our large customers sell used copies of our games, which may negatively affect our business by reducing demand for new copies of our games.

While the downloadable content that we now offer for certain of our titles may serve to reduce used game sales, we expect used game sales to continue to adversely affect our business.

The economic environment has affected our customers in the past, and may do so in the future.

Bankruptcies or consolidations of our large retail customers could seriously hurt our business, due to uncollectible accounts receivable and the concentration of purchasing power among the remaining large retailers.

There has been increased consolidation in our industry, as larger, better capitalized competitors will be in a stronger position to withstand prolonged periods of economic downturn and sustain their business through the financial volatility.

Hardware Platforms.

We derive most of our revenue from the sale of products made for video game consoles manufactured by third parties, which comprised 72.2% of our net revenue by product platform for the fiscal year ended March 31, 2022.

We derive a substantial portion of our revenue from the sale of products made for video game consoles manufactured by third parties, which comprised 43.1% of our net revenue by product platform for the fiscal year ended March 31, 2023.

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

When new hardware platforms are introduced, such as those released in November 2020 by Sony and Microsoft, demand for interactive entertainment used 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 latest 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 manage our product delivery on each current and future platform in a manner we believe to be most effective to maximize our revenue opportunities and achieve the desired return on our investments in product development.

Accordingly, our strategy is to focus our development efforts on a select number of the highest quality titles for these platforms, while also expanding our offerings for other platforms such as tablets, smartphones, and online games.

Accordingly, our strategy for these platforms is to focus our development efforts on a select number of the highest quality titles.

Online Content and Digital Distribution.

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We provide a variety of online delivered products and offerings.

Virtually all of our titles that are available through retailers as packaged goods products are also available through direct digital download (from websites we own and others owned by third parties) as well as a large selection of our catalog titles.

Virtually all of our titles that are available through retailers as packaged goods products are also available through direct digital download (from digital storefronts we own and others owned by third parties) as well as a large selection of our catalog titles.

In addition, we aim to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through virtual currency, add-on content, and in-game purchases.

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

As disclosed in our "Results of Operations," below, net revenue from digital online channels comprised 89.8% of our net revenue for the fiscal year ended March 31, 2022.

We expect online delivery of games and game offerings to continue to grow and 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 95.1% of our net revenue for the fiscal year ended March 31, 2023.

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

We also publish an expanding variety of titles for mobile, which are delivered to consumers through digital download, and are primarily distributed, marketed, and promoted through third parties, primarily Apple’s App Store and the Google Play Store.

Virtual items for our mobile games are purchased through the payment processing systems of these platform providers.

We generate a significant portion of our net revenue through the Apple and Google platforms and expect to continue to do so for the foreseeable future as we launch more games for mobile.

Apple and Google generally have the discretion to set the amounts of their platform fees and change their platforms’ terms of service and other policies with respect to us or other developers at their sole discretion, and those changes may be unfavorable to us.

These platform fees are recorded as cost of revenue as incurred.

Further, as a result of the platform fees associated with online game sales, our mobile Net revenue generally generates a lower gross margin percentage than our Console or PC revenue.

Accordingly, the overall product mix between mobile and other game sales may affect our gross margin percentage.

We are also starting to expand our direct-to-consumer efforts more meaningfully across our mobile portfolio to enhance profitability.

Player acquisition costs.

Principally for our mobile titles, we use advertising and other forms of player acquisition and retention to grow and retain our player audience.

These expenditures, which are recorded within Sales and marketing in our Consolidated Statements of Operations, generally relate to the promotion of new game launches and ongoing performance-based programs to drive new player acquisition and lapsed player reactivation.

Over time, these acquisition and retention-related programs may become either less effective or costlier, negatively impacting our operating results.

Content Release Highlights

During fiscal year 2022, 2K released NBA 2K22 , WWE 2K22 , and Tiny Tina's Wonderlands, Private Division released Hades physically on consoles and OlliOlli World, and Rockstar released Grand Theft Auto:

The Trilogy - The Definitive Edition and Grand Theft Auto V and a standalone version of Grand Theft Auto Online for the PS5 and Xbox Series X|S .

To date we have announced that, during fiscal year 2023, 2K will release The Quarry, Marvel's Midnight Suns, NBA 2K23 , WWE 2K23 , and PGA TOUR 2K23 , and Private Division will release Kerbal Space Program 2 .

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

During fiscal year 2023, 2K released The Quarry , NBA 2K23 , PGA TOUR 2K23 , New Tales from the Borderlands , Marvel's Midnight Suns, and WWE 2K23;

and Private Division released Rollerdrome and Kerbal Space Program 2 early access on PC.

To date we have announced that, during fiscal year 2024, 2K will release LEGO 2K Drive , NBA 2K24 , and WWE 2K24 ;

Zynga will release Star Wars Hunters ;

and Private Division will release After Us .

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.

Fiscal 2023 Financial Summary

We acquired Nordeus Limited ("Nordeus") on June 1, 2021, for initial 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 (refer to Note 22 - Acquisitions ).

Founded in 2010, Nordeus is a free-to-play mobile game company based in Belgrade, Serbia, best known for Top Eleven .

Our Net revenue for fiscal year ended March 31, 2022 was led by a variety of our top franchises, primarily NBA 2K, Grand Theft Auto, Red Dead Redemption , Borderlands , and WWE 2K.

Our Net revenue increased to $3,504.8 million, an increase of $132.0 million or 3.9% compared to the fiscal year ended March 31, 2021.

For the fiscal year ended March 31, 2022, our Net income was $418.0 million, as compared to $588.9 million in the prior year.

Diluted earnings per share for the fiscal year ended March 31, 2022 was $3.58, as compared to Diluted income per share of $5.09 for the fiscal year ended March 31, 2021.

Our operating income for the fiscal year ended March 31, 2022 decreased compared to the operating income for fiscal year ended March 31, 2021, due to (i) higher operating expenses for personnel and marketing and (ii) increases in the fair value of the contingent earn-out liability related to our June 2021 acquisition of Nordeus.

At March 31, 2022, we had $2,195.3 million of Cash and cash equivalents and Restricted cash and cash equivalents, compared to $2,060.2 million at March 31, 2021.

