What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-09 · 229 added, 113 removed, 275 unchanged (55% of the section changed)

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Actual outcomes and results may vary materially from these forward-looking statements based on a variety of risks and uncertainties including risks relating to our combination with Zynga Inc.

(the "Zynga Acquisition"), such as the ability of the company to retain key personnel subsequent to the Zynga Acquisition;

the risks of conducting business internationally;

(the "Zynga Acquisition");

the risks of conducting business internationally, including as a result of unforeseen geopolitical events;

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

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All figures are in millions, except per share amounts or as otherwise noted.

During the three and six months ended September 30, 2023, we recognized a Goodwill impairment charge of $165.4 representing a partial impairment related to one of our reporting units and impairment charges of $219.7 for acquisition-related Developed Game Technology intangible assets within Cost of revenue as a result of a reduction in the forecasted performance of certain games due to industry conditions and changes in our strategies in response to those conditions.

Key assumptions and estimates used in deriving the fair value are forecasted revenue, EBITDA margins, long-term decay rate, and discount rate (refer to Note 14 - Goodwill and Intangible Assets, Net ).

Future changes in those key assumptions and estimates could result in additional impairments.

Debt Transactions

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On June 5, 2023, pursuant to a tender offer, we purchased and retired $650.0 in aggregate principal amount of our 2024 Notes, resulting in a remaining principal amount of $350.0 recorded within Short-term debt, net on our Condensed Consolidated Balance Sheet.

During the three months ended June 30, 2023, we recognized a debt extinguishment gain of approximately $7.0, net of unamortized debt discount and debt issuance costs recorded within Interest and other, net in our Condensed Consolidated Statement of Operations.

The purchase of a portion of our 2024 Notes was funded with proceeds from the issuance of the 2026 Notes and 2028 Notes.

During the three and six months ended September 30, 2023, we recognized a debt extinguishment gain of approximately $0.7 and $7.7, respectively, net of unamortized debt discount and debt issuance costs recorded within Interest and other, net in our Condensed Consolidated Statement of Operations.

The purchase of a portion of our 2024 Notes was funded with proceeds received from the 2026 Notes and 2028 Notes.

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

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We have established a portfolio of proprietary software content for the major hardware and mobile platforms in a wide range of genres, including action, adventure, family/casual, hyper-casual, role-playing, shooter, social casino, sports, and strategy, which we distribute worldwide.

We believe that our commitment to creativity and innovation is a distinguishing strength, enabling us to differentiate our products in the marketplace by combining advanced technology with compelling storylines and characters that provide unique gameplay experiences for consumers.

We believe that our commitment to creativity and innovation is a distinguishing strength, enabling us to differentiate our products in the marketplace by combining advanced technologies and features with compelling storylines and characters that provide unique gameplay experiences for consumers.

We have created, acquired, or licensed a group of highly recognizable brands to match the broad consumer demographics that we serve, ranging from adults to children and game enthusiasts to casual gamers.

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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.

In recent years, 2K has expanded its offerings to include several new franchises that are expected to diversify its slate of games and provide opportunities for sequels and post-launch monetization.

In recent years, 2K has expanded its offerings to include several new franchises that are expected to enhance and diversify its slate of games and provide opportunities for sequels and post-launch monetization.

We expect 2K to continue to develop new, successful franchises in the future.

2K's internally owned and developed franchises include the critically acclaimed, multi-million unit selling BioShock , Mafia , Sid Meier's Civilization , and XCOM franchises.

2K also publishes externally developed franchises such as Borderlands and Tiny Tina's Wonderlands .

2K also publishes externally developed franchises

such as Borderlands and Tiny Tina's Wonderlands .

2K's realistic sports simulation titles include our flagship NBA 2K series, which continues to be the top-ranked NBA basketball video game, the WWE 2K professional wrestling series, and PGA TOUR 2K .

2K also publishes mobile titles, including WWE SuperCard .

We have expanded our relationship with the NBA through the NBA 2K League , a groundbreaking competitive gaming league jointly owned by us and the NBA.

We have expanded our relationship with the NBA through the NBA 2K League , a competitive eSports league jointly owned by us and the NBA.

Private Division.

Our Private Division label is dedicated to bringing titles from the industry's leading creative talent to market and is the publisher, developer, and owner of Kerbal Space Program and OlliOlli World .

Private Division actively

establishes relationships with new studios, and has announced upcoming projects with Bloober Team, Evening Star, Game Freak, Moon Studios, Weta Workshop, and Yellow Brick Games.

Private Division actively establishes relationships with new studios and has announced upcoming projects with a number of independent studios.

Kerbal Space Program 2 was released for early access in fiscal year 2023.

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Zynga is also an industry-leading next-generation platform with the ability to acquire new users, cross-promote games, apply live services content updates, and optimize programmatic advertising and yields at scale through Chartboost, its leading mobile advertising and monetization platform.

Expand International Business.

International Business.

The global market for interactive entertainment continues to grow, and we seek to increase our presence internationally, particularly in Asia, the Middle East, and Latin America.

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2K has secured a multi-year license from the NBA to develop an online version of our NBA simulation game in China, Taiwan, Hong Kong, and Macau.

Our first such title, NBA 2K Online , a free-to-play NBA simulation game based on the console edition of NBA 2K , which was co-developed by 2K and Tencent, is the top online PC sports game in China with over 60 million registered users.

We have released two iterations of NBA 2K Online and continue to enhance the title with new features.

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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 13.6% of our net revenue for the three months ended June 30, 2023.

Sales of Grand Theft Auto products generated 14.4% of our net revenue for the six months ended September 30, 2023.

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

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We derive a substantial portion of our revenue from the sale of products made for video game consoles manufactured by third parties.

