What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-09 compared with 2023-11-09 · 208 added, 155 removed, 349 unchanged (51% of the section changed)

23 unchanged sentences

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.

During the nine months ended December 31, 2023, we recognized a Goodwill impairment charge of $165.4, representing a partial impairment related to one of our reporting units and during the three and nine months ended December 31, 2023, we recognized impairment charges of $53.4 and $273.1, respectively, 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 ).

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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").

On January 8, 2024, we completed our add-on offering and sale of $350.0 aggregate principal amount of our senior notes, consisting of $50.0 principal amount of additional 2026 Notes and $300.0 principal amount of additional 2028 Notes.

The additional 2026 Notes and 2028 Notes (the “New Notes”) were issued as additional notes under the existing Indenture (refer to Note 9 - Debt and Note 15 - Subsequent Events ).

We intend to use the proceeds from the offering of the New Notes for general corporate purposes, including the retirement at maturity of our 2024 Notes.

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, 2025 Notes, 2026 Notes, 2027 Notes, and 2028 Notes, the "Senior Notes").

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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 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.

During the nine months ended December 31, 2023, we recognized a debt extinguishment gain of approximately $7.7, 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.

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Our most recent installment, Grand Theft Auto V , which was released in 2013, has sold-in over 190 units worldwide and includes access to Grand Theft Auto Online .

Rockstar Games continues to invest in the franchise and plans to release Grand Theft Auto VI in 2025.

The label released its first trailer for the title in December 2023 and will share more details over time.

Red Dead Redemption 2 , which has been a critical and commercial success that set numerous entertainment industry records, has sold-in more than 60 units worldwide to date.

Rockstar Games confirmed that active development for the next entry in the Grand Theft Auto franchise is well underway with more details to be shared over time.

Rockstar Games continues to expand on its established series by developing sequels, offering downloadable episodes, and providing additional content.

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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 .

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Zynga's diverse portfolio of popular game franchises has been downloaded more than six billion times, including CSR Racing , Dragon City , Empires & Puzzles , FarmVille , Golf Rival , Harry Potter:

Puzzles & Spells , Merge Dragons , Merge Magic , Monster Legends , Toon Blast , Top Eleven , Toy Blast , Two Dots , Words With Friends , Zynga Poker , and a high volume of hyper-casual mobile titles, including Fill the Fridge!, Parking Jam 3D , Pull the Pin, Twisted Tangle, and Tangled Snakes .

Puzzles & Spells , Match Factory!

, Merge Dragons!

, Merge Magic , Monster Legends , Toon Blast!

, Top Eleven , Top Troops , Toy Blast , Two Dots , Words With Friends , Zynga Poker , and a high volume of hyper-casual mobile titles, including Fill the Fridge!, Parking Jam 3D , Power Slap , Pull the Pin, Twisted Tangle, and Tangled Snakes .

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.

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Generally, a significant portion of our revenue has been derived from a few popular franchises, particularly around new releases within those franchises.

Some of these franchises have annual or bi-annual releases.

Some of these franchises have annual or biennial releases.

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

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

Sales of Grand Theft Auto products generated 15.2% of our net revenue for the nine months ended December 31, 2023.

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

Economic Environment and Retailer Performance.

We continue to monitor 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.

We continue to monitor various macroeconomic and geopolitical factors that may affect our business in several areas, including consumer demand, inflation, 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.

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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 40.7% of our net revenue for the six months ended September 30, 2023.

Such console revenue comprised 40.5% of our net revenue for the nine months ended December 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.

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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 96.0% of our net revenue for the six months ended September 30, 2023.

As disclosed in our "Results of Operations," below, net revenue from digital online channels comprised 95.6% of our net revenue for the nine months ended December 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.

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Content Release Highlights

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.

During fiscal year 2024, 2K released LEGO 2K Drive and NBA 2K24 ;

Zynga released Power Slap, Match Factory!, and Top Troops ;

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 .

Rockstar will release Grand Theft Auto VI in 2025.

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 September 30, Six Months Ended September 30,

Three Months Ended December 31, Nine Months Ended December 31,

2023 2022 Increase/

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Net Bookings $ 1,337.8 $ 1,382.8 $ (45.0) (3.3) % $ 3,984.2 $ 3,890.1 $ 94.1 2.4 %

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;

For the three months ended December 31, 2023, Net Bookings decreased by $45.0 as compared to the prior year period.

