What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-09 · 237 added, 97 removed, 252 unchanged (57% of the section changed)

24 unchanged sentences

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

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

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

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

4 unchanged sentences

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 player-first approach and commitment to creativity and innovation are distinguishing strengths, 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 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.

10 unchanged sentences

Rockstar Games offers its GTA+ membership program, which engages its player community with an array of rotating benefits, including access to classic Rockstar titles.

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

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

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

5 unchanged sentences

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, as well as the Borderlands and Tiny Tina's Wonderlands franchises, which were added to its portfolio with our June 2024 acquisition of Gearbox.

2K's internally owned and developed franchises include the critically acclaimed, multi-million unit selling BioShock , Mafia , Sid Meier's Civilization , and XCOM franchises, as well as the Borderlands and Tiny Tina's Wonderlands franchises, which are now owned by us following our June 2024 acquisition of Gearbox.

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, PGA TOUR 2K , and TopSpin 2K .

2K also publishes mobile titles, including WWE SuperCard .

We expanded our relationship with the NBA through the NBA 2K League.

2K also publishes mobile titles, including WWE SuperCard and NFL 2K Playmakers .

In 2018, we expanded our relationship with the NBA through the NBA 2K League.

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 .

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

In October 2024, we sold the label, including our rights to substantially all of the label's titles.

Take-Two will continue to support No Rest for the Wicked , which launched in early access on PC in April.

Our Zynga label publishes popular free-to-play mobile games that deliver high quality, deeply engaging entertainment experiences and generates revenue from in-game sales and in-game advertising.

Zynga's strategy is to have numerous games in concept development and to determine which titles are best suited for soft launch and worldwide launch based on the achievement of various milestones and KPI thresholds.

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:

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

Legends, Golf Rival , Harry Potter:

Puzzles & Spells , Match Factory!

1 unchanged sentence

, 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 .

, Monster Legends , Star Wars:

Hunters , 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, Screw Jam , Twisted Tangle, and Tangled Snakes .

International Expansion

10 unchanged sentences

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

Sales of Grand Theft Auto products generated 13.1% of our net revenue for the three months ended June 30, 2024.

Sales of Grand Theft Auto products generated 12.9% of our net revenue for the six months ended September 30, 2024.

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

1 unchanged sentence

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.

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

Actions we have taken to date and other potential actions we may take in the future in response to these factors could result in negative impacts in future periods.

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

3 unchanged sentences

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 38.0% of our net revenue for the three months ended June 30, 2024.

Such console revenue comprised 37.2% of our net revenue for the six months ended September 30, 2024.

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

8 unchanged sentences

We provide a variety of online delivered products, including direct digital downloads of our titles, and access to additional offerings through virtual currency, add-on content, and in-game purchases, which drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles.

Net revenue from digital online channels comprised 96.8% of our net revenue for the three months ended June 30, 2024.

Net revenue from digital online channels comprised 96.4% of our net revenue for the six months ended September 30, 2024.

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

13 unchanged sentences

Content Release Highlights

During fiscal year 2025, 2K released TopSpin 2K25 , Private Division released No Rest for the Wicked early access on PC, and Zynga released Star Wars:

During fiscal year 2025, 2K released NFL 2K Playmakers , TopSpin 2K25, and NBA 2K25;

Private Division released No Rest for the Wicked early access on PC;

and Zynga released Star Wars:

Hunters and Game of Thrones:

To date we have announced that, during the remainder of fiscal year 2025, 2K will release NBA 2K25 and Rockstar plans to release Grand Theft Auto VI in the Fall of calendar 2025

To date we have announced that, during the remainder of fiscal year 2025, 2K plans to release Sid Meier's Civilization VII and WWE 2K25.

Rockstar Games plans to release Grand Theft Auto VI in the fall of calendar year 2025.

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

13 unchanged sentences

Net Bookings were as follows:

Three Months Ended June 30,

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

2024 2023 Increase/

(decrease) % Increase/

(decrease) 2024 2023 Increase/

(decrease) % Increase/

Net Bookings $ 1,474.9 $ 1,444.9 $ 30.0 2.1 % $ 2,693.1 $ 2,646.5 $ 46.6 1.8 %

For the three months ended June 30, 2024, Net Bookings increased as compared to the prior year period.

For the three months ended September 30, 2024, Net Bookings increased as compared to the prior year period.

The increase was primarily due to an increase in Net Bookings from Match Factory!

, which released in November 2023;

TopSpin 2K25 , which released in April 2024;

our Red Dead Redemption franchise;

and No Rest for the Wicked , which released for early access in April 2024.

These increases were partially offset by a decrease in Net Bookings from our NBA 2K franchise, our hyper-casual mobile portfolio, LEGO 2K Drive, which released in May 2023;

Empires & Puzzles , and Merge Dragons!