Such console revenue comprised 39.3% of our net revenue for the three months ended June 30, 2023.

Such console revenue comprised 40.7% of our net revenue for the six months ended September 30, 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.

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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.

As disclosed in our "Results of Operations," below, net revenue from digital online channels comprised 96.5% of our net

revenue for the three months ended June 30, 2023.

As disclosed in our "Results of Operations," below, net revenue from digital online channels comprised 96.0% of our net revenue for the six months ended September 30, 2023.

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

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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.

Over time, the effectiveness or cost of these acquisition and retention-related programs may change, affecting our operating results.

Content Release Highlights

During fiscal year 2024, 2K released LEGO 2K Drive, and Private Division released After Us.

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

Zynga will release Star Wars Hunters and Top Troops ;

and Private Division will release Penny's Big Breakaway .

During fiscal year 2024, 2K released LEGO 2K Drive and NBA 2K24, Zynga released Top Troops and Power Slap , and Private Division released After Us.

To date we have announced that, during the remainder of fiscal year 2024, 2K will release WWE 2K24, and Private Division will release Penny's Big Breakaway .

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

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Net Bookings were as follows:

Three Months Ended June 30,

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

2023 2022 Increase/

(decrease) % Increase/

(decrease) 2023 2022 Increase/

(decrease) % Increase/

Net Bookings $ 1,444.9 $ 1,504.8 $ (59.9) (4.0) % $ 2,646.5 $ 2,507.3 $ 139.2 5.6 %

For the three months ended June 30, 2023, Net Bookings increased by $199.0 as compared to the prior year period.

The increase was primarily due to an increase in Net Bookings of $332.0 from Zynga, which we acquired in May 2022 (refer to Note 13 - Acquisitions ), including from our hyper-casual mobile portfolio, which benefited from our November 2022 acquisition of Popcore (refer to Note 13 - Acquisitions ), and other top contributors Empires & Puzzles , Toon Blast , Merge Dragons !, and Words With Friends , as well as an increase in Net Bookings from LEGO 2K Drive , which released in May 2023.

These increases were partially offset by a decrease in Net Bookings from Tiny Tina's Wonderlands , which released in March 2022;

For the three months ended September 30, 2023, Net Bookings decreased by $59.9 as compared to the prior year period.

The decrease was primarily due to a decrease in Net Bookings from our NBA 2K franchise;

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

The Quarry , which released in June 2022;

and our NBA 2K and WWE 2K franchises.

Toon Blast , Empires & Puzzles , Golf Rival , Harry Potter:

Puzzles & Spells , Words with Friends , and our Farmville franchise.

These decreases were partially offset by an increase in Net Bookings from our Red Dead Redemption franchise, including our August 2023 release of Red Dead Redemption and Undead Nightmare, and from our hyper-casual mobile portfolio, which benefited from our November 2022 acquisition of Popcore (refer to Note 13 - Acquisitions ).

For the six months ended September 30, 2023, Net Bookings increased by $139.2 as compared to the prior year period.

The increase was primarily due to an increase in Net Bookings of $289.4 from Zynga, which we acquired in May 2022 (refer to Note 13 - Acquisitions ), including from our hyper-casual mobile portfolio, which benefited from our November 2022 acquisition of Popcore (refer to Note 13 - Acquisitions ), and other top contributors Empires & Puzzles , Toon Blast , Zynga Poker , and Merge Dragons!

, as well as an increase in Net Bookings from our Red Dead Redemption franchise and LEGO 2K Drive.

These increases were partially offset by a decrease in Net Bookings from Tiny Tina's Wonderlands , our NBA 2K franchise, and The Quarry .

Results of Operations

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

Three Months Ended June 30,

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

(millions of dollars) 2023 2022 2023 2022

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Depreciation and amortization 45.3 3.5 % 29.9 2.1 % 85.7 3.3 % 51.0 2.0 %

Goodwill impairment 165.4 12.7 % — — % 165.4 6.4 % — — %

Total operating expenses 959.1 73.8 % 932.1 66.9 % 1,842.6 71.3 % 1,636.1 65.6 %

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Interest and other, net (31.1) (2.4) % (50.5) (3.6) % (56.5) (2.2) % (79.8) (3.2) %

Gain (loss) on fair value adjustments, net 0.8 0.1 % (39.6) (3.6) %

(Loss) gain on fair value adjustments, net (2.2) (0.2) % 1.9 0.1 % (1.4) (0.1) % (37.7) (1.5) %

Loss before income taxes (577.0) (44.4) % (301.1) (21.6) % (805.9) (31.3) % (407.4) (16.3) %

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Net loss $ (543.6) (41.8) % $ (257.0) (18.4) % $ (749.6) (29.1) % $ (361.0) (14.5) %

Three Months Ended June 30,

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

2023 2022 2023 2022

Net revenue by platform:

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Physical retail and other 59.5 4.6 % 74.3 5.3 % 104.2 4.0 % 138.9 5.6 %

Net revenue by geographic region:

United States $ 803.9 62.6 % $ 682.9 61.9 %

International 480.8 37.4 % 419.5 38.1 %

Three Months Ended June 30, 2023 Compared to June 30, 2022

Three Months Ended September 30, 2023 Compared to September 30, 2022

(millions of dollars) 2023 % 2022 % Increase/

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Product costs 175.7 13.5 % 204.5 14.7 % (28.8) (14.1) %

Software development costs and royalties (1) 115.7 9.0 % 68.8 6.2 % 46.9 68.2 %

Internal royalties 112.8 8.7 % 124.3 8.9 % (11.5) (9.3) %

Licenses 102.8 7.9 % 95.2 6.8 % 7.6 8.0 %

Software development costs and royalties (1) 83.1 6.4 % 201.3 14.4 % (118.2) (58.7) %

Cost of revenue 883.8 68.0 % 713.9 51.2 % 169.9 23.8 %

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(1) Includes $7.5 and $8.0 of stock-based compensation expense in 2023 and 2022, respectively, in software development costs and royalties.