The decrease was primarily due to a decrease in Net Bookings from our PGA TOUR 2K franchise, the latest installment of which, PGA TOUR 2K23 released in October 2022;

Marvel's Midnight Suns, which released in December 2022;

Empires & Puzzles ;

our NBA 2K franchise;

our hyper-casual mobile portfolio;

Merge Dragons!

Words with Friends ;

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

our Sid Meier's Civilization franchise;

Wizard of Oz Slots ;

The Quarry , which released in June 2022;

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 .

and Harry Potter:

Puzzles & Spells .

These decreases were partially offset by an increase in Net Bookings from our Grand Theft Auto and Red Dead Redemption franchises, including our August 2023 release of Red Dead Redemption and Undead Nightmare ;

LEGO 2K Drive, which released in May 2023;

Match Factory!, which released in November 2023;

and Top Troops, which released in October 2023.

For the nine months ended December 31, 2023, Net Bookings increased by $94.1 as compared to the prior year period.

The increase was primarily due to an increase in Net Bookings of $237.0 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 our other top contributors Empires & Puzzles , Toon Blast!

, Words with Friends, and Merge Dragons!

, as well as an increase in Net Bookings from our Grand Theft Auto franchise.

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

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, and net revenue by content type:

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

Three Months Ended December 31, Nine Months Ended December 31,

(millions of dollars) 2023 2022 2023 2022

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Net loss $ (91.6) (6.6) % $ (153.4) (10.9) % $ (841.2) (21.1) % $ (514.4) (13.2) %

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

Three Months Ended December 31, Nine Months Ended December 31,

2023 2022 2023 2022

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Physical retail and other 69.0 5.1 % 71.1 5.1 % 173.2 4.4 % 210.0 5.4 %

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

Three Months Ended December 31, 2023 Compared to December 31, 2022

(millions of dollars) 2023 % 2022 % Increase/

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(1) Includes $6.3 and $8.4 of stock-based compensation expense in 2023 and 2022, respectively, in software development costs and royalties.

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 .

For the three months ended December 31, 2023, net revenue decreased by $41.5 as compared to the prior year period.

The decrease was primarily due to a decrease in net revenue of $20.0 from our PGA TOUR 2K franchise, the latest installment of which, PGA TOUR 2K23, released in October 2022;

$16.6 from Marvel's Midnight Suns , which released in December 2022;

$15.7 from Empires & Puzzles;

$8.5 from Tiny Tina's Wonderlands ;

$5.9 from Golf Rival;

$5.7 from our hyper-casual mobile portfolio;

$5.3 from Words With Friends;

$5.0 from Toy Blast;

$4.4 from our Civilization franchise;

$4.3 from our NBA 2K franchise;

$4.3 from Wizard of Oz Slots;

$4.1 from Two Dots;

$3.6 from The Quarry , which released in June 2022;

$3.2 from Harry Potter:

Puzzles and Spells;

$3.0 from our Farmville franchise;

$2.9 from Merge Dragons!;

$1.8 from Dragon City;

and $1.6 from Monster Legends.

These decreases were partially offset by an increase in net revenue of $33.1 from our Grand Theft Auto franchise;

$23.3 from our Red Dead Redemption franchise, including our August 2023 release of Red Dead Redemption and Undead Nightmare;

$14.4 from Toon Blast!;

$10.8 from LEGO 2K Drive , which released in May 2023;

and $6.7 from Match Factory!, which released in December 2023.

Net revenue from mobile decreased by $14.5 and accounted for 51.7% of our total net revenue for three months ended December 31, 2023, as compared to 51.2% for the prior year period.

The decrease was primarily due to a decrease in net revenue from Empires & Puzzles , Golf Rival , our hyper-casual mobile portfolio, Words With Friends , Toy Blast , Wizard of Oz Slots, Two Dots, Harry Potter:

Puzzles and Spells, Merge Dragons!, our Farmville and WWE 2K franchises, and Puzzle Combat.

These decreases were partially offset by an increase in net revenue from our Grand Theft Auto franchise, Toon Blast!

, our NBA 2K franchise, and Match Factory!

Net revenue from console games decreased by $13.8 and accounted for 40.1% of our total net revenue for the three months ended December 31, 2023, as compared to 39.9% for the prior year period.

The decrease in net revenue from console games was due to a decrease in net revenue from our PGA TOUR 2K franchise, Marvel's Midnight Suns , our NBA 2K franchise, Tiny Tina's Wonderlands, and our Grand Theft Auto franchise.