The increase in Cash and cash equivalents and Restricted cash and cash equivalents from March 31, 2021 was due primarily to (i) Net cash provided by operating activities from sales primarily from the previously mentioned titles , partially offset by investments in software development and licenses as well as royalty payments and (ii) Net cash provided by investing activities primarily related to net proceeds from available for sale securities changes in bank time deposits, partially offset primarily by our acquisition of Nordeus, and purchases of fixed assets including our acquisition of two office buildings in the U.K.

(refer to Note 22 - Acquisitions ).

This net increase was partially offset by Net cash used in financing activities, which was primarily related to repurchase of our common stock and tax payments related to net share settlements of our restricted stock.

Our net revenue for fiscal year ended March 31, 2023 was led by net revenue of $2,159.2 from Zynga, which we acquired in May 2022 (refer to Note 20 - Acquisitions ), including top contributors Empires & Puzzles , Toon Blast , our hyper-casual mobile portfolio, Words With Friends, and Merge Dragons!, as well as a variety of our top franchises, primarily NBA 2K, Grand Theft Auto, Red Dead Redemption , and WWE 2K.

Our net revenue increased to $5,349.9, an increase of $1,845.1 or 52.6% compared to the fiscal year ended March 31, 2022.

For the fiscal year ended March 31, 2023, our net loss was $(1,124.7), as compared to net income of $418.0 in the prior year.

Diluted loss per share for the fiscal year ended March 31, 2023 was $(7.03), as compared to Diluted earnings per share of $3.58 for the fiscal year ended March 31, 2022.

Our operating loss for the fiscal year ended March 31, 2023 was $(1,165.2) compared to operating income of $473.6 for fiscal year ended March 31, 2022, due to (i) higher cost of revenue due to fees paid to platform partners due to an increase in mobile revenues and higher amortization of intangible assets as a result of the Zynga acquisition and (ii) higher operating expenses for marketing, personnel, and amortization of intangible assets as a result the Zynga acquisition.

At March 31, 2023, we had $1,234.6 of Cash and cash equivalents and Restricted cash and cash equivalents, compared to $2,195.4 at March 31, 2022.

The decrease in Cash and cash equivalents and Restricted cash and cash equivalents from March 31, 2022 was due to Net cash used by investing activities primarily related to our acquisition of Zynga (refer to Note 20 - Acquisitions ).

This net decrease was partially offset by Net cash provided by financing activities (refer to Note 11 - Debt ), primarily related to proceeds from the issuance of our Senior Notes and a draw-down on our Term Loan, which were partially offset by payments for Convertible Notes that were assumed as part of our Zynga acquisition.

To a lesser extent, the net decrease was also partially offset by Net cash provided by operating activities from sales of our products, primarily from the previously mentioned titles , partially offset by working capital requirements used in the development, sale, and support of our products, including for personnel, as well as payments for interest on our debt and transaction-related costs related to our Zynga Acquisition.

Critical Accounting Policies and Estimates

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Net Bookings $ 5,283.6 $ 3,408.2 $ 1,875.4 55.0 %

For the fiscal year ended March 31, 2022, Net Bookings decreased by $144.4 million as compared to the prior year due primarily to a decrease in Net Bookings from our NBA 2K franchise;

our PGA TOUR 2K franchise, which benefited from the release of PGA TOUR 2K21 in the prior year;

and our Mafia franchise, which benefited from the releases of Mafia:

Definitive Editions and Mafia:

Trilogy in the prior year;

and The Outer Worlds , which released in October 2020.

decreases were partially offset by an increase in Net Bookings from Top Eleven , which was part of our Nordeus acquisition in June 2021;

Tiny Tina’s Wonderlands , which released in March 2022;

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

and our WWE 2K franchise, including WWE 2K22 , which released in March 2022.

For the fiscal year ended March 31, 2023, Net Bookings increased by $1,875.4 as compared to the prior year.

The increase was primarily due to Net Bookings from Zynga, which we acquired in May 2022 (refer to Note 2 0 - Acquisitions ), including top contributors Empires & Puzzles , our hyper-casual mobile portfolio, Toon Blast , Words With Friends , and Merge Dragons!.

This increase was partially offset by a decrease in Net Bookings from our Grand Theft Auto and Borderlands franchises.

Results of Operations

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2023 2022 2021

Net revenue $ 3,504,800 100.0 % $ 3,372,772 100.0 % $ 3,088,970 100.0 %

Cost of goods sold 1,535,401 43.8 % 1,535,085 45.5 % 1,542,450 49.9 %

Total net revenue $ 5,349.9 100.0 % $ 3,504.8 100.0 % $ 3,372.8 100.0 %

Cost of revenue 3,064.6 57.3 % 1,535.4 43.8 % 1,535.1 45.5 %

Gross profit 2,285.3 42.7 % 1,969.4 56.2 % 1,837.7 54.5 %

Selling and marketing 1,592.6 29.8 % 516.4 14.7 % 445.0 13.2 %

General and administrative 510,855 14.6 % 390,683 11.6 % 318,235 10.3 %

Research and development 892.5 16.7 % 406.6 11.6 % 317.3 9.4 %

General and administrative 843.1 15.8 % 511.7 14.6 % 390.4 11.6 %

Depreciation and amortization 122.3 2.3 % 61.1 1.7 % 55.6 1.6 %

Business reorganization 849 — % (272) — % 83 — %

Total operating expenses 3,450.5 64.5 % 1,495.8 42.7 % 1,208.3 35.8 %

Income from operations 473,595 13.5 % 629,384 18.7 % 425,267 13.8 %

(Loss) income from operations (1,165.2) (21.8) % 473.6 13.5 % 629.4 18.7 %

Interest and other, net (141.9) (2.7) % (14.2) (0.4) % 8.8 0.3 %

Gain (loss) on long-term investments, net 6,015 0.2 % 39,636 1.2 % (5,333) (0.2) %

Income before income taxes 465,398 13.3 % 677,816 20.1 % 458,439 14.8 %

Provision for income taxes 47,376 1.4 % 88,930 2.6 % 53,980 1.7 %

Net income $ 418,022 11.9 % $ 588,886 17.5 % $ 404,459 13.1 %

(Loss) gain on fair value adjustments, net (31.0) (0.6) % 6.0 0.2 % 39.6 1.2 %

(Loss) income before income taxes (1,338.1) (25.0) % 465.4 13.3 % 677.8 20.1 %

(Benefit from) provision for income taxes (213.4) (4.0) % 47.4 1.4 % 88.9 2.6 %

Net (loss) income $ (1,124.7) (21.0) % $ 418.0 11.9 % $ 588.9 17.5 %

Fiscal Year Ended March 31,

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Net revenue by platform:

Mobile $ 2,538.6 47.5 % $ 403.4 11.5 % $ 274.1 8.1 %

Console 2,303.8 43.1 % 2,528.9 72.2 % 2,517.0 74.6 %

PC and other 507.5 9.5 % 572.5 16.3 % 581.7 17.2 %

Mobile 403,437 11.5 % 274,077 8.1 % 185,749 6.0 %

Net revenue by distribution channel:

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Fiscal Years ended March 31, 2023 and 2022

(thousands of dollars) 2022 % of net revenue 2021 % of net revenue Increase/(decrease) % Increase/(decrease)

Net revenue $ 3,504,800 100.0 % $ 3,372,772 100.0 % $ 132,028 3.9 %

Internal royalties 619,902 17.7 % 637,652 18.9 % (17,750) (2.8) %

(millions of dollars) 2023 % of net revenue 2022 % of net revenue Increase/(decrease) % Increase/(decrease)

Total net revenue $ 5,349.9 100.0 % $ 3,504.8 100.0 % $ 1,845.1 52.6 %

Software development costs and royalties (1)

Licenses 254,203 7.3 % 260,721 7.7 % (6,518) (2.5) %

1,604.8 30.0 % 417.4 11.9 % 1,187.4 284.5 %

Product costs 714.0 13.3 % 243.9 7.0 % 470.1 192.7 %

Cost of goods sold 1,535,401 43.8 % 1,535,085 45.5 % 316 — %

Internal royalties 438.9 8.2 % 619.9 17.7 % (181.0) (29.2) %

Licenses 306.9 5.7 % 254.2 7.3 % 52.7 20.7 %

Cost of revenue 3,064.6 57.3 % 1,535.4 43.8 % 1,529.2 99.6 %

Gross profit $ 2,285.3 42.7 % $ 1,969.4 56.2 % $ 315.9 16.0 %

(1) Includes $(9.5) and $48.4 of stock-based compensation expense in fiscal year 2023 and 2022, respectively.

For the fiscal year ended March 31, 2022, net revenue increased by $132.0 million, as compared to the prior year.

The increase was due primarily to an increase in net revenue of (i) $96.3 million from our Grand Theft Auto franchise, (ii) $83.9 million from Tiny Tina's Wonderlands , which released in March 2022, (iii) $75.0 million from Two Dots , which was part of our Playdots acquisition completed in September 2020, (iv) $51.3 million from Top Eleven , which was part of our Nordeus acquisition completed in June 2021, and (v) $36.6 million from our WWE 2K franchise, including WWE 2K22 , which released in March 2022.

These increases were offset by a decrease in net revenue of (i) $46.7 million from our Mafia franchise, (ii) 41.4 million from our Borderlands franchise, (iii) $39.3 million from our PGA TOUR 2K franchise, (iv) $29.0 million from our Civilization franchise, and (v) $25.2 million from our Red Dead Redemption franchise.

Net revenue from console games increased by $11.9 million and accounted for 72.2% of our total net revenue in the fiscal year ended March 31, 2022, as compared to 74.6% in the prior year.

The increase was due to an increase in net revenue from our Grand Theft Auto franchise, Tiny Tina's Wonderlands , and our WWE 2K franchise, partially offset by a decrease in net revenue from our Mafia , Borderlands , PGA TOUR 2K , Red Dead Redemption , and BioShock franchises, The Outer Worlds , and our Civilization and NBA 2K franchises.

Net revenue from PC and other decreased by $9.2 million and accounted for 16.3% of our total net revenue in the fiscal year ended March 31, 2022, as compared to 17.2% in the prior year.

The decrease was due to a decrease in net revenue from our Grand Theft Auto , Civilization , and XCOM franchises, The Outer Worlds , our Mafia franchise, L.A.

Noire , and our Borderlands franchise, partially offset by an increase in net revenue from Tiny Tina's Wonderlands and our NBA 2K franchise.

Net revenue from mobile increased by $129.4 million and accounted for 11.5% of our total net revenue in the fiscal year ended March 31, 2022, as compared to 8.1% in the prior year.

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

Net revenue from digital online channels increased by $176.6 million and accounted for 89.8% of our total net revenue for the fiscal year ended March 31, 2022, as compared to 88.1% in the prior year.

The increase was due to an increase in net revenue from Two Dots , our Grand Theft Auto franchise, Tiny Tina's Wonderlands , Top Eleven , our NBA 2K and WWE 2K franchises, partially offset by a decrease in net revenue from our Mafia , Civilization , PGA TOUR 2K, and Borderlands franchises and The Outer Worlds.

Net revenue from physical retail and other channels decreased by $44.5 million and accounted for 10.2% of our total net revenue for the fiscal year ended March 31, 2022, as compared to 11.9% for the prior year.

The decrease was due to a decrease in net revenue from our Borderlands , Mafia , PGA TOUR 2K , NBA 2K , and Red Dead Redemption franchises , partially offset by an increase in net revenue from our Grand Theft Auto franchise and Tiny Tina's Wonderlands .

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 64.8% of net revenue for the fiscal year ended March 31, 2022, as compared to 63.8% for the prior year.

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

Net revenue from full game and other increased by $12.8 million and accounted for 35.2% of net revenue for the fiscal year ended March 31, 2022, as compared to 36.2% for the prior year.

The increase was due to an increase in net revenue from Tiny Tina's Wonderlands , our Grand Theft Auto , and WWE 2K franchises , partially offset by a decrease in net revenue from our Mafia and PGA TOUR 2K franchises, The Outer Worlds , and our NBA 2K , Red Dead Redemption , Civilization , BioShock and XCOM franchises and L.A.

For the fiscal year ended March 31, 2023, net revenue increased by $1,845.1, as compared to the prior year.

The increase was due primarily to net revenue of $2,159.2 from Zynga, which we acquired in May 2022 (refer to Note 2 0 - Acquisitions ), including top contributors Empires & Puzzles , our hyper-casual mobile portfolio, Toon Blast , Words With Friends, and Merge Dragons!

, partially offset by a decrease in net revenue of $302.6 from our Grand Theft Auto franchise and $71.9 from our Borderlands franchise.