, which released in November 2023, and Toon Blast.

These increases were partially offset by a decrease in Net Bookings from our Grand Theft Auto franchise, our hyper-casual mobile portfolio, our Red Dead Redemption franchise, which included our August 2023 release of Red Dead Redemption and Undead Nightmare, and Empires & Puzzles .

For the six months ended September 30, 2024, Net Bookings increased as compared to the prior year period.

The increase was primarily due to an increase in Net Bookings from Match Factory!

, Toon Blast , and TopSpin 2K25 , which released in April 2024.

These increases were partially offset by a decrease in Net Bookings from our hyper-casual mobile portfolio, our NBA 2K and Grand Theft Auto franchises, and Empires & Puzzles .

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 June 30,

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

2024 2023 2024 2023

Total net revenue $ 1,353.1 100.0 % $ 1,299.2 100.0 % $ 2,691.3 100.0 % $ 2,583.9 100.0 %

5 unchanged sentences

Depreciation and amortization 47.3 3.5 % 45.3 3.5 % 92.1 3.4 % 85.7 3.3 %

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

Business reorganization 16.8 1.2 % 3.4 0.2 % 66.3 2.5 % 10.6 0.4 %

2 unchanged sentences

Interest and other, net (25.9) (1.9) % (31.1) (2.4) % (50.1) (1.9) % (56.5) (2.2) %

(Loss) gain on fair value adjustments, net (3.1) (0.2) % 0.8 0.1 %

Loss on fair value adjustments, net (1.2) (0.1) % (2.2) (0.2) % (4.3) (0.2) % (1.4) (0.1) %

Loss before income taxes (324.3) (23.9) % (577.0) (44.4) % (536.5) (19.9) % (805.9) (31.3) %

1 unchanged sentence

Net loss $ (365.5) (26.9) % $ (543.6) (41.8) % $ (627.5) (23.3) % $ (749.6) (29.1) %

Three Months Ended June 30,

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

2024 2023 2024 2023

Net revenue by platform:

8 unchanged sentences

Full game and other 274.1 20.3 % 298.8 23.0 % 514.6 19.1 % 515.1 19.9 %

Three Months Ended June 30, 2024 Compared to June 30, 2023

(millions of dollars) 2024 % 2023 % Increase/

Three Months Ended September 30, 2024 Compared to September 30, 2023

2024 % 2023 % Increase/

(decrease) % Increase/

2 unchanged sentences

Game intangibles 173.4 12.8 % 409.4 31.5 % (236.0) (57.6) %

Software development costs and royalties (1) 76.2 5.7 % 115.7 9.0 % (39.5) (34.1) %

Internal royalties 69.0 5.2 % 72.6 5.7 % (3.6) (5.0) %

Licenses 97.2 7.2 % 102.8 7.9 % (5.6) (5.4) %

Internal royalties 77.2 5.7 % 112.8 8.7 % (35.6) (31.6) %

Software development costs and royalties (1)

64.9 4.8 % 83.1 6.4 % (18.2) (21.9) %

Cost of revenue 625.2 46.2 % 883.8 68.0 % (258.6) (29.3) %

1 unchanged sentence

(1) Includes $3.1 and $7.5 of stock-based compensation expense in 2024 and 2023, respectively, in software development costs and royalties.

For the three months ended June 30, 2024, net revenue increased by $53.5 as compared to the prior year period.

The increase was primarily due to an increase in net revenue of $63.2 from Match Factory!, which released in November 2023, and $31.6 from Toon Blast.

These increases were partially offset by a decrease in net revenue of $21.2 from our hyper-casual mobile portfolio.

Net revenue from mobile increased by $42.5 and accounted for 54.0% of our total net revenue for three months ended June 30, 2024, as compared to 52.9% for the prior year period.

The increase was primarily due to an increase in net revenue from Match Factory!, Toon Blast , and Empires & Puzzles.

These increases were partially offset by a decrease in net revenue from our hyper-casual mobile portfolio.

Net revenue from console games increased by $4.6 and accounted for 38.0% of our total net revenue for the three months ended June 30, 2024, as compared to 39.3% for the prior year period.

The increase in net revenue from console games was due to an increase in net revenue from our Red Dead Redemption franchise and TopSpin 2K25 , which released in April 2024.

These increases were partially offset by a decrease in net revenue from our NBA 2K franchise, LEGO 2K Drive, which released in May 2023;

and our PGA TOUR 2K and Grand Theft Auto franchises.

Net revenue from PC and other increased by $6.4 and accounted for 8.0% of our total net revenue for the three months ended June 30, 2024, as compared to 7.8% for the prior year period.

The increase in net revenue from PC and other was primarily due to an increase in net revenue from No Rest for the Wicked , which released for early access in April 2024, and our Grand Theft Auto franchise.