These decreases were partially offset by increases in net revenue from our Red Dead Redemption franchise and LEGO 2K Drive .

Net revenue from PC and other decreased by $13.2 and accounted for 8.2% of our total net revenue for the three months ended December 31, 2023, as compared to 8.9% for the prior year period.

The decrease in net revenue from PC and other was primarily due to a decrease in net revenue from Marvel's Midnight Suns, Tiny Tina's Wonderlands, and our Sid Meier's Civilization , NBA 2K , and Red Dead Redemption franchises.

These decreases were partially offset by an increase in net revenue from our Grand Theft Auto 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 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.

Net revenue from RCS decreased by $80.7 and

accounted for 75.7% of net revenue for the three months ended December 31, 2023, as compared to 79.2% 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 , Golf Rival , our hyper-casual mobile portfolio, Words With Friends , Toy Blast, and Two Dots.

Net revenue from full game and other increased by $39.2 and accounted for 24.3% of net revenue for the three months ended December 31, 2023 as compared to 20.8% 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.

These increases were partially offset by a decrease in net revenue in Marvel's Midnight Suns and our PGA TOUR 2K franchise.

Net revenue from digital online channels decreased by $39.4 and accounted for 94.9% of our total net revenue for the three months ended December 31, 2023, as compared to 94.9% for the prior year period.

The decrease was primarily due to a decrease in net revenue from Empires & Puzzles, our PGA TOUR 2K franchise, Marvel's Midnight Suns, Tiny Tina's Wonderlands, Golf Rival, our hyper-casual mobile portfolio, Words With Friends, Toy Blast, our Sid Meier's Civilization franchise , Wizard of Oz Slots, Two Dots, Harry Potter:

Puzzles & Spells, our Farmville franchise , Merge Dragons!

, The Quarry, Dragon City , and Monster Legends.

These decreases were partially offset by an increase in net revenue from our Grand Theft Auto franchise, Toon Blast!, LEGO 2K Drive, our Red Dead Redemption franchise, and Match Factory!

Net revenue from physical retail and other channels decreased by $2.1 and accounted for 5.1% of our total net revenue for the three months ended December 31, 2023, as compared to 5.1% 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 Marvel's Midnight Suns, and our PGA TOUR 2K and NBA 2K franchises.

These decreases were partially offset by an increase in net revenue from physical retail and other channels from our Red Dead Redemption franchise and LEGO 2K Drive .

Gross profit as a percentage of net revenue for the three months ended December 31, 2023 was 49.7% as compared to 50.9% for the prior year period.

The decrease in gross profit as a percentage of net revenue was primarily due to (i) an impairment charge recognized for our acquisition-related Development Game Technology intangible asset (refer to Note 14 - Goodwill and Intangible Assets, Net ) and (ii) higher internal royalties due to the timing of when royalties are earned, partially offset by lower amortization of capitalized software development costs and lower development royalties due primarily to the timing of releases.

Changes in foreign currency exchange rates increased net revenue by $3.5 and increased gross profit by $1.3 for the three months ended December 31, 2023 as compared to the prior year period.

Operating Expenses

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Depreciation and amortization 42.6 3.1 % 35.0 2.5 % 7.6 21.7 %

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

Total operating expenses (1)

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Selling and marketing 23.9 23.0

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.

Changes in foreign currency exchange rates increased total operating expenses by $6.9 for the three months ended December 31, 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.

Selling and marketing expenses decreased by $79.1 for the three months ended December 31, 2023, as compared to the prior year period, due primarily to lower amortization related to intangible assets related to our Zynga acquisition.

Research and development

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.

Research and development expenses decreased by $5.8 for the three months ended December 31, 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 $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.

General and administrative expenses decreased by $3.9 for the three months ended December 31, 2023, as compared to the prior year period, due primarily to a decrease in the fair value of the contingent earn-out liability related to our acquisition of Popcore offset by an increase in personnel expenses due to increased headcount.

General and administrative expenses for the three months ended December 31, 2023 and 2022 included occupancy expense (primarily rent, utilities and office expenses) of $17.8 and $16.3, respectively, related to our development studios.

Depreciation and amortization

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 ).

Depreciation and amortization expenses increased by $7.6 for the three months ended December 31, 2023 as compared to the prior year period, due primarily to leasehold improvements for office buildouts.

Interest and other, net

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 ).

Interest and other, net was expense of $22.5 for the three months ended December 31, 2023, as compared to $28.3 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, partially offset by an increase in foreign currency losses.