Net revenue from console games decreased by $225.1 and accounted for 43.1% of our total net revenue in the fiscal year ended March 31, 2023, as compared to 72.2% in the prior year.

The decrease was due to a decrease in net revenue from our Grand Theft Auto and Red Dead Redemption franchises, partially offset by an increase in net revenue from The Quarry , which released in June 2022 and our WWE 2K franchise.

Net revenue from PC and other decreased by $65.0 and accounted for 9.5% of our total net revenue in the fiscal year ended March 31, 2023, as compared to 16.3% in the prior year.

The decrease was due to a decrease in net revenue from our Borderlands , Grand Theft Auto , and Red Dead Redemption franchises, partially offset by an increase in net revenue from Zynga and Marvel's Midnight Suns .

Net revenue from mobile increased by $2,135.2 and accounted for 47.5% of our total net revenue in the fiscal year ended March 31, 2023, as compared to 11.5% in the prior year.

The increase was due to an increase in net revenue of $2,145.2 from Zynga, including top contributors Empires & Puzzles , our hyper-casual mobile portfolio, Toon Blast , Words With Friends , and Merge Dragons!, as well as an increase in Top Eleven , partially offset by a decrease in Two Dots .

Net revenue from digital online channels increased by $1,936.7 and accounted for 95.1% of our total net revenue for the fiscal year ended March 31, 2023, as compared to 89.8% in the prior year.

The increase was due to net revenue of $2,158.5 from Zynga, including top contributors Empires & Puzzles , our hyper-casual mobile portfolio, Toon Blast , Words With Friends, and Merge Dragons!, as well as an increase in net revenue from Top Eleven.

These increases were partially offset by a decrease in net revenue from our Grand Theft Auto , Borderlands and Red Dead Redemption franchises .

Net revenue from physical retail and other channels decreased by $91.6 and accounted for 4.9% of our total net revenue for the fiscal year ended March 31, 2023, as compared to 10.2% for the prior year.

The decrease was due to a decrease in net revenue from our Grand Theft Auto and NBA 2K franchises.

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

Net revenue from recurrent consumer spending increased by $1,909.2 and accounted for 78.1% of net revenue for the fiscal year ended March 31, 2023, as compared to 64.8% for the prior year.

The increase was due to an increase in net revenue of $2,125.3 from Zynga, including top contributors Empires & Puzzles , our hyper-casual mobile portfolio, Toon Blast , Words With Friends, and Merge Dragons!

, as well as an increase in net revenue from Top Eleven , partially offset by a decrease in net revenue from our Grand Theft Auto franchise.

Net revenue from full game and other decreased by $64.1 and accounted for 21.9% of net revenue for the fiscal year ended March 31, 2023, as compared to 35.2% for the prior year.

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

Gross profit as a percentage of net revenue for the fiscal year ended March 31, 2023 was 42.7%, as compared to 56.2% in the prior year.

The percentage increase was due primarily to lower development royalties due primarily to the timing of releases, partially offset by impairments recognized against some of our capitalized software balances (refer to Note 8 - Software Development Costs and Licenses ).

Net revenue earned outside of the United States increased by $47.7 million and accounted for 40.1% of our total net revenue in the fiscal year ended March 31, 2022, as compared to 40.2% in the prior year.

The increase in net revenue outside of the United States was due to an increase in net revenue from Top Eleven , Two Dots , Tiny Tina's Wonderlands , and our Grand Theft Auto , and WWE 2K franchises, partially offset by a decrease in net revenue from our Mafia , Borderlands , Civilization , PGA TOUR 2K , Red Dead Redemption franchises and The Outer Worlds .

Changes in foreign currency exchange rates decreased net revenue and gross profit by $1.7 million and $4.2 million, respectively, in the fiscal year ended March 31, 2022 as compared to the prior year.

The percentage decrease was due primarily to (i) higher amortization related to intangible assets related to our Zynga acquisition, including a $465.3 impairment charge (refer to Note 9 - Goodwill and Intangible Assets, net ), and (ii) higher product costs for fees paid to platform partners due to an increase in mobile revenues as a result of the Zynga acquisition, partially offset by (i) lower internal royalties due to the timing of when royalties are earned and (ii) lower capitalized software amortization due to the timing of releases.

Net revenue earned outside of the United States increased by $585.3 and accounted for 37.2% of our total net revenue in the fiscal year ended March 31, 2023, as compared to 40.1% in the prior year.

The increase in net revenue outside of the United States was due to net revenue of $732.1 from Zynga, including top contributors Empires & Puzzles , our hyper-casual mobile portfolio, Toon Blast , Zynga Poker , and Merge Dragons!

, as well as an increase in net revenue from Top Eleven .

These increases were partially offset by a decrease in net revenue from our Grand Theft Auto franchise.

Changes in foreign currency exchange rates decreased net revenue and gross profit by $34.1 and $18.3, respectively, in the fiscal year ended March 31, 2023 as compared to the prior year.

Operating Expenses

(thousands of dollars) 2022 % of net revenue 2021 % of net revenue Increase/(decrease) % Increase/(decrease)

(millions of dollars) 2023 % of net revenue 2022 % of net revenue Increase/(decrease) % Increase/(decrease)

Selling and marketing $ 1,592.6 29.8 % $ 516.4 14.7 % $ 1,076.2 208.4 %

General and administrative 510,855 14.6 % 390,683 11.6 % 120,172 30.8 %

Research and development 892.5 16.7 % 406.6 11.6 % 485.9 119.5 %

General and administrative 843.1 15.8 % 511.7 14.6 % 331.4 64.8 %

Depreciation and amortization 122.3 2.3 % 61.1 1.7 % 61.2 100.2 %

Business reorganization 849 — % (272) — % 1,121 (412.1) %

Total operating expenses $ 3,450.5 64.5 % $ 1,495.8 42.7 % $ 1,954.7 130.7 %

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

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

Selling and marketing $ 95.2 $ 30.0

General and administrative $ 66,443 $ 56,830

Research and development 116.6 38.1

Foreign currency exchange rates increased total operating expenses by $5.5 million in the fiscal year ended March 31, 2022 as compared to the prior year.