These increases were partially offset by a decrease in net revenue from our NBA 2K franchise.

For the three months ended September 30, 2024, net revenue increased by $53.9 as compared to the prior year period.

The increase was primarily due to an increase in net revenue of $73.6 from Match Factory!, which released in November 2023,

and $35.6 from Toon Blast.

These increases were partially offset by a decrease in net revenue of (i) $27.4 from our Grand Theft Auto franchise, (ii) $21.8 from our NBA 2K franchise, and (iii) $13.1 from our Red Dead Redemption franchise, which included our August 2023 release of Red Dead Redemption and Undead Nightmare .

Net revenue from mobile increased by $94.0 and accounted for 54.7% of our total net revenue for three months ended September 30, 2024, as compared to 49.7% for the prior year period.

The increase was primarily due to an increase in net revenue from Match Factory!

and Toon Blast.

These increases were partially offset by a decrease in net revenue from Merge Dragons!

Net revenue from console games decreased by $55.6 and accounted for 36.3% of our total net revenue for the three months ended September 30, 2024, as compared to 42.1% for the prior year period.

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

These decreases were partially offset by an increase in net revenue from our Borderlands franchise.

Net revenue from PC and other increased by $15.5 and accounted for 9.0% of our total net revenue for the three months ended September 30, 2024, as compared to 8.2% for the prior year period.

The increase in net revenue from PC and other was primarily due to an increase in net revenue from our Risk of Rain franchise , which was acquired in connection with our acquisition of Gearbox in June 2024 (refer to Note 13 - Acquisitions ), and our Borderlands, Grand Theft Auto, and NBA 2K franchises.

These increases were partially offset by a decrease in net revenue from our Red Dead Redemption 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 $29.3 and accounted for 82.0% of net revenue for the three months ended June 30, 2024, as compared to 83.2% of net revenue for the prior year period.

Net revenue from RCS increased by $78.6 and accounted for 79.7% of net revenue for the three months ended September 30, 2024, as compared to 77.0% of net revenue for the prior year period.

The increase in net revenue from RCS was primarily due to increases in net revenue from Match Factory!

, Toon Blast , and Empires & Puzzles .

These increases were partially offset by a decrease in net revenue from our hyper-causal mobile portfolio and our Grand Theft Auto franchise .

Net revenue from full game and other increased by $24.2 and accounted for 18.0% of net revenue for the three months ended June 30, 2024 as compared to 16.8% 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 Red Dead Redemption franchise, TopSpin 2K25 , and our Grand Theft Auto franchise.

These increases were partially offset by a decrease in net revenue in our NBA 2K franchise and LEGO 2K Drive .

Net revenue from digital online channels increased by $55.5 and accounted for 96.8% of our total net revenue for the three months ended June 30, 2024, as compared to 96.5% for the prior year period.

and Toon Blast .

These increases were partially offset by a decrease in net revenue from our Grand Theft Auto and NBA 2K franchises .

Net revenue from full game and other decreased by $24.7 and accounted for 20.3% of net revenue for the three months ended September 30, 2024 as compared to 23.0% 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 our Grand Theft Auto, NBA 2K, and Red Dead Redemption franchises.

These decreases were partially offset by an increase in net revenue in our Borderlands and Mafia franchises.

Net revenue from digital online channels increased by $60.3 and accounted for 96.1% of our total net revenue for the three months ended September 30, 2024, as compared to 95.4% for the prior year period.

The increase was primarily due to increases in net revenue from Match Factory!

and Toon Blast.

These increases were partially offset by a decrease in net revenue in our hyper-casual mobile portfolio.

Net revenue from physical retail and other channels decreased by $2.0 and accounted for 3.2% of our total net revenue for the three months ended June 30, 2024, as compared to 3.5% for the same period in the prior year period.

The decrease in net revenue from physical retail and other channels was due primarily to a decrease in net revenue from LEGO 2K Drive and our NBA 2K and PGA TOUR 2K franchises.

These decreases were partially offset by an increase in net revenue from physical retail and other channels from TopSpin 2K25 and our Red Dead Redemption franchise.

Gross profit as a percentage of net revenue for the three months ended June 30, 2024 was 57.6% as compared to 52.9% for the prior year period.

The increase in gross profit as a percentage of net revenue was primarily due to (i) lower development royalties due primarily to the timing of releases and (ii) lower amortization of intangibles assets due primarily to impairment charges in the prior year for acquisition-related intangible assets.

Changes in foreign currency exchange rates decreased net revenue by $1.3 and decreased gross profit by $0.6 for the three months ended June 30, 2024 as compared to the prior year period.

These increases were partially offset by a decrease in net revenue in our Grand Theft Auto and NBA 2K franchises.