(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.

(Loss) gain on fair value adjustments, net was a loss of $0.3 for the three months ended December 31, 2023 as compared to a gain of $1.1 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 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 benefit from income taxes for the three months ended December 31, 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 $60.7 for the three months ended December 31, 2023, as compared to the benefit from income taxes of $46.7 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of 39.9% for the three months ended December 31, 2023 was due primarily to tax benefits of $40.0 related to the changes in unrecognized tax benefits from a lapse in statute, tax benefits of $4.5 from tax credits, offset by tax expense of $6.8 related to geographic mix of earnings and tax expense of $4.9 related to an increase in the U.S.

valuation allowance.

In the prior year period, when compared to the statutory rate of 21.0%, the effective tax rate of 23.3% for the three months ended December 31, 2022 was due primarily to tax benefits of $2.4 related to geographic mix of earnings, tax benefits of $1.0 from tax credits, and tax expense of $0.5 from employee stock-based compensation

The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to increased benefits related to the changes in unrecognized tax benefits from a lapse in statute, increased benefits from tax credits, offset by increased tax expense from changes in the U.S.

valuation allowance, 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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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 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.

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

Congress is considering legislation that would repeal or otherwise modify the domestic capitalization and amortization under Section 174 of the TCJA.

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 three months ended September 30, 2023.

The ARPA did not have a material impact on our Condensed Consolidated Financial Statements for the three months ended December 31, 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 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.

For the three months ended December 31, 2023, net loss was $91.6, as compared to a net loss of $153.4 in the prior year period.

Basic and diluted loss per share for the three months ended December 31, 2023 was $0.54, as compared to basic and diluted loss per share of $0.91 in the prior year period.

Basic weighted average shares of 170.3 were 2.3 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

Nine Months Ended December 31, 2023 Compared to December 31, 2022

(millions of dollars) 2023 % 2022 % Increase/

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(1) Includes $20.5 and $(17.0) 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.

For the nine months ended December 31, 2023, net revenue increased by $46.5 as compared to the prior year period.

The increase was primarily due to an increase in net revenue of $200.3 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 .

The increase was partially offset by a decrease in net revenue of (i) $59.6 from Tiny Tina's Wonderlands , (ii) $41.9 from The Quarry, (iii) $41.5 from our NBA 2K franchise, and (iv) $17.1 from our WWE 2K franchise.

Net revenue from mobile increased by $212.0 and accounted for 51.5% of our total net revenue for nine months ended December 31, 2023, as compared to 46.6% for the prior year period.

The increase was primarily due to an increase in net revenue of $197.5 as a result of our acquisition of Zynga, including from our hyper-casual mobile portfolio, and other top contributors Toon Blast!

, Empires & Puzzles , Merge Dragons!, and Words with Friends .

Net revenue from console games decreased by $121.9 and accounted for 40.5% of our total net revenue for the nine months ended December 31, 2023, as compared to 44.1% for the prior year period.

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

These decreases were partially offset by an increase in net revenue from our Red Dead Redemption franchise.

Net revenue from PC and other decreased by $43.6 and accounted for 8.0% of our total net revenue for the nine months ended December 31, 2023, as compared to 9.3% for the prior year period.

The decrease was due to a decrease in net revenue from Tiny Tina's Wonderlands, The Quarry , and our Sid Meier's Civilization and NBA 2K franchises.

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 .

Net revenue from RCS increased by $60.7 and

accounted for 78.6% of net revenue for the nine months ended December 31, 2023, as compared to 77.9% of net revenue for the prior year period.

The increase was primarily due to an increase in net revenue from RCS of $197.6 as a result of our acquisition of Zynga, including from our hyper-casual mobile portfolio, and other top contributors Empires & Puzzles , Toon Blast!

, Merge Dragons!, 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 , our NBA 2K franchise, Two Dots , and our WWE 2K franchise.

Net revenue from full game and other decreased by $14.2 and accounted for 21.4% of net revenue for the nine months ended December 31, 2023 as compared to 22.1% of net revenue for the prior year period.

The decrease was due to a decrease in net revenue from The Quarry , Tiny Tina's Wonderlands , our NBA 2K franchise, Marvel's Midnight Suns, and our PGA TOUR 2K 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.

Net revenue from digital online channels increased by $83.3 and accounted for 95.6% of our total net revenue for the nine months ended December 31, 2023, as compared to 94.6% for the prior year period.