Selling and marketing

Selling and marketing expenses increased by $71.4 million in the fiscal year ended March 31, 2022 as compared to the prior year, due primarily to (i) $62.2 million in higher overall marketing expenses due primarily to Top Eleven, with no corresponding expense in the prior fiscal year and higher spend on Two Dots , Grand Theft Auto Online , and our WWE 2K franchise and (ii) an increase in personnel expenses, primarily due to increased headcount.

General and administrative 115.5 66.5

General and administrative expenses increased by $120.2 million for the fiscal year ended March 31, 2022, as compared to the prior year, due primarily to increases in (i) personnel expenses for additional headcount and higher incentive compensation, (ii) the fair value of the contingent earn-out liability related to our acquisition of Nordeus (refer to Note 22 - Acquisitions ), (iii) professional fees related to acquisitions, including our pending acquisition of Zynga, (iv) IT expenses, primarily for cloud-based services, and (v) rent expenses for additional locations and lease renewals.

These increases were partially offset by a decrease in charitable contributions, primarily related to our COVID-19 response and relief efforts in the prior fiscal year.

General and administrative expenses for the fiscal years ended March 31, 2022 and 2021 include occupancy expense (primarily rent, utilities and office expenses) of $37.2 million and $27.5 million, respectively, related to our development studios.

Foreign currency exchange rates decreased total operating expenses by $72.0 in the fiscal year ended March 31, 2023 as compared to the prior year.

Selling and marketing

Selling and marketing expenses increased by $1,076.2 in the fiscal year ended March 31, 2023 as compared to the prior year, due primarily to (i) marketing expense for titles from our Zynga acquisition, including our hyper-casual mobile portfolio, Toon Blast , Merge Dragons!

, Empires & Puzzles , and Toy Blast, (ii) higher amortization related to intangible assets related to our Zynga acquisition, and (iii) higher personnel expenses for additional headcount, including related to our acquisition of Zynga.

Research and development

Research and development expenses increased by $89.3 million for the fiscal year ended March 31, 2022, as compared to the prior year, due primarily to increased personnel expense due to increased headcount including related to our recent acquisitions.

Research and development expenses increased by $485.9 for the fiscal year ended March 31, 2023, as compared to the prior year, due primarily to an increase in (i) personnel expenses due to increased headcount, including related to our acquisition of Zynga and (ii) production and development expenses related to Zynga.

General and administrative

General and administrative expenses increased by $331.4 for the fiscal year ended March 31, 2023, as compared to the prior year, due primarily to increases in (i) professional fees related to our acquisition and integration of Zynga, (ii) personnel expenses for additional headcount, including our acquisition of Zynga, (iii) higher rent expense for additional locations and lease renewals, including our acquisition of Zynga, and (iv) right-of-use asset impairment expense related to Zynga's San Francisco office (see Note 1 3 - Leases ).

General and administrative expenses for the fiscal years ended March 31, 2023 and 2022 include occupancy expense (primarily rent, utilities and office expenses) of $66.8 and $37.2, respectively, related to our development studios.

Depreciation and amortization

Depreciation and amortization expenses increased by $5.5 million for the fiscal year ended March 31, 2022, as compared to the prior year, due primarily to an increase in costs related to IT infrastructure.

Business Reorganization

During the fiscal year ended March 31, 2022, business reorganization expense increased by $1.1 million as compared to the prior year period and was not material.

Depreciation and amortization expenses increased by $61.2 for the fiscal year ended March 31, 2023, as compared to the prior year, due primarily to acquired intangible assets and depreciation expense related to Zynga.

Interest and other, net

(thousands of dollars) 2022 % of net revenue 2021 % of net revenue Increase/(decrease) % Increase/(decrease)

(millions of dollars) 2023 % of net revenue 2022 % of net revenue Increase/(decrease) % Increase/(decrease)

Interest income $ 33.8 0.6 % $ 17.6 0.5 % $ 16.2 92.0 %

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Interest and other, net $ (141.9) (2.7) % $ (14.2) (0.4) % $ (127.7) 899.3 %

Interest and other, net was expense of $14.2 million for the fiscal year ended March 31, 2022, as compared to income of $8.8 million for the fiscal year ended March 31, 2021.

The change was due primarily to (i) an increase in interest expense primarily related to an unsecured bridge loan facility related to our pending acquisition of Zynga with no corresponding expense in the prior year period (refer to Note 12 - Debt ), (ii) lower interest income on our available-for-sale securities due to lower interest rates, and (iii) foreign currency losses in the current year period as compared to gains in the prior year period.

Interest and other, net was expense of $141.9 for the fiscal year ended March 31, 2023, as compared to $14.2 for the fiscal year ended March 31, 2022.

The increase in expense was due primarily to interest expense related to our Senior Notes,

Term Loan, 2022 Credit Agreement, and an unsecured bridge loan facility related to our acquisition of Zynga, including the amortization of related deferred costs, in connection with our acquisition of Zynga (refer to Note 11 - Debt and Note 20 - Acquisitions ) and foreign currency losses.

Gain/(loss) on long-term investments, net

Gain/(loss) on long-term investments, net for the fiscal year ended March 31, 2022 was a gain of $6.0 million compared to a gain of $39.6 million in the prior year period.

The decrease was due primarily to the sale of one of our investments in the prior year period (see Note 4 - Fair Value Measurements ).

Gain/(loss) on long-term investments, net for the fiscal year ended March 31, 2023 was a loss of $31.0 compared to a gain of $6.0 in the prior year period.

The change was due primarily to a loss relating to our Convertible Notes, partially offset by a gain related to our Capped Calls, both as result of our Zynga Acquisition (refer to Note 11 - Debt and Note 20 - Acquisitions ).

Provision for income taxes

Our income tax expense was $47.4 million for the fiscal year ended March 31, 2022 as compared to $88.9 million for the fiscal year ended March 31, 2021.

When compared to the statutory rate of 21%, the effective tax rate of 10.2% for the fiscal year ended March 31, 2022 was due primarily to a $30.9 million benefit from tax credits anticipated to be utilized, $14.6 million in excess tax benefits from employee stock compensation, an $11.6 million benefit due to an increase to the net deferred tax asset that arose from a step up in tax basis related to the Federal Act on Tax Reform and AVH (Old-Age and Survivors Insurance) Financing ("TRAF") enacted in Switzerland, discussed below, and an $8.0 million benefit from our geographic mix of earnings, partially offset by a $10.1 million nondeductible expense due to an increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus.