For the three months ended June 30, 2023, net revenue increased by $182.3 as compared to the prior year period.

The increase was primarily due to the increase in net revenue from Zynga of $320.8, which we acquired in May 2022 (refer to Note 1 3 - Acquisitions ), including from our hyper-casual mobile portfolio, which benefited from our November 2022 acquisition of Popcore (refer to Note 13 - Acquisitions ), and other top contributors Toon Blast , Merge Dragons!, Empires & Puzzles , and Words With Friends .

These increases were partially offset by a decrease in net revenue of (i) $36.0 from Tiny Tina's Wonderlands , which released in March 2022, (ii) $27.6 from The Quarry , which released in June 2022, (iii) $26.5 from our Grand Theft Auto franchise, and (iv) $23.0 from our NBA 2K franchise.

Net revenue from mobile increased by $310.4 and accounted for 52.9% of our total net revenue for three months ended June 30, 2023, as compared to 33.5% for the prior year period.

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

Net revenue from console games decreased by $102.9 and accounted for 39.3% of our total net revenue for the three months ended June 30, 2023, as compared to 55.1% for the prior year period.

The decrease in net revenue from console games was due to a decrease in net revenue from Tiny Tina's Wonderlands , The Quarry , and our Grand Theft Auto and NBA 2K franchises.

Net revenue from PC and other decreased by $25.2 and accounted for 7.8% of our total net revenue for the three months ended June 30, 2023, as compared to 11.4% for the prior year period.

The decrease in net revenue from PC and other was primarily due to a decrease in net revenue from Tiny Tina's Wonderlands , our BioShock and XCOM franchises, The Quarry, and our Grand Theft Auto franchise.

For the three months ended September 30, 2023, net revenue decreased by $94.3 as compared to the prior year period.

The decrease was primarily due to a decrease in net revenue of $18.4 from Empires & Puzzles , $15.1 from Tiny Tina's Wonderlands , $14.2 from our NBA 2K franchise, $10.7 from The Quarry , $10.0 from our hyper-casual mobile portfolio, $8.2 from Toon Blast , $6.3 from Golf Rival , $5.5 from Harry Potter:

Puzzles & Spells , $5.2 from Words With Friends , and $4.9 from our Farmville franchise.

These decreases were partially offset by an increase in net revenue of $14.0 from our Red Dead Redemption franchise, including our August 2023 release of Red Dead Redemption and Undead Nightmare .

Net revenue from mobile decreased by $83.9 and accounted for 49.7% of our total net revenue for three months ended September 30, 2023, as compared to 52.4% for the prior year period.

The decrease was primarily due to a decrease in net revenue from Empires & Puzzles , Toon Blast , Golf Rival , our hyper-casual mobile portfolio, Harry Potter:

Puzzles & Spells , Words With Friends , our Farmville franchise, Garden Tails , our WWE 2K franchise, and Toy Blast .

These decreases were partially offset by an increase in net revenue from Top Eleven .

Net revenue from console games decreased by $5.2 and accounted for 42.1% of our total net revenue for the three months ended September 30, 2023, as compared to 39.6% for the prior year period.

The decrease in net revenue from console games was due to a decrease in net revenue from our NBA 2K franchise, The Quarry , and Tiny Tina's Wonderlands .

These decreases were partially offset by an increase in net revenue from our Red Dead Redemption, Grand Theft Auto , and PGA TOUR 2K franchises and LEGO 2K Drive , which released in May 2023.

Net revenue from PC and other decreased by $5.2 and accounted for 8.2% of our total net revenue for the three months ended September 30, 2023, as compared to 8.0% for the prior year period.

The decrease in net revenue from PC and other was primarily due to a decrease in net revenue from Tiny Tina's Wonderlands .

Recurrent consumer spending ("RCS") 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 $242.8 and accounted for 83.2% of net revenue for the three months ended June 30, 2023, as compared to 74.9% of net revenue for the prior year period.

The increase in net revenue from recurrent consumer spending was primarily due to an increase in net revenue from Zynga, including from our hyper-casual mobile portfolio, and other top contributors Toon Blast , Merge Dragons !, Empires & Puzzles , and Words With Friends.

These increases were partially offset by a decrease in net revenue from our Grand Theft Auto franchise, Tiny Tina's Wonderlands , and our WWE 2K franchise .

Net revenue from full game and other decreased by $60.5 and accounted for 16.8% of net revenue for the three months ended June 30, 2023 as compared to 25.1% 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 The Quarry , Tiny Tina's Wonderlands , and our NBA 2K franchise.

This decrease was partially offset by an increase in net revenue from LEGO 2K Drive , which released in May 2023.

Net revenue from digital online channels increased by $202.2 and accounted for 96.5% of our total net revenue for the three months ended June 30, 2023, as compared to 94.1% for the prior year period.

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

This increase was partially offset by a decrease in net revenue from Tiny Tina's Wonderlands, our Grand Theft Auto and NBA 2K franchises, The Quarry , and our WWE 2K franchise .

Net revenue from physical retail and other channels decreased by $19.9 and accounted for 3.5% of our total net revenue for the three months ended June 30, 2023, as compared to 5.9% 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 The Quarry , our NBA 2K franchise, Tiny Tina's Wonderlands , and our WWE 2K franchise.

The decreases were partially offset by an increase in net revenue from LEGO 2K Drive .

Gross profit as a percentage of net revenue for the three months ended June 30, 2023 was 52.9% as compared to 60.5% for the prior year period.