The increase was primarily due to an increase in digital net revenue of $200.7 as a result of our acquisition of Zynga, including from our hyper-casual mobile portfolio, and other top contributors Empires & Puzzles , Toon Blast!

, Merge Dragons!, and Words with Friends , as well as from our Red Dead Redemption franchise .

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

Net revenue from physical retail and other channels decreased by $36.8 and accounted for 4.4% of our total net revenue for the nine months ended December 31, 2023, as compared to 5.4% 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 , Marvel's Midnight Suns, our PGA TOUR 2K franchise, and Tiny Tina's Wonderlands.

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

Gross profit as a percentage of net revenue for the nine months ended December 31, 2023 was 44.9% as compared to 52.8% 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.

Changes in foreign currency exchange rates increased net revenue by $9.4 and increased gross profit by $2.3 for the nine months ended December 31, 2023 as compared to the prior year period.

Operating Expenses

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Selling and marketing 72.8 76.2

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.

Changes in foreign currency exchange rates increased total operating expenses by $14.8 for the nine months ended December 31, 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.

Selling and marketing expenses decreased by $60.0 for the nine months ended December 31, 2023, as compared to the prior year period, due primarily to lower amortization related to intangible assets offset by an increase in personnel expense due to increased headcount, 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.

Research and development expenses increased by $55.5 for the nine months ended December 31, 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.

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.

General and administrative expenses decreased by $77.9 for the nine months ended December 31, 2023, as compared to the prior year period, due to a decrease in professional fees related to our acquisition and integration of Zynga and a decrease in the fair value of the contingent earn-out liability related to our acquisition of Popcore.

The decreases were partially offset by an increase in personnel expense due to increased headcount as well as an increase in IT-related expenses for cloud-based services and IT infrastructure.

General and administrative expenses for the nine months ended December 31, 2023 and 2022 included occupancy expense (primarily rent, utilities and office expenses) of $51.4 and $45.8, 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.

Depreciation and amortization expenses increased by $42.3 for the nine months ended December 31, 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 ).

Goodwill impairment expenses increased by $165.4 for the nine months ended December 31, 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 ).

Interest and other, net was expense of $79.0 for the nine months ended December 31, 2023, as compared to $108.1 for the prior year period.

These decreases in expense were partially offset by an increase in interest expense related to our debt transactions (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.

Loss on fair value adjustments, net was $1.7 for the nine months ended December 31, 2023 as compared to $36.6 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 13 - 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 benefit from income taxes for the nine months ended December 31, 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 $117.0 for the nine months ended December 31, 2023, as compared to the benefit from income taxes of $93.1 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of 12.2% for the nine months ended December 31, 2023 was due primarily to tax expense of $86.5 related to an increase in the U.S.

valuation allowance, tax expense of $33.5 related to the impairment of nondeductible goodwill, tax expense of $7.0 related to geographic mix of earnings offset by tax benefits of $46.5 from tax credits and tax benefits of $40.0 related to the changes in unrecognized tax benefits from a lapse in statute.

In the prior year period, when compared to the statutory rate of 21.0%, the effective tax rate of 15.3% for the nine months ended December 31, 2022 was due primarily to tax expense of $20.3 related to geographic mix of earnings, tax expense

of $6.5 from employee stock-based compensation, nondeductible expense of $10.0 related to the settlement of convertible debt, offset by benefits of $31.9 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.

valuation allowance, impairment of nondeductible goodwill, and increased benefits related to the changes in unrecognized tax benefits from a lapse in statute, increased benefits from tax credits, offset by geographic mix of earnings.

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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.

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 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.

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

Congress is considering legislation that would repeal or otherwise modify the domestic capitalization and amortization under Section 174 of the TCJA.

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.

The ARPA did not have a material impact on our Condensed Consolidated Financial Statements for the nine months ended December 31, 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 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.

For the nine months ended December 31, 2023, net loss was $841.2, as compared to net loss of $514.4 in the prior year period.

For the nine months ended December 31, 2023, basic and diluted loss per share was $4.95 as compared to basic and diluted loss per share of $3.27 in the prior year period.

Basic weighted average shares of 169.9 were 12.7 shares higher as compared to the prior year period, due primarily 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.

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Short-term investments

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.

As of December 31, 2023, we had $23.5 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 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.

As of December 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.

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.

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

The additional 2026 Notes and 2028 Notes (the “New Notes”) were issued as additional notes under the existing Indenture (refer to Note 9 - Debt and Note 15 - Subsequent Events ).