Net revenue from physical retail and other channels decreased by $6.4 and accounted for 3.9% of our total net revenue for the three months ended September 30, 2024, as compared to 4.6% 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 and WWE 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.

Gross profit as a percentage of net revenue for the three months ended September 30, 2024 was 53.8% as compared to 32.0% for the prior year period.

The increase in gross profit as a percentage of net revenue was primarily due to (i) lower amortization of intangibles assets due primarily to impairment charges in the prior year for acquisition-related intangible assets and (ii) lower internal royalties due to the timing of when royalties are earned, partially offset by higher digital platform fees.

Changes in foreign currency exchange rates increased net revenue by $0.5 and increased gross profit by $0.2 for the three months ended September 30, 2024 as compared to the prior year period.

Operating Expenses

(millions of dollars) 2024 % of net revenue 2023 % of net revenue Increase/

2024 % of net revenue 2023 % of net revenue Increase/

(decrease) % Increase/

Selling and marketing $ 461.3 34.1 % $ 334.6 25.8 % $ 126.7 37.9 %

General and administrative 253.0 18.7 % 178.3 13.7 % 74.7 41.9 %

Research and development 246.7 18.2 % 232.1 17.9 % 14.6 6.3 %

Depreciation and amortization 47.3 3.5 % 45.3 3.5 % 2.0 4.4 %

Goodwill impairment — — % 165.4 12.7 % (165.4) (100.0) %

Business reorganization 16.8 1.2 % 3.4 0.2 % 13.4 394.1 %

Total operating expenses (1)

$ 1,025.1 75.7 % $ 959.1 73.8 % $ 66.0 6.9 %

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

Selling and marketing $ 24.5 $ 24.6

General and administrative 32.4 29.4

Research and development 26.2 28.9

Changes in foreign currency exchange rates increased total operating expenses by $1.2 for the three months ended September 30, 2024, as compared to the prior year period.

Selling and marketing

Selling and marketing expenses increased by $126.7 for the three months ended September 30, 2024, as compared to the prior year period, due primarily to higher overall marketing expenses for Match Factory!, with no corresponding expense in the prior fiscal year , Game of Thrones:

Legends, and our NBA 2K franchise .

General and administrative

General and administrative expenses increased by $74.7 for the three months ended September 30, 2024, as compared to the prior year period, due primarily to increases in (i) legal fees and contingencies related to the IBM case against Zynga and (ii) personnel expense due to increased headcount.

General and administrative expenses for the three months ended September 30, 2024 and 2023 included occupancy expense (primarily rent, utilities and office expenses) of $19.2 and $16.8, respectively, related to our development studios.

Research and development

Research and development expenses increased by $14.6 for the three months ended September 30, 2024, as compared to the prior year period, primarily due to increases in personnel expense due to increased headcount and IT-related expenses for cloud-based services and IT infrastructure, partially offset by additional R&D related credits related to certain titles.

Depreciation and amortization

Depreciation and amortization expenses increased by $2.0 for the three months ended September 30, 2024, as compared to the prior year period, due primarily to increases in leasehold improvements for office buildouts and IT infrastructure.

Goodwill impairment

Goodwill impairment expenses decreased by $165.4 for the three months ended September 30, 2024, as compared to the prior year period, due to a partial impairment recognized related to one of our reporting units in the prior year (refer to Note 14 - Goodwill and Intangible Assets, Net ).

Business reorganization

Business reorganization increased by $13.4 for the three months ended September 30, 2024, as compared to the prior year period, due primarily to the cancellation of titles and employee-related costs as part of our cost reduction program (refer to Note 15 - Business Reorganization ).

Interest and other, net

Interest and other, net was expense of $25.9 for the three months ended September 30, 2024, as compared to expense of $31.1 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 and a decrease in foreign currency losses.

These decreases in expense were partially offset by an increase in interest expense related to our debt transactions (refer to Note 9 - D ebt ).

Loss on fair value adjustments, net

Loss on fair value adjustments, net was a loss of $1.2 for the three months ended September 30, 2024 as compared to a loss of $2.2 for the prior year period.

The change was due primarily to changes in fair value based on the observable price changes of our long-term investments.

Provision for income taxes

The provision for income taxes for the three months ended September 30, 2024 is based on our projected annual effective tax rate for fiscal year 2025, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The provision for income taxes was $41.2 for the three months ended September 30, 2024, as compared to the benefit from income taxes of $33.4 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of (12.7)% for the three months ended September 30, 2024 was due primarily to tax expense of $104.9 related to an increase in valuation allowance and tax expense of $9.9 related to geographic mix of earnings offset by benefits of $17.2 from tax credits.

In the prior year period, when compared to the statutory rate of 21.0%, 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.