When compared to the statutory rate of 21%, the effective tax rate of 13.1% for the fiscal year ended March 31, 2021 was primarily due to a $29.1 million tax benefit from tax credits anticipated to be utilized, a $21.4 million tax benefit from our geographic mix of earnings and $13.7 million in excess tax benefits from employee stock compensation.

The effective tax rate in the current year was lower compared to the prior year primarily due an increased benefit to the net deferred tax asset related to TRAF, increased benefits from tax credits and excess tax benefits from employee stock compensation partially offset by a nondeductible expense due to an increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus.

Our benefit from income taxes was $213.4 for the fiscal year ended March 31, 2023 as compared to income tax expense of $47.4 for the fiscal year ended March 31, 2022.

When compared to the statutory rate of 21%, the effective tax rate of 15.9% for the fiscal year ended March 31, 2023 was due primarily to an expense of $84.0 from an increase in the U.S.

valuation allowance, expense of $39.7 from our geographic mix and foreign earnings, and $20.2 nondeductible expense relating to compensation expense related to covered employees pursuant to Section 162(m) and loss on the redemption of convertible debt, partially offset by a $76.8 benefit from tax credits anticipated to be utilized.

When compared to the statutory rate of 21%, the effective tax rate of 10.2% for the fiscal year ended March 31, 2022 was due primarily to a $30.9 benefit from tax credits anticipated to be utilized, $14.6 in excess tax benefits from employee stock compensation, an $11.6 benefit due to an increase to the net deferred tax asset that arose from a step up in tax basis related to the Federal Act on Tax Reform and AVH (Old-Age and Survivors Insurance) Financing ("TRAF") enacted in Switzerland, discussed below, and an $8.0 benefit from our geographic mix of earnings, partially offset by a $10.1 nondeductible expense due to an increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus.

The effective tax rate in the current year was higher compared to the prior year primarily due to increased benefits from tax credits and reduced benefits from excess tax benefits from employee stock compensation, partially offset by increased expense related to an increase in our valuation allowance, increased expense from nondeductible costs, and the impact of geographic mix and foreign earnings.

The accounting for share-based compensation will increase or decrease our effective tax rate based upon 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.

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.

We anticipate that additional excess tax benefits or shortfalls from employee stock compensation, tax credits, changes in valuation allowance, 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.

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The Tax Cuts and Jobs Act of 2017 (“TCJA”) requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code ("IRC") Section 174.

Although Congress is considering legislation that would defer the capitalization and amortization requirement to later years, we have no assurance that the requirement will be repealed or

otherwise modified.

The requirement is effective for the Company for fiscal year 2023, beginning April 1, 2022.

It is possible that this change could have a significant adverse impact on our effective tax rate, tax payments, and financial condition in future periods.

On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARPA”) was enacted.

The ARPA, among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations.

The requirement was effective for the Company beginning April 1, 2022.

The actual impact of Section 174 capitalization and amortization on the income tax payable and deferred tax asset will depend on multiple factors, including the amount of research and development expenses we will incur and whether we conduct our research and development activities inside or outside the United States.

Section 174 capitalization increased the income tax payable by $46.7 and deferred tax assets by $128.9.

The American Rescue Plan Act of 2021 (“ARPA”), among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations.

Effective for tax years starting after December 31, 2026 (April 1, 2027 for the Company), the ARPA expands the limitation to cover the next five most highly compensated employees.

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We continue to evaluate the potential impact the ARPA may have on our operations and Consolidated Financial Statements in future periods.

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 Consolidated Financial Statements.

The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) includes a new corporate alternative minimum tax (CAMT) of 15% on the adjusted financial statement income (AFSI) of corporations with an average AFSI exceeding $1.0 billion over a consecutive three-year period.

The CAMT is effective for the taxable year ending

March 31, 2024.

It is possible that the CAMT could result in an additional tax liability over the regular federal corporate tax liability in a particular year based on differences between book and taxable income.

We will continue to evaluate the potential impact the Inflation Reduction Act may have on our operations and Consolidated Financial Statements in future periods.

On May 19, 2019, a public referendum held in Switzerland approved the TRAF, which was effective for us on January 1, 2020.

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The TRAF allows the cantons to establish transition rules, the implementation of which may be subject to a ruling from the canton.

On March 31, 2020, we recorded a deferred tax asset of $45.3 million offset by a valuation allowance of $33.4 million arising from the Swiss cantonal tax basis step-up.

For the fiscal year ended March 31, 2022, we recorded a net tax benefits of $11.6 million due to an increase in the deferred tax asset of $13.2 million offset by an increase in the valuation allowance of $1.6 million, as it is more-likely-than-not that such deferred tax assets would be realized.

As of March 31, 2022, we had gross unrecognized tax benefits, including interest and penalties, of $176.0 million, of which $65.8 million would affect our effective tax rate if realized.

For the fiscal year ended March 31, 2022, gross unrecognized tax benefits increased by $8.5 million.

For the fiscal year ended March 31, 2023, we recorded a net tax benefit of $5.7 due to an increase of the deferred tax asset of $20.6, offset by an increase in the valuation of allowance of $14.9, as it is more-likely-than-not that such deferred tax assets would be realized.

As of March 31, 2023, we had gross unrecognized tax benefits, including interest and penalties, of $294.8, of which $137.2 would affect our effective tax rate if realized.

For the fiscal year ended March 31, 2023, gross unrecognized tax benefits increased by $118.8.

We are no longer subject to audit for U.S.

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Certain taxing authorities are currently examining our income tax returns for the fiscal years ended March 31, 2016 through March 31, 2021.

Net income and earnings per share

For the fiscal year ended March 31, 2022, our net income was $418.0 million, as compared to $588.9 million in the prior year.

Diluted earnings per share for the fiscal year ended March 31, 2022 was $3.58, as compared to $5.09 for the fiscal year ended March 31, 2021.

Diluted weighted average shares outstanding of 116.8 million were 1.0 million higher 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.

Net (loss) income and (loss) earnings per share

For the fiscal year ended March 31, 2023, our Net loss was $1,124.7, as compared to income of $418.0 in the prior year.

Diluted loss per share for the fiscal year ended March 31, 2023 was $7.03, as compared to diluted earnings per share of $3.58 for the fiscal year ended March 31, 2022.

Basic weighted average shares of 159.9 were 43.1 higher due primarily to stock issued as consideration for the Zynga Acquisition and for the conversion of Convertible Notes.