The decrease in gross profit as a percentage of net revenue was due to (i) higher amortization related to intangible assets acquired in connection with our Zynga acquisition, (ii) higher capitalized software amortization due to

lower forfeitures of awards, and (iii) higher product costs for fees paid to platform partners due to an increase in mobile revenue as a result of the Zynga acquisition, partially offset by (i) lower development royalties due to the timing of releases and (ii) lower internal royalties due to the timing of when royalties are earned.

Changes in foreign currency exchange rates increased net revenue by $1.2 and increased gross profit by $1.2 for the three months ended June 30, 2023 as compared to the prior year period.

Net revenue from RCS decreased by $101.4 and accounted for 77.0% of net revenue for the three months ended September 30, 2023, as compared to 79.1% of net revenue for the prior year period.

The decrease in net revenue from RCS was primarily due to a decrease in net revenue from our Grand Theft Auto franchise, Empires & Puzzles , Toon Blast , Tiny Tina's Wonderlands , Golf Rival , our hyper-casual mobile portfolio, Harry Potter:

Puzzles & Spells , Words With Friends , and our Farmville franchise .

Net revenue from full game and other increased by $7.1 and accounted for 23.0% of net revenue for the three months ended September 30, 2023 as compared to 20.9% of net revenue for the prior year period.

The increase in net revenue from full game and other was due primarily to an increase in net revenue from our Grand Theft Auto and Red Dead Redemption franchises.

The increase was partially offset by a decrease in net revenue in The Quarry , our NBA 2K franchise, Tiny Tina's Wonderlands , and Garden Tails .

Net revenue from digital online channels decreased by $79.5 and accounted for 95.4% of our total net revenue for the three months ended September 30, 2023, as compared to 94.7% for the prior year period.

The decrease was primarily due to a decrease in digital net revenue from Empires & Puzzles, Tiny Tina's Wonderlands, The Quarry, Toon Blast , Golf Rival , our hyper-casual mobile portfolio, Harry Potter:

Puzzles & Spells , Words With Friends , and our Farmville franchise.

These decreases were partially offset by an increase in digital net revenue from our Red Dead Redemption and Grand Theft Auto franchises.

Net revenue from physical retail and other channels decreased by $14.8 and accounted for 4.6% of our total net revenue for the three months ended September 30, 2023, as compared to 5.3% 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 NBA 2K franchise.

Gross profit as a percentage of net revenue for the three months ended September 30, 2023 was 32.0% as compared to 48.8% for the prior year period.

The decrease in gross profit as a percentage of net revenue was primarily due to an impairment charge recognized for our acquisition-related Development Game Technology intangible assets (refer to Note 14 - Goodwill and Intangible Assets, Net ).

Changes in foreign currency exchange rates increased net revenue by $4.7 and decreased gross profit by $0.7 for the three months ended September 30, 2023 as compared to the prior year period.

Operating Expenses

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Depreciation and amortization 45.3 3.5 % 29.9 2.1 % 15.4 51.5 %

Goodwill impairment 165.4 12.7 % — — % 165.4 N/A

Total operating expenses (1)

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

Selling and marketing $ 24.3 $ 35.7

General and administrative $ 29.4 $ 44.2

Research and development 28.9 38.2

Changes in foreign currency exchange rates decreased total operating expenses by $0.9 for the three months ended June 30, 2023, as compared to the prior year period.

Selling and marketing 24.6 17.5

Selling and marketing expenses increased by $128.8 for the three months ended June 30, 2023, as compared to the prior year period, due primarily to marketing expense for titles from Zynga, including our hyper-casual mobile portfolio, Toon Blast , Merge Dragons!

, Empires & Puzzles , and Toy Blast , as well as marketing expense for LEGO 2K Drive .

Changes in foreign currency exchange rates increased total operating expenses by $8.8 for the three months ended September 30, 2023, as compared to the prior year period.

Selling and marketing

Selling and marketing expenses decreased by $109.8 for the three months ended September 30, 2023, as compared to the prior year period, due primarily to lower amortization related to intangible assets related to our Zynga acquisition, a decrease in our marketing expense for our hyper-casual mobile portfolio and our Grand Theft Auto franchise.

These decreases were partially offset by an increase in personnel expense due to increased headcount.

Research and development

Research and development expenses increased by $71.4 for the three months ended June 30, 2023, as compared to the prior year period, due primarily to an increase in personnel expense due to increased headcount, including from our Zynga acquisition.

Research and development expenses decreased by $8.9 for the three months ended September 30, 2023, as compared to the prior year period, primarily due to lower production and development expenses primarily due to additional capitalization of costs for development on titles having established technological feasibility compared to the prior year period partially offset by an increase in personnel expense due to increased headcount.

General and administrative

General and administrative expenses decreased by $38.9 for the three months ended June 30, 2023, as compared to the prior year period, due primarily to a decrease in professional fees related to our acquisition and integration of Zynga, partially offset by an increase in personnel expense for additional headcount, primarily due to Zynga;

the fair value of the contingent earn-out liability related to our acquisition of Popcore;

and rent expense, primarily due to Zynga.

General and administrative expenses for the three months ended June 30, 2023 and 2022 included occupancy expense (primarily rent, utilities and office expenses) of $16.8 and $12.9, respectively, related to our development studios.

General and administrative expenses decreased by $35.1 for the three months ended September 30, 2023, as compared to the prior year period, due primarily to a decrease in personnel expenses and professional fees related to our acquisition and integration of Zynga.

General and administrative expenses for the three months ended September 30, 2023 and 2022 included occupancy expense (primarily rent, utilities and office expenses) of $16.8 and $16.6, respectively, related to our development studios.

Depreciation and amortization

Depreciation and amortization expenses increased by $18.1 for the three months ended June 30, 2023 as compared to the prior year period, due primarily to acquired intangible assets and depreciation expense related to Zynga.