The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to decreased tax expense related to the impairment of nondeductible goodwill, decreased tax expense related to the revaluation of deferred taxes due to statutory rate changes in the prior period, offset by increased tax expense from changes in valuation allowance, increased tax expense related to geographic mix of earnings, and decreased tax benefits from tax credits.

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

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

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 three months ended September 30, 2024.

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.

The Organization for Economic Co-operation and Development ("OECD") has proposed a global minimum tax of 15% of reported profits, referred to as Pillar Two.

Many countries have already implemented or are taking steps to implement Pillar Two.

Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar Two slightly differently that the model rules and on different timelines.

Many aspects of Pillar Two are effective for the fiscal year ending March 31, 2025.

Pillar Two could result in additional tax liability over the regular corporate tax liability in a particular jurisdiction to the extent tax expense is less than 15% minimum rate.

The impact of Pillar Two was not material to the tax

provision for the three months ended September 30, 2024.

We will continue to evaluate the impact Pillar Two may have on our operations.

Net loss and Loss per share

For the three months ended September 30, 2024, net loss was $365.5, as compared to a net loss of $543.6 in the prior year period.

Basic and diluted loss per share for the three months ended September 30, 2024 was $2.08, as compared to basic and diluted loss per share of $3.20 in the prior year period.

Basic weighted average shares of 175.4 were 5.5 shares higher as compared to the prior year period basic weighted average shares, due primarily to normal stock compensation activity.

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

Six Months Ended September 30, 2024 Compared to September 30, 2023

2024 % 2023 % Increase/

(decrease) % Increase/

Total net revenue $ 2,691.3 100.0 % $ 2,583.9 100.0 % $ 107.4 4.2 %

Product costs 415.8 15.4 % 354.6 13.7 % 61.2 17.3 %

Game intangibles 336.9 12.5 % 596.3 23.1 % (259.4) (43.5) %

Licenses 152.3 5.7 % 154.2 6.0 % (1.9) (1.2) %

Internal royalties 146.2 5.4 % 185.4 7.2 % (39.2) (21.1) %

Software development costs and royalties (1)

141.1 5.2 % 198.8 7.7 % (57.7) (29.0) %

Cost of revenue 1,192.3 44.2 % 1,489.3 57.7 % (297.0) (19.9) %

Gross profit $ 1,499.0 55.8 % $ 1,094.6 42.3 % $ 404.4 36.9 %

(1) Includes $6.0 and $14.2 of stock-based compensation expense in 2024 and 2023, respectively, in software development costs and royalties.

For the six months ended September 30, 2024, net revenue increased by $107.4 as compared to the prior year period.

The increase was primarily due to an increase in net revenue of (i) $136.8 from Match Factory!

, which released in November 2023, (ii) $67.2 from Toon Blast , and (iii) $21.2 from TopSpin 2K25 , which released in April 2024.

The increase was partially offset by a decrease in net revenue of (i) $38.0 from our NBA 2K franchise, (ii) $27.3 from our Grand Theft Auto franchise , and (iii) $19.6 from our hyper-casual mobile portfolio.

Net revenue from mobile increased by $136.5 and accounted for 54.3% of our total net revenue for six months ended September 30, 2024, as compared to 51.3% for the prior year period.

The increase was primarily due to an increase in net revenue from Match Factory!

and Toon Blast .

These increases were partially offset by a decrease in net revenue from our hyper-casual mobile portfolio.

Net revenue from console games decreased by $51.0 and accounted for 37.2% of our total net revenue for the six months ended September 30, 2024, as compared to 40.7% for the prior year period.

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

These decreases were partially offset by an increase in net revenue from TopSpin 2K25 .

Net revenue from PC and other increased by $21.9 and accounted for 8.5% of our total net revenue for the six months ended September 30, 2024, as compared to 8.0% for the prior year period.

The increase was due to an increase in net revenue from our Risk of Rain franchise , which was acquired in connection with our acquisition of Gearbox in June 2024 (refer to Note 13 - Acquisitions ), our Grand Theft Auto franchise, and No Rest for the Wicked, which released for early access in April 2024.

These increases were partially offset by a decrease in net revenue from our Red Dead Redemption franchise, which included our August 2023 release of Red Dead Redemption and Undead Nightmare .

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 $107.9 and accounted for 80.9% of net revenue for the six months ended September 30, 2024, as compared to 80.1% of net revenue for the prior year period.

The increase was primarily due to an increase in net revenue from Match Factory!

and Toon Blast.

These increases were partially offset by a decrease in net revenue from our Grand Theft Auto franchise, our hyper-casual mobile portfolio, Merge Dragons!, and our NBA 2K franchise.

Net revenue from full game and other decreased by $0.5 and accounted for 19.1% of net revenue for the six months ended September 30, 2024 as compared to 19.9% of net revenue for the prior year period.

The decrease was due to a decrease in net revenue from our NBA 2K franchise .