See Note 12 - (Loss) Earnings P er Share to our Consolidated Financial Statements for additional information.

Liquidity and Capital Resources

Our primary cash requirements have been to fund (i) the development, manufacturing and marketing of our published products, (ii) working capital, (iii) acquisitions and (iv) capital expenditures.

Our primary cash requirements are to fund (i) the development, manufacturing and marketing of our published products, (ii) working capital, (iii) capital expenditures, (iv) debt and interest payments, (v) acquisitions, and (vi) tax payments.

We expect to rely on cash and cash equivalents as well as on short-term investments, funds provided by our operating activities, and our 2022 Credit Agreement to satisfy our working capital needs.

Refer to Note 11 - Debt for additional discussion of our outstanding debt obligations.

Short-term Investments

As of March 31, 2022, we had $820.1 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 March 31, 2023, we had $187.0 of short-term investments, which are readily marketable 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 March 31, 2022, based on the composition of our investment portfolio and actions taken in recent years by central banks around the world to cut interest rates, including the U.S.

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

As of March 31, 2023, based on the composition of our investment portfolio and actions taken in recent months by central banks around the world, including the U.S.

Federal Reserve, in response to the rising inflation and related adverse economic conditions, we anticipate investment yields may increase, which could increase our future interest income.

Such impact is not expected to be material to our liquidity.

The Senior Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee.

The Senior Notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations.

The 2024 Notes mature on March 28, 2024 and bear interest at an annual rate of 3.300%.

The 2025 Notes mature on April 14, 2025 and bear interest at an annual rate of 3.550%.

The 2027 Notes mature on April 14, 2027 and bear interest at an annual rate of 3.700%.

The 2032 Notes mature on April 14, 2032 and bear interest at an annual rate of 4.000%.

We will pay interest on the 2024 Notes semi-annually on March 28 and September 28 of each year, commencing September 28, 2022.

During the fiscal year ended March 31, 2023, we made interest payments of $31.5.

We will pay interest on each of the 2025 Notes, 2027 Notes, and 2032 Notes semi-annually on April 14 and October 14 of each year, commencing

October 14, 2022.

During the fiscal year ended March 31, 2023, we made interest payments of $31.8.

The proceeds from the issuance of the Senior Notes were used to finance a portion of our acquisition of Zynga.

On April 14, 2023, we completed our offering and sale of $1,000.0 aggregate principal amount of our senior notes, consisting of $500.0 principal amount of our 5.000% Senior Notes due 2026 (the "2026 Notes") and $500.0 principal amount of our 4.950% Senior Notes due 2028 (the "2028 Notes").

The 2026 Notes mature on March 28, 2026 and bear interest at an annual rate of 5.000%.

The 2028 Notes mature on March 28, 2028 and bear interest at an annual rate of 4.950%.

We will pay interest on the 2026 Notes and 2028 Notes semi-annually on March 28 and September 28 of each year, commencing September 28, 2023.

The 2026 Notes and 2028 Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee.

These notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations.

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 (3.50% at March 31, 2022) or (b) 1.125% to 1.750% above LIBOR (approximately 0.45% at March 31, 2022), 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 March 31, 2022, there was $247.5 million available to borrow under the Credit Agreement and we had $2.5 million of letters of credit outstanding.

At March 31, 2022, 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 create, incur, assume or be liable for indebtedness;

dispose of assets outside the ordinary course;

acquire, merge or consolidate with or into another person or entity;

create, incur or allow any lien on any of its property;

make investments;

or pay dividends or make distributions, in each case subject to certain exceptions.

In addition, the Credit Agreement provides for certain events of default such as nonpayment of principal and interest when due thereunder, breaches of representations and warranties, noncompliance with covenants, acts of insolvency and default on indebtedness held by third parties (subject to certain limitations and cure periods).

On May 23, 2022, we entered into a new unsecured Credit Agreement (the "2022 Credit Agreement"), which replaced in its entirety the Company's prior Credit Agreement, dated as of February 8, 2019, which was paid off in full and terminated.

The 2022 Credit Agreement provides for an unsecured five-year revolving credit facility with commitments of $500.0, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $100.0 and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros, and Canadian Dollars in an aggregate principal amount of up to $100.0.

On June 22, 2022, we drew down $200.0 at approximately 3.28% from our facility under the 2022 Credit Agreement.

The proceeds were used to finance a portion of the repurchase of the Convertible Notes.

In December 2022, we fully repaid the $200.0 drawdown.

As of March 31, 2023, there were no borrowings under the 2022 Credit Agreement, and we had approximately $499.5 available for additional borrowings.

The 2022 Credit Agreement also includes, among other terms and conditions, a maximum leverage ratio covenant, as well as customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur subsidiary indebtedness, grant liens, and dispose of all or substantially all assets, in each case subject to certain exceptions and baskets.

In addition, the 2022 Credit Agreement provides for events of default customary for a credit facility of this size and type, including, among others, non-payment of principal and interest when due thereunder, breaches of representations and warranties, noncompliance with covenants, acts of insolvency, cross-defaults to material indebtedness, and material judgment defaults (subject to certain limitations and cure periods).

On June 22, 2022, we entered into an unsecured 364-Day Term Loan Credit Agreement ("Term Loan").

We fully drew down on the Term Loan on June 22, 2022 at approximately 3.60%.

The proceeds were used to finance a portion of the repurchase of the Convertible Notes (refer to Note 11 - Debt ).

In April 2023, we fully repaid the $350.0 Term Loan.

Financial Condition

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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 79.0%, 78.4%, and 71.5% of net revenue during the fiscal years ended March 31, 2022, 2021, and 2020, respectively.

Our five largest customers accounted for 79.6%, 79.0%, and 78.4% of net revenue during the fiscal

years ended March 31, 2023, 2022, and 2021, respectively.

As of March 31, 2023 and 2022, five customers accounted for 61.1% and 72.8% of our gross accounts receivable, respectively.

Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 50.3% and 63.8% of such balances at March 31, 2023 and 2022, respectively.

We had two customers who accounted for 43.5% and 20.3% of our gross accounts receivable as of March 31, 2022 and two customers who accounted for 50.4%, and 18.8% of our gross accounts receivable as of March 31, 2021.