Depreciation and amortization expenses increased by $15.4 for the three months ended September 30, 2023 as compared to the prior year period, due primarily to leasehold improvements for office buildouts.

Goodwill impairment

Goodwill impairment expenses increased by $165.4 for the three months ended September 30, 2023, as compared to the prior year period, due to a partial impairment recognized related to one of our reporting units (refer to Note 14 - Goodwill and Intangible Assets, Net ).

Interest and other, net

Interest and other, net was expense of $25.4 for the three months ended June 30, 2023, as compared to $29.3 for the prior year period.

The net decrease in expense was due primarily to an increase in interest income primarily due to increases in interest rates, a gain on debt extinguishment recognized on the partial repayment of our 2024 Notes, and a decrease in interest expense related to our bridge loan commitment in connection with our acquisition of Zynga in the prior year.

These decreases were partially offset by an increase in foreign currency losses, due primarily to the devaluation of the Turkish Lira, and an increase in interest expense related to our 2026 Notes and 2028 Notes (refer to Note 9 - Debt ).

Gain (loss) on fair value adjustments, net

Gain (loss) on fair value adjustments, net was a gain of $0.8 for the three months ended June 30, 2023 as compared to a loss of $39.6 for the prior year period.

The change was due primarily to a loss in the prior year period, which was due primarily to our Convertibles Notes, partially offset by a gain related to our Capped Calls, both as a result of our Zynga Acquisition, with no similar loss in the current year.

Interest and other, net was expense of $31.1 for the three months ended September 30, 2023, as compared to $50.5 for the prior year period.

The net decrease in expense was due primarily to a decrease in foreign currency losses and an increase in interest income primarily due to increases in interest rates.

These decreases were partially offset by an increase in interest expense related to our 2026 Notes and 2028 Notes, which were issued in April 2023 (refer to Note 9 - Debt ).

(Loss) gain on fair value adjustments, net

(Loss) gain on fair value adjustments, net was a loss of $2.2 for the three months ended September 30, 2023 as compared to a gain of $1.9 for the prior year period.

The change was due primarily to a loss for the increase in the fair value of our Convertibles Notes as compared to a net gain in the prior year period for changes in fair value based on the observable price changes of our long-term investment.

Benefit from income taxes

The benefit from income taxes for the three months ended June 30, 2023 is based on our projected annual effective tax rate for fiscal year 2024, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The benefit from income taxes was $22.9 for the three months ended June 30, 2023 as compared to the benefit from income taxes of $2.3 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of 10.0% for the three months ended June 30, 2023 was due primarily to tax expense of $25.4 related to an increase in the U.S.

valuation allowance, tax expense of $2.4 related to geographic mix of earnings, tax expense of $5.0 from employee stock-based compensation offset by benefits of $20.4 from tax credits.

In the prior year period, when compared to the statutory rate of 21.0%, the effective tax rate of 2.2% for the three months ended June 30, 2022 was due primarily to tax expense of $12.1 related to the geographic mix of earnings, tax expense of $9.4 from employee stock-based compensation, nondeductible expense of $8.2 related to the settlement of convertible debt, offset by benefits of $22.4 from tax credits.

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 tax credits, decreased expense from employee stock-based compensation and by the geographic mix of earnings in the current period offset by increased expenses related to an increase in the U.S.

valuation allowance.

The benefit from income taxes for the three months ended September 30, 2023 is based on our projected annual effective tax rate for fiscal year 2024, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The benefit from income taxes was $33.4 for the three months ended September 30, 2023, as compared to the benefit from income taxes of $44.1 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of 5.8% for the three months ended September 30, 2023 was due primarily to tax expense of $56.3 related to an increase in the U.S.

valuation allowance, tax expense of $33.5 related to the impairment of nondeductible goodwill, $8.1 related to the revaluation of deferred taxes due to a change in the statutory tax rate in Turkey, offset by tax benefits of $21.6 from tax credits and by the geographic mix of earnings.

In the prior year period, when compared to the statutory rate of 21.0%, the effective tax rate of 14.6% for the three months ended September 30, 2022 was due primarily to tax benefits of $8.5 from tax credits, tax benefits of $3.4 from employee stock-based compensation, and tax expense of $12.8 related to 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 tax expense from changes in the U.S.

valuation allowance and the impairment of nondeductible goodwill, offset by increased benefits from tax credits and geographic mix of 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.

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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.

The ARPA did not have a material impact on our Consolidated Financial Statements for the three months ended June 30, 2023.

The ARPA did not have a material impact on our Condensed Consolidated Financial Statements for the three months ended September 30, 2023.

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

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Net loss and Loss per share

For the three months ended June 30, 2023, net loss was $206.0, as compared to a net loss of $104.0 in the prior year period.

Basic and diluted loss per share for the three months ended June 30, 2023 was $1.22, as compared to basic and diluted loss per share of $0.76 in the prior year period.

Basic weighted average shares of 169.4 were 32.9 shares higher as compared to the prior year period basic weighted average shares, due primarily to stock issued as consideration for the Zynga Acquisition and for the conversion of Convertible Notes as well as normal stock compensation activity, including vests.

For the three months ended September 30, 2023, net loss was $543.6, as compared to a net loss of $257.0 in the prior year period.

Basic and diluted loss per share for the three months ended September 30, 2023 was $3.20, as compared to basic and diluted loss per share of $1.54 in the prior year period.

Basic weighted average shares of 169.9 were 3.0 shares higher as compared to the prior year period basic weighted average shares, due primarily to normal stock compensation activity, including vests.

See Note 10 - Loss Per Share to our Condensed Consolidated Financial Statements for additional information.