This decrease was partially offset by an increase in net revenue from TopSpin 2K25.

Net revenue from digital online channels increased by $115.8 and accounted for 96.4% of our total net revenue for the six months ended September 30, 2024, as compared to 96.0% for the prior year period.

The increase was primarily due to an increase in net revenue from Match Factory!

and Toon Blast.

This increase was partially offset by a decrease in net revenue

from our NBA 2K and Grand Theft Auto franchises, and our hyper-casual mobile portfolio.

Net revenue from physical retail and other channels decreased by $8.4 and accounted for 3.6% of our total net revenue for the six months ended September 30, 2024, as compared to 4.0% 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 and LEGO 2K Drive.

These decreases were partially offset by an increase in net revenue from TopSpin 2K25.

Gross profit as a percentage of net revenue for the six months ended September 30, 2024 was 55.8% as compared to 42.3% for the prior year period.

The increase in gross profit as a percentage of net revenue was primarily due to lower amortization of intangible assets due primarily to impairment charges in the prior year for acquisition-related intangible assets.

Changes in foreign currency exchange rates decreased net revenue by $0.8 and decreased gross profit by $0.4 for the six months ended September 30, 2024 as compared to the prior year period.

Operating Expenses

2024 % of net revenue 2023 % of net revenue Increase/

(decrease) % Increase/

Selling and marketing $ 892.7 33.2 % $ 734.0 28.4 % $ 158.7 21.6 %

Research and development 466.5 17.3 % 470.7 18.2 % (4.2) (0.9) %

General and administrative 463.5 17.2 % 376.2 14.6 % 87.3 23.2 %

Depreciation and amortization 92.1 3.4 % 85.7 3.3 % 6.4 7.5 %

Goodwill impairment — — % 165.4 6.4 % (165.4) (100.0) %

Business reorganization 66.3 2.5 % 10.6 0.4 % 55.7 525.5 %

Total operating expenses (1)

4 unchanged sentences

General and administrative 60.4 53.5

Changes in foreign currency exchange rates decreased total operating expenses by $2.0 for the three months ended June 30, 2024, as compared to the prior year period.

Changes in foreign currency exchange rates decreased total operating expenses by $0.8 for the six months ended September 30, 2024, as compared to the prior year period.

Selling and marketing

Selling and marketing expenses increased by $32.0 for the three months ended June 30, 2024, as compared to the prior year period, due primarily to higher overall marketing expenses for Match Factory!, with no corresponding expense in the prior fiscal year , partially offset by lower amortization related to intangible assets related to our Zynga acquisition.

Selling and marketing expenses increased by $158.7 for the six months ended September 30, 2024, as compared to the prior year period, due primarily to higher overall marketing expenses for Match Factory!, with no corresponding expense in the prior fiscal year.

Research and development

Research and development expenses decreased by $18.8 for the three months ended June 30, 2024, as compared to the prior year period, primarily due to the timing of tax related credits related to certain titles, partially offset by an increase in personnel expense due to increased headcount.

Research and development expenses decreased by $4.2 for the six months ended September 30, 2024, as compared to the prior year period, due primarily to the timing of tax related credits for certain titles, partially offset by an increase in personnel expense due to increased headcount and IT-related expenses for cloud-based services and IT infrastructure.

General and administrative

General and administrative expenses increased by $12.6 for the three months ended June 30, 2024, as compared to the prior year period, due primarily to increases in (i) professional fees related to our Gearbox acquisition (refer to Note 13 - Acquisitions ), (ii) IT-related expenses for cloud-based services and IT infrastructure, and (iii) personnel expense due to increased headcount, partially offset by a reduction of expense in the current year as compared to the prior year related to updating the fair value of contingent earn-out liability for our acquisition of Popcore.

General and administrative expenses for the three months ended June 30, 2024 and 2023 included occupancy expense (primarily rent, utilities and office expenses) of $16.9 and $16.8, respectively, related to our development studios.

General and administrative expenses increased by $87.3 for the six months ended September 30, 2024, as compared to the prior year period, due to increases in (i) legal fees and contingencies related to the IBM case against Zynga, (ii) personnel expense due to increased headcount, and (iii) IT-related expenses for cloud-based services and IT infrastructure.

General and administrative expenses for the six months ended September 30, 2024 and 2023 included occupancy expense (primarily rent, utilities and office expenses) of $36.4 and $33.6, respectively, related to our development studios.

Depreciation and amortization

Depreciation and amortization expenses increased by $4.4 for the three months ended June 30, 2024, as compared to the prior year period, due primarily to an increase in IT infrastructure and leasehold improvements for office buildouts.

Depreciation and amortization expenses increased by $6.4 for the six months ended September 30, 2024, as compared to the prior year period, primarily due to an increase in IT infrastructure and leasehold improvements for office buildouts.