We intend to use the proceeds from the offering of the New Notes for general corporate purposes, including the retirement at maturity of our 2024 Notes.

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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 (8.50% 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.

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 December 31, 2023) or (b) 1.000% to 1.625% above Secured Overnight Financing Rate ("SOFR"), approximately 5.35% at December 31, 2023, which rates are determined by the Company's credit rating.

As of December 31, 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 successor to Wells Fargo Bank, National Association) (the “Convertible Notes Trustee”), relating to Zynga’s 0.25% Convertible Senior Notes due 2024 (the “2024 Convertible Notes”), and (b) the First Supplemental Indenture (the “2026 Supplemental Indenture” and, together with the 2024 Supplemental Indenture, the “Supplemental Indentures”) to the Indenture, dated as of December 17, 2020 (the “2026 Indenture” and, together with the 2024 Indenture, the “Indentures”), between Zynga and the Convertible Notes Trustee, relating to Zynga’s 0.00% Convertible Senior Notes due 2026 (the “2026 Convertible Notes” and, together with the 2024 Convertible Notes, the “Convertible Notes”).

As of the closing date of the acquisition, approximately $690.0 aggregate principal amount of the 2024 Convertible Notes was outstanding and approximately $874.5 aggregate principal amount of the 2026 Convertible Notes was outstanding.

As of the closing date of the acquisition, approximately $690.0 aggregate principal amount of the 2024

Convertible Notes was outstanding and approximately $874.5 aggregate principal amount of the 2026 Convertible Notes was outstanding.

Following the acquisition and according to the Supplemental Indentures, we assumed all of Zynga’s rights and obligations under the Indentures, and the Company guaranteed the payment and other obligations of Zynga under the 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 September 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 79.5% 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.

Our five largest customers accounted for 79.2% and 79.7% of net revenue during the nine months ended December 31, 2023 and 2022, respectively.

As of December 31, 2023 and March 31, 2023, five customers accounted for 67.4% and 61.1% of our gross accounts receivable, respectively.

Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 53.4% and 50.3% of such balances at December 31, 2023 and March 31, 2023, respectively.

We had three customers who accounted for 21.2%, 18.1%, and 14.2%, of our gross accounts receivable as of December 31, 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 December 31, 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 September 30, 2023, the amount of cash and cash equivalents held outside of the U.S.

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

by our foreign subsidiaries was $667.3.

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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 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.

During the three months ended December 31, 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 December 31, 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:

Six Months Ended

September 30,

Nine Months Ended

(millions of dollars) 2023 2022

Net cash provided by operating activities $ 69.8 $ 155.4

Net cash (used in) provided by operating activities $ (7.2) $ 35.8

Net cash provided by (used in) investing activities 26.5 (2,814.8)

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Net change in cash, cash equivalents, and restricted cash and cash equivalents $ (44.8) $ (893.0)

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.

At December 31, 2023, we had $1,189.8 of cash and cash equivalents and restricted cash and cash equivalents, compared to $1,234.6 at March 31, 2023.

The decrease was primarily due to 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 ).

The decrease was also due to Net cash used in operating activities which was due primarily to investments in software development and licenses, partially offset by sales of our products.

These net decreases were partially offset by Net cash provided by investing activities primarily related to sales and maturities of available for sale securities, partially offset by our purchases of fixed assets.

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

During the nine months ended December 31, 2023, capital expenditures were $95.5.

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 September 30, 2023 and 2022, 38.8% and 39.5%, respectively, of our net revenue was earned outside the United States.

For the three months ended December 31, 2023 and 2022, 40.1% and 37.0%, 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.

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We have experienced fluctuations in quarterly and annual operating results as a result of the timing of the introduction of new titles, variations in sales of titles developed for particular platforms, market acceptance of our titles, development and promotional expenses relating to the introduction of new titles, sequels or enhancements of existing titles, projected and actual changes in platforms, the timing and success of title introductions by our competitors, product returns, changes in pricing policies by us and our competitors, the accuracy of retailers' forecasts of consumer demand, the size and timing of acquisitions, the timing of orders from major customers, and order cancellations and delays in product shipment.

Sales of our full game products are also seasonal, with peak demand typically occurring in the fourth calendar quarter during the holiday season.

Sales of our full game

products are also seasonal, with peak demand typically occurring in the fourth calendar quarter during the holiday season.

For certain of our software products with multiple performance obligations, we defer the recognition of our net revenue over an estimated service period which generally ranges from six to fifteen months.

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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