Six Months Ended September 30, 2023 Compared to September 30, 2022

(millions of dollars) 2023 % 2022 % Increase/

(decrease) % Increase/

Total net revenue $ 2,583.9 100.0 % $ 2,495.9 100.0 % $ 88.0 3.5 %

Game intangibles 596.3 23.1 % 297.6 11.9 % 298.7 100.4 %

Product costs 354.6 13.7 % 321.4 12.9 % 33.2 10.3 %

Software development costs and royalties (1) 198.8 7.7 % 157.4 6.3 % 41.4 26.3 %

Internal royalties 185.4 7.2 % 217.7 8.7 % (32.3) (14.8) %

Licenses 154.2 6.0 % 155.6 6.2 % (1.4) (0.9) %

Cost of revenue 1,489.3 57.7 % 1,149.7 46.1 % 339.6 29.5 %

Gross profit $ 1,094.6 42.3 % $ 1,346.2 53.9 % $ (251.6) (18.7) %

(1) Includes $14.2 and $(25.4) of stock-based compensation expense in 2023 and 2022, respectively, in software development costs and royalties.

For the six months ended September 30, 2023, net revenue increased by $88.0 as compared to the prior year period.

The increase was primarily due to an increase in net revenue of $244.6 from Zynga, which we acquired in May 2022 (refer to Note 1 3 - Acquisitions ), including from our hyper-casual mobile portfolio, which benefited from our November 2022 acquisition of Popcore (refer to Note 13 - Acquisitions ), and other top contributors Toon Blast , Merge Dragons!

, Zynga Poker , and Words With Friends .

These increases were partially offset by a decrease in net revenue of (i) $51.1 from Tiny Tina's Wonderlands , (ii) $38.4 from The Quarry , (iii) $37.2 from our NBA 2K Franchise, and (iv) $21.3 from our Grand Theft Auto franchise.

Net revenue from mobile increased by $226.5 and accounted for 51.3% of our total net revenue for six months ended September 30, 2023, as compared to 44.1% for the prior year period.

The increase was primarily due to an increase in net revenue of $245.4 as a result of our acquisition of Zynga, including from our hyper-casual mobile portfolio, and other top contributors Toon Blast , Merge Dragons!

, Zynga Poker , Words With Friends , and Toy Blast .

Net revenue from console games decreased by $108.1 and accounted for 40.7% of our total net revenue for the six months ended September 30, 2023, as compared to 46.4% for the prior year period.

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

Net revenue from PC and other decreased by $30.4 and accounted for 8.0% of our total net revenue for the six months ended September 30, 2023, as compared to 9.5% for the prior year period.

The decrease was due to a decrease in net revenue from Tiny Tina's Wonderlands, The Quarry , and our BioShock franchise.

Recurrent consumer spending ("RCS") 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 RCS increased by $141.4 and accounted for 80.1% of net revenue for the six months ended September 30, 2023, as compared to 77.2% of net revenue for the prior year period.

The increase was primarily due to an increase in net revenue from RCS of $245.1 as a result of our acquisition of Zynga, including from our hyper-casual mobile portfolio, and other top contributors Toon Blast , Merge Dragons!

, Zynga Poker , and Words With Friends .

These increases were partially offset by a decrease in net revenue from our Grand Theft Auto franchise and Tiny Tina's Wonderlands .

Net revenue from full game and other decreased by $53.4 and accounted for 19.9% of net revenue for the six months ended September 30, 2023 as compared to 22.8% of net revenue for the prior year period.

The decrease was due to a decrease in net revenue from The Quarry , our NBA 2K franchise, Tiny Tina's

Wonderlands , and our Mafia franchise .

These decreases were partially offset by an increase in net revenue from our Grand Theft Auto and Red Dead Redemption franchises and LEGO 2K Drive.

Net revenue from digital online channels increased by $122.7 and accounted for 96.0% of our total net revenue for the six months ended September 30, 2023, as compared to 94.4% for the prior year period.

The increase was primarily due to an increase in digital net revenue of $249.0 as a result of our acquisition of Zynga, including from our hyper-casual mobile portfolio, and other top contributors Toon Blast , Merge Dragons !, Zynga Poker , and Words With Friends .

This increase was partially offset by a decrease in net revenue from Tiny Tina's Wonderlands and The Quarry.

Net revenue from physical retail and other channels decreased by $34.7 and accounted for 4.0% of our total net revenue for the six months ended September 30, 2023, as compared to 5.6% 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 NBA 2K franchise, The Quarry , and Tiny Tina's Wonderlands.

These decreases were partially offset by an increase in net revenue from LEGO 2K Drive .

Gross profit as a percentage of net revenue for the six months ended September 30, 2023 was 42.3% as compared to 53.9% for the prior year period.

Changes in foreign currency exchange rates increased net revenue by $5.9 and increased gross profit by $0.5 for the six months ended September 30, 2023 as compared to the prior year period.

Operating Expenses

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

(decrease) % Increase/

Selling and marketing $ 735.5 28.5 % $ 716.4 28.7 % $ 19.1 2.7 %

Research and development 478.3 18.5 % 417.0 16.7 % 61.3 14.7 %

General and administrative 377.7 14.6 % 451.7 18.1 % (74.0) (16.4) %

Depreciation and amortization 85.7 3.3 % 51.0 2.0 % 34.7 68.0 %

Goodwill impairment 165.4 6.4 % — — % 165.4 100.0 %

Total operating expenses (1)

$ 1,842.6 71.3 % $ 1,636.1 65.6 % $ 206.5 12.6 %

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

General and administrative 53.5 $ 64.7

Research and development 52.5 59.3

Selling and marketing 48.9 53.2

Changes in foreign currency exchange rates increased total operating expenses by $7.9 for the six months ended September 30, 2023, as compared to the prior year period.