Goodwill impairment

Goodwill impairment expenses decreased by $165.4 for the six months ended September 30, 2024, as compared to the prior year period, due to a partial impairment recognized related to one of our reporting units in the prior year (refer to Note 14 - Goodwill and Intangible Assets, Net ).

Business reorganization

Business reorganization increased by $42.3 for the three months ended June 30, 2024, as compared to the prior year period, due primarily to the cancellation of titles and employee-related costs as part of our approved cost reduction program (refer to Note 15 - Business Reorganization ).

Business reorganization increased by $55.7 for the six months ended September 30, 2024, as compared to the prior year period, due primarily to the cancellation of titles and employee-related costs as part of our cost reduction program (refer to Note 15 - Business Reorganization ).

Interest and other, net

Interest and other, net was expense of $24.2 for the three months ended June 30, 2024, as compared to expense of $25.4 for the prior year period.

The net decrease in expense was due primarily to a decrease in foreign currency losses, partially offset by a gain on debt extinguishment recognized in the prior year.

(Loss) gain on fair value adjustments, net

(Loss) gain on fair value adjustments, net was a loss of $3.1 for the three months ended June 30, 2024 as compared to a gain of $0.8 for the prior year period.

Interest and other, net was expense of $50.1 for the six months ended September 30, 2024, as compared to $56.5 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 and a decrease in foreign currency losses.

These decreases in expense were partially offset by an increase in interest expense related to our debt transactions (refer to Note 9 - Debt ) and a gain on debt extinguishment recognized in the prior year on the partial repayment of our 2024 Notes.

Loss on fair value adjustments, net

Loss on fair value adjustments, net was $4.3 for the six months ended September 30, 2024 as compared to $1.4 for the prior year period.

The change was due primarily to changes in fair value based on the observable price changes of our long-term investments.

Provision for Income Taxes

The provision for income taxes for the three months ended June 30, 2024 is based on our projected annual effective tax rate for fiscal year 2025, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The provision for income taxes was $49.8 for the three months ended June 30, 2024, as compared to the benefit from income taxes of $22.9 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of (23.5)% for the three months ended June 30, 2024 was due primarily to tax expense of $96.8 related to an increase in valuation allowance and tax expense of $8.2 related to geographic mix of earnings offset by benefits of $17.7 from tax credits.

In the prior year period, when compared to the statutory rate of 21.0%, 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 $5.0 from employee stock-based compensation, and tax expense of $2.4 related to geographic mix of earnings offset by benefits of $20.4 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 increased tax expense from changes in valuation allowance, increased expense related to geographic mix of earnings, and decreased benefits from tax credits, offset by increased benefits from employee stock-based compensation.

The provision for income taxes for the six months ended September 30, 2024 is based on our projected annual effective tax rate for fiscal year 2025, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The provision for income taxes was $91.0 for the six months ended September 30, 2024, as compared to the benefit from income taxes of $56.3 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of (17.0)% for the six months ended September 30, 2024 was due primarily to tax expense of $201.8 related to an increase in the U.S.

valuation allowance, tax expense of $18.1 related to geographic mix of earnings offset by benefits of $35.0 from tax credits.

In the prior year period, when compared to the statutory rate of 21.0%, 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.

The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to decreased tax expense related to the impairment of nondeductible goodwill, decreased tax expense related to the revaluation of deferred taxes due to statutory rate changes in the prior period and decreased tax expense from employee stock-based compensation, offset by increased tax expense from changes in valuation allowance, increased tax expense related to geographic mix of earnings, and decreased tax benefits from tax credits.

6 unchanged sentences

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 June 30, 2024.

The ARPA did not have a material impact on our Condensed Consolidated Financial

Statements for the six months ended September 30, 2024.

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

9 unchanged sentences

Pillar Two could result in additional tax liability over the regular corporate tax liability in a particular jurisdiction to the extent tax expense is less than 15% minimum rate.

The impact of Pillar Two was not material to the tax provision for the three months ended June 30, 2024.

The impact of Pillar Two was not material to the tax provision for the six months ended September 30, 2024.

We will continue to evaluate the impact Pillar Two may have on our operations.

Net loss and loss per share

For the three months ended June 30, 2024, net loss was $262.0, as compared to a net loss of $206.0 in the prior year period.

Basic and diluted loss per share for the three months ended June 30, 2024 was $1.52, as compared to basic and diluted loss per share of $1.22 in the prior year period.

For the six months ended September 30, 2024, net loss was $627.5, as compared to net loss of $749.6 in the prior year period.

For the six months ended September 30, 2024, basic and diluted loss per share was $3.61 as compared to basic and diluted loss per share of $4.42 in the prior year period.