We had three customers who accounted for 21.6%, 14.5%, and 14.2% of our gross accounts receivable as of March 31, 2023 and two customers who accounted for 43.5%, and 20.3% of our gross accounts receivable as of March 31, 2022.

We did not have any additional customers that exceeded 10% of our gross accounts receivable as of March 31, 2023 and 2022.

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As of March 31, 2023, the amount of cash and cash equivalents held outside of the U.S.

by our foreign subsidiaries was $657.2 million.

by our foreign subsidiaries was $329.7.

These balances are dispersed across various locations around the world.

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In addition, we expect to have the ability to generate sufficient cash domestically to support ongoing operations for the foreseeable future.

On January 9, 2022, we entered into a definitive merger agreement to acquire Zynga Inc.

("Zynga"), a leading developer of mobile games.

The transaction is valued at $9.86 per share of Zynga common stock based on the market closing as of January 7, 2022, implying an enterprise value of $12.7 billion.

New York time on the twenty-third trading day immediately preceding the closing date of the transaction and concluding at 4:00 p.m.

New York time on the third trading day preceding such closing date is in a range from $156.50 to $181.88, the exchange ratio would be adjusted to deliver total consideration of $9.86 per Zynga share.

The transaction, which is currently anticipated to close on Monday, May 23, 2022, is subject to approval by Take-Two and Zynga stockholders and the satisfaction of the other customary closing conditions.

In connection with the transaction, on April 14, 2022, we terminated our Bridge Loan and completed our offering and sale of $2.7 billion aggregate principal amount of our senior notes, consisting of $1.0 billion principal amount of our 3.300% Senior Notes due 2024 (the “2024 Notes”), $600 million principal amount of our 3.550% Senior Notes due 2025 (the “2025 Notes”), $600 million principal amount of our 3.700% Senior Notes due 2027 (the “2027 Notes”) and $500 million principal amount of our 4.000% Senior Notes due 2032 (the “2032 Notes” and, together with the 2024 Notes, the 2025 Notes and the 2027 Notes, the “Notes”).The Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee (the “Trustee”).

The Notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations.

The 2024 Notes mature on March 28, 2024 and bear interest at an annual rate of 3.300%.

The 2025 Notes mature on April 14, 2025 and bear interest at an annual rate of 3.550%.

The 2027 Notes mature on April 14, 2027 and bear interest at an annual rate of 3.700%.

The 2032 Notes mature on April 14, 2032 and bear interest at an annual rate of 4.000%.

We will pay interest on the 2024 Notes semiannually on March 28 and September 28 of each year, commencing September 28, 2022.

We will pay interest on each of the 2025 Notes, 2027 Notes and 2032 Notes semi-annually on April 14 and October 14 of each year, commencing October 14, 2022.

Our Board of Directors has authorized the repurchase of up to 21.7 million shares of our common stock.

Our Board of Directors has authorized the repurchase of up to 21.7 shares of our common stock.

Under this program, we may purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws.

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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 fiscal years ended March 31, 2022, 2021, and 2020, we repurchased 1.3 million, zero, and zero shares of our common stock, respectively, in the open market for $200 million, $0.0 million, and $0.0 million, respectively, including commissions as part of the program.

As of March 31, 2022, we had repurchased a total of 11.7 million shares of our common stock under the program, and 10.0 million shares of our common stock remained available for repurchase under the share repurchase program.

During the fiscal years ended March 31, 2023, 2022, and 2021, we repurchased 0.0, 1.3, and 0.0 shares of our common stock, respectively, in the open market for $0.0, $200.0, and $0.0, respectively, including commissions as part of the program.

As of March 31, 2023, we had repurchased a total of 11.7 shares of our common stock under the program, and 10.0 shares of our common stock remained available for repurchase under the share repurchase program.

Our changes in cash flows were as follows:

Fiscal Year Ended March 31,

(thousands of dollars) 2022 2021 2020

(millions of dollars) 2023 2022 2021

Net cash provided by operating activities $ 1.1 $ 258.0 $ 912.3

Net cash provided by (used in) investing activities 139,216 (806,724) 4,049

Net cash used in financing activities (256,813) (57,338) (77,453)

Net cash (used in) provided by investing activities (2,876.3) 139.2 (806.8)

Net cash provided by (used in) financing activities 1,930.3 (256.8) (57.4)

Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash and cash equivalents (15.9) (5.2) 18.6

Net change in cash, cash equivalents, and restricted cash and cash equivalents $ (960.8) $ 135.2 $ 66.8

At March 31, 2022, we had $2,195.3 million of Cash, cash equivalents, and restricted cash and cash equivalents, compared to $2,060.2 million at March 31, 2021.

The increase in Cash, cash equivalents, and restricted cash and cash equivalents from March 31, 2021 was due primarily to (i) Net cash provided by operating activities from sales primarily from the previously mentioned titles , partially offset by investments in software development and licenses as well as royalty payments and (ii) Net cash provided by investing activities primarily related to net proceeds from available for sale securities

changes in bank time deposits, partially offset primarily by our acquisition of Nordeus (refer to Note 22 - Acquisitions ), and purchases of fixed assets including our acquisition of two office buildings in the U.K.

(refer to Note 22 - Acquisitions ).

At March 31, 2023, we had $1,234.6 of Cash, cash equivalents, and restricted cash and cash equivalents, compared to $2,195.4 at March 31, 2022.

The decrease was due to Net cash used in investing activities primarily related to our Zynga Acquisition (refer to Note 20 - Acquisitions ).

This net decrease was partially offset by Net cash provided by financing activities (refer to Note 11 - Debt ), primarily related to proceeds from the issuance of Senior Notes and draw-downs on our Term Loan, which were partially offset by payments for Convertible Notes that were part of our Zynga Acquisition.

To a lesser extent, the net decrease was also partially offset by Net cash provided by operating activities from sales of our products, partially offset by working capital requirements used in the development, sale, and support of our products, including for personnel, as well as payments for interest on our debt and transaction-related costs related to our Zynga Acquisition.

Refer to Note 1 4 - Commitments and Contingencies to our Consolidated Financial Statements for disclosures regarding our commitments.

Capital Expenditures

In fiscal year 2023, we anticipate capital expenditures to be $120 million.

In fiscal year 2024, we anticipate capital expenditures to be $180.

Off-Balance Sheet Arrangements

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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-K

Item 7. Management’s Discussion and Analysis