Selling and marketing

Selling and marketing expenses increased by $19.1 for the six months ended September 30, 2023, as compared to the prior year period, due primarily to an increase in personnel expense due to increased headcount, including as a result of our Zynga acquisition.

Research and development

Research and development expenses increased by $61.3 for the six months ended September 30, 2023, as compared to the prior year period, due primarily to increases in personnel expenses due to increased headcount, including related to our acquisition of Zynga, and costs related to our cost management initiatives.

These increases were partially offset by lower production and development expenses primarily due to a reduction in the number of titles in development at certain studios as a result of our ongoing development pipeline management process and additional capitalization of costs for development on titles having established technological feasibility compared to prior year.

General and administrative

General and administrative expenses decreased by $74.0 for the six months ended September 30, 2023, as compared to the prior year period, due to a decrease in professional fees related to our acquisition and integration of Zynga partially offset by

an increase in IT-related expenses for cloud-based services and IT infrastructure as well as an increase in the fair value of the contingent earn-out liability related to our acquisition of Popcore.

General and administrative expenses for the six months ended September 30, 2023 and 2022 included occupancy expense (primarily rent, utilities and office expenses) of $33.6 and $29.5, respectively, related to our development studios.

Depreciation and amortization

Depreciation and amortization expenses increased by $34.7 for the six months ended September 30, 2023, as compared to the prior year period, due primarily to leasehold improvements for office buildouts, acquired intangible assets, and depreciation expense related to Zynga.

Goodwill impairment

Goodwill impairment expenses increased by $165.4 for the six months ended September 30, 2023, as compared to the prior year period, due to a partial impairment recognized related to one of our reporting units (refer to Note 14 - Goodwill and Intangible Assets, Net ).

Interest and other, net

Interest and other, net was expense of $56.5 for the six months ended September 30, 2023, as compared to $79.8 for the prior year period.

The net decrease was due primarily to an increase in interest income primarily due to increases in interest rates, a gain on debt extinguishment recognized on the partial repayment of our 2024 Notes, a decrease in interest expense related to our bridge loan commitment in connection with our acquisition of Zynga in the prior year, and decrease in foreign currency losses.

These decreases in expense were partially offset by an increase in interest expense related to our 2026 Notes and 2028 Notes, which were issued in April 2023 (refer to Note 9 - Debt ).

Loss on fair value adjustments, net

Loss on fair value adjustments, net was $1.4 for the six months ended September 30, 2023 as compared to $37.7 for the prior year period.

The change was due primarily to a prior year loss for the increase in fair value of our Convertible Notes, partially offset by a prior year gain related to our Capped Calls, both as result of our Zynga Acquisition (refer to Note 9 - Debt and Note 1 3 - Acquisitions ).

Benefit from Income Taxes

The benefit from income taxes for the six months ended September 30, 2023 is based on our projected annual effective tax rate for fiscal year 2024, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The benefit from income taxes was $56.3 for the six months ended September 30, 2023, as compared to the benefit from income taxes of $46.4 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of 7.0% for the six months ended September 30, 2023 was due primarily to tax expense of $81.6 related to an increase in the U.S.

valuation allowance, tax expense of $33.5 related to the impairment of nondeductible goodwill, $8.1 related to the revaluation of deferred taxes due to a change in the statutory tax rate in Turkey, offset by tax benefits of $42.0 from tax credits and by the geographic mix of earnings.

In the prior year period, when compared to the statutory rate of 21.0%, the effective tax rate of 11.4% for the six months ended September 30, 2022 was due primarily to a tax expense of $22.6 related to the geographic mix of earnings, nondeductible expense of $8.2 related to the settlement of convertible debt, tax expense of $6.0 from employee stock-based compensation, offset by benefits of $30.9 from tax credits.

The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to increased tax expense from changes in the U.S.

valuation allowance, impairment of nondeductible goodwill, and increased benefits from tax credits, offset by geographic mix of earnings.

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 or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.

The American Rescue Plan Act of 2021 (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.

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.

The ARPA did not have a material impact on our Condensed Consolidated Financial Statements for the six months ended September 30, 2023.

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

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 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 estimate no tax liability relating to CAMT for the current fiscal year.

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

Net loss and loss per share

For the six months ended September 30, 2023, net loss was $749.6, as compared to net loss of $361.0 in the prior year period.

For the six months ended September 30, 2023, basic and diluted loss per share was $4.42 as compared to basic and diluted loss per share of $2.38 in the prior year period.

Basic weighted average shares of 169.6 were 17.8 shares higher as compared to the prior year period, due to stock issued as consideration for the Zynga Acquisition and for the conversion of Convertible Notes.

See Note 10 - Loss Per Share to our Condensed Consolidated Financial Statements for additional information regarding earnings per share.

Liquidity and Capital Resources

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) tax payments, and (vi) acquisitions.

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

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.

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Short-term investments

As of June 30, 2023, we had $109.2 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, 2023, we had $45.1 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, 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.

As of September 30, 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 rising inflation and related adverse economic conditions, we anticipate our investment yields may increase, which could increase our future interest income.

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The purchase of a portion of our 2024 Notes was funded with proceeds received from the 2026 Notes and 2028 Notes.

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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 (8.25% at June 30, 2023) or (b) 1.000% to 1.625% above Secured Overnight Financing Rate ("SOFR"), approximately 5.14% at June 30, 2023, which rates are determined by the Company's credit rating.

As of June 30, 2023, there were no borrowings under the 2022 Credit Agreement, and we had approximately $499.5 available for additional borrowings.