Basic weighted average shares of 173.8 were 4.2 shares higher as compared to the prior year period basic weighted average shares, due primarily to normal stock compensation activity, including vests as well as grants and forfeitures in the prior year being fully outstanding in the current year, as well as stock issued as consideration for the acquisition of Gearbox.

5 unchanged sentences

Short-term investments

As of June 30, 2024, we had $15.4 of short-term investments, which primarily consisted of bank time deposits with maturities greater than 90 days.

As of September 30, 2024, we had $3.5 of short-term investments, which primarily consisted of bank time deposits with maturities greater than 90 days.

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

As of June 30, 2024, we had $3,650.0 of Senior Notes outstanding.

As of September 30, 2024, we had $3,650.0 of Senior Notes outstanding.

Credit Agreement

As of June 30, 2024, there were no borrowings under the 2022 Credit Agreement, and we had approximately $747.8 available for additional borrowings.

As of September 30, 2024, there were no borrowings under the 2022 Credit Agreement, and we had approximately $747.7 available for additional borrowings.

Convertible Notes

1 unchanged sentence

The 2026 Convertible Notes do not bear regular interest, and the principal amount does not accrete.

An aggregate principal amount of $29.4 of the 2026 Convertible Notes remained outstanding at June 30, 2024.

An aggregate principal amount of $29.4 of the 2026 Convertible Notes remained outstanding at September 30, 2024.

Financial Condition

5 unchanged sentences

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 83.1% and 79.9% of net revenue during the three months ended June 30, 2024 and 2023, respectively.

As of June 30, 2024 and March 31, 2024, five customers accounted for 70.3% and 69.9% of our gross accounts receivable, respectively.

Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 57.2% and 57.7% of such balances at June 30, 2024 and March 31, 2024, respectively.

We had three customers who accounted for 23.0%, 22.7%, and 11.4% of our gross accounts receivable as of June 30, 2024, and three customers who accounted for 21.8%, 18.1%, and 16.9% of our gross accounts receivable as of March 31, 2024.

We did not have any additional customers that exceeded 10% of our gross accounts receivable as of June 30, 2024, and March 31, 2024.

Our five largest customers accounted for 82.2% and 79.5% of net revenue during the six months ended September 30, 2024 and 2023, respectively.

As of September 30, 2024 and March 31, 2024, five customers accounted for 77.4% and 69.9% of our gross accounts receivable, respectively.

Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 67.2% and 57.7% of such balances at September 30, 2024 and March 31, 2024, respectively.

We had three customers who accounted for 33.9%, 17.8%, and 15.5% of our gross accounts receivable as of September 30, 2024, and three customers who accounted for 21.8%, 18.1%, and 16.9% of our gross accounts receivable as of March 31, 2024.

We did not have any additional customers that exceeded 10% of our gross accounts receivable as of September 30, 2024, and March 31, 2024.

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.

1 unchanged sentence

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, 2024, the amount of cash and cash equivalents held outside of the U.S.

As of September 30, 2024, the amount of cash and cash equivalents held outside of the U.S.

by our foreign subsidiaries was $664.3.

6 unchanged sentences

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, 2024, 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, 2024, 10.0 shares of our common stock remained available for repurchase under the share repurchase program.

During the three months ended September 30, 2024, 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, 2024, 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) 2024 2023

4 unchanged sentences

Net change in cash, cash equivalents, and restricted cash and cash equivalents $ 217.6 $ 51.6

At June 30, 2024, we had $1,471.9 of cash and cash equivalents and restricted cash and cash equivalents, compared to $1,102.0 at March 31, 2024.

At September 30, 2024, we had $1,319.6 of cash and cash equivalents and restricted cash and cash equivalents, compared to $1,102.0 at March 31, 2024.

The increase was primarily due to Net cash provided by financing activities, primarily related to proceeds from the issuance of our 2029 Notes and 2034 Notes (refer to Note 9 - Debt ).

This increase was partially offset by the decrease in (i) Net cash used in operating activities, which was due primarily to investments in software development and licenses, partially offset by sales of our products and (ii) Net cash used in investing activities which was due primarily to the purchase of fixed assets and our immaterial investments.

This increase was partially offset by the decrease in (i) Net cash used in operating activities, which was due primarily to investments in software

development and licenses, partially offset by sales of our products and (ii) Net cash used in investing activities which was due primarily to the purchase of fixed assets and our immaterial investments.

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

1 unchanged sentence

In fiscal year 2025, we anticipate capital expenditures to be approximately $150.0.

During the three months ended June 30, 2024, capital expenditures were $35.1.

During the six months ended September 30, 2024, capital expenditures were $71.9.

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, 2024 and 2023, 38.7% and 37.4%, respectively, of our net revenue was earned outside the United States.

For the three months ended September 30, 2024 and 2023, 39.8% and 38.8%, 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.

6 unchanged sentences

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