Loans under the 2022 Credit Agreement will bear interest at a rate of (a) 0.000% to 0.625% above an alternate base rate (8.50% at September 30, 2023) or (b) 1.000% to 1.625% above Secured Overnight Financing Rate ("SOFR"), approximately 5.32% at September 30, 2023, which rates are determined by the Company's credit rating.

As of September 30, 2023, there were no borrowings under the 2022 Credit Agreement, and we had approximately $499.5 available for additional borrowings.

Convertible Notes

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As of the expiration of the Fundamental Change, Make-Whole Fundamental Change, and Share Exchange Event, (a) $0.3 aggregate principal amount of the 2024 Convertible Notes and (b) $845.1 aggregate principal amount of the 2026 Convertible Notes were tendered for cash.

In addition, (a) $668.3 aggregate principal amount of the 2024 Convertible Notes, and (b) no 2026 Convertible Notes were surrendered for conversion into the applicable Reference Property.

In addition, (a) $668.3 aggregate principal amount of the 2024 Convertible Notes,

and (b) no 2026 Convertible Notes were surrendered for conversion into the applicable Reference Property.

In total, we paid $321.6 for the tendered or converted 2024 Convertible Notes, including interest, and $845.1 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 $29.4 aggregate principal amount of the 2026 Convertible Notes remained outstanding at June 30, 2023.

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 79.9% and 80.8% of net revenue during the three months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 and March 31, 2023, five customers accounted for 66.7% and 61.1% of our gross accounts receivable, respectively.

Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 63.5% and 50.3% of such balances at June 30, 2023 and March 31, 2023, respectively.

We had four customers who accounted for 19.4%, 17.2%, 16.5%, and 10.4% of our gross accounts receivable as of June 30, 2023, and three customers who accounted for 21.6%, 14.5%, and 14.2% of our gross accounts receivable as of March 31, 2023.

We did not have any additional customers that exceeded 10% of our gross accounts receivable as of June 30, 2023, and March 31, 2023.

Our five largest customers accounted for 79.5% and 79.9% of net revenue during the six months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023 and March 31, 2023, five customers accounted for 71.5% and 61.1% of our gross accounts receivable, respectively.

Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 58.7% and 50.3% of such balances at September 30, 2023 and March 31, 2023, respectively.

We had three customers who accounted for 28.9%, 17.5%, and 12.3% of our gross accounts receivable as of September 30, 2023, and three customers who accounted for 21.6%, 14.5%, and 14.2% of our gross accounts receivable as of March 31, 2023.

We did not have any additional customers that exceeded 10% of our gross accounts receivable as of September 30, 2023, and March 31, 2023.

Based upon performing ongoing credit evaluations, maintaining trade credit insurance on a majority of our customers who sell our physical products 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 creditworthiness and economic conditions that may affect our customers' business and access to capital.

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We believe that our current cash and cash equivalents, short-term investments, and projected cash flow from operations, along with availability under our 2022 Credit Agreement will provide us with sufficient liquidity to satisfy our cash requirements for working capital, capital expenditures, and commitments on both a short-term and long-term basis.

As of June 30, 2023, the amount of cash and cash equivalents held outside of the U.S.

As of September 30, 2023, the amount of cash and cash equivalents held outside of the U.S.

by our foreign subsidiaries was $549.8.

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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, 2023, we did not repurchase shares of our common stock in the open market, as part of the program.

We have repurchased a total of 11.7 shares of our common stock under the program, and as of June 30, 2023, 10.0 shares of our common stock remained available for repurchase under the share repurchase program.

During the three months ended September 30, 2023, we did not repurchase shares of our common stock in the open market, as part of the program.

We have repurchased a total of 11.7 shares of our common stock under the program, and as of September 30, 2023, 10.0 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,

(millions of dollars) 2023 2022

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Net change in cash, cash equivalents, and restricted cash and cash equivalents $ 51.6 $ (537.9)

At June 30, 2023, we had $1,260.7 of cash and cash equivalents and restricted cash and cash equivalents, compared to $1,234.6 at March 31, 2023.

The increase was due to Net cash provided by investing activities primarily related to our sales and maturities of available for sale securities, partially offset by our purchases of fixed assets.

To a lesser extent, the net increase was also 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 Net cash used in financing activities, primarily related to net share settlements of our restricted stock awards, partially offset by issuance of common stock and our net debt activity.

The debt activity included proceeds from the issuance of 2026 Notes and 2028 Notes offset by our partial repayment of 2024 Notes and repayment of the Term Loan (refer to Note 9 - Debt ).

At September 30, 2023, we had $1,286.2 of cash and cash equivalents and restricted cash and cash equivalents, compared to $1,234.6 at March 31, 2023.

The increase was due to Net cash provided by operating activities from sales of our products, partially offset by the timing of payments and Net cash provided by investing activities primarily related to our sales and maturities of available for sale securities, partially offset by our purchases of fixed assets.

This net increase was partially offset by Net cash used in financing activities, primarily related to net share settlements of our restricted stock awards and payment of contingent earn-outs for prior acquisitions, partially offset by issuance of common stock and our net debt activity.

The debt activity included proceeds from the issuance of 2026 Notes and 2028 Notes offset by our partial repayment of 2024 Notes and repayment of our Term Loan (refer to Note 9 - Debt ).

Refer to Note 11 - Commitments and Contingencies for disclosures regarding our commitments.

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In fiscal year 2024, we anticipate capital expenditures to be approximately $150.0.

During the three months ended June 30, 2023, capital expenditures were $31.5.

During the six months ended September 30, 2023, capital expenditures were $59.9.

International Operations

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, 2023 and 2022, 37.4% and 38.1%, respectively, of our net revenue was earned outside 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.

For the three months ended September 30, 2023 and 2022, 38.8% and 39.5%, respectively, of our net revenue was earned outside 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.

Fluctuations in Quarterly Operating Results and Seasonality

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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