TAKE TWO INTERACTIVE SOFTWARE INC
For the period ended Jun 30, 2024. Filed Aug 9, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 9, 2024
TTWO$214.87+0.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-12-31; filed 2024-02-09.
0001628280-24-003951
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001628280-24-036273
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 159 previous paragraphs and 104 current paragraphs.
53 unchanged; 42 reworded; 9 added; 53 removed; 11 previous and 0 current paragraphs rearranged.
Tables are not compared: 10 previous and 7 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (9)
Current report
International Expansion
Current report
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: Huntersand Game of Thrones: Legends RPG.
Current report
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.
Current report
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.
Current report
Business reorganization
Current report
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).
Current report
Provision for income taxes
Current report
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 June 30, 2024. We will continue to evaluate the impact Pillar Two may have on our operations.
Current report
As of June 30, 2024, we had $3,650.0 of Senior Notes outstanding.
Removed paragraphs (53)
Previous report
Impairments
Previous report
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). Future changes in those key assumptions and estimates could result in additional impairments.
Previous report
Debt Transactions
Previous report
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.
Previous report
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").
Previous report
The Senior Notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations. We will pay interest on the 2024 Notes, 2026 Notes, and 2028 Notes semi-annually on March 28 and September 28 of each year, commencing September 28, 2022 for the 2024 Notes and September 28, 2023 for the 2026 Notes and 2028 Notes. We will pay interest on each of the 2025 Notes, 2027 Notes, and 2032 Notes semi-annually on April 14 and October 14 of each year, commencing October 14, 2022. The proceeds from the issuances of the Senior Notes were used to finance a portion of our acquisition of Zynga and repay certain of our debt.
Previous report
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 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.
Previous report
On June 22, 2022, we entered into an unsecured 364-Day Term Loan Credit Agreement ("Term Loan"). We fully drew down on the Term Loan on June 22, 2022 at approximately 3.60%. The proceeds were used to finance a portion of the repurchase of the Convertible Notes (refer to Note 9 - Debt). A portion of the proceeds from the 2026 Notes and 2028 Notes were used to fully repay the Term Loan on April 27, 2023.
Previous report
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.
Previous report
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 2Kfranchise.
Previous report
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 2Kfranchise, 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 2Kfranchise; $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.
Previous report
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 Farmvilleand WWE 2Kfranchises, 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 2Kfranchise, 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.
Previous report
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.
Previous report
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.
Previous report
Benefit from income taxes
Previous report
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.
Previous report
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 2Kfranchise, and (iv) $17.1 from our WWE 2Kfranchise.
Previous report
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 $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 2Kfranchise. 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.
Previous report
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 2Kfranchises. 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 2Kfranchise, 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.
Previous report
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. 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).
Previous report
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.
Previous report
Operating Expenses
Previous report
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.
Previous report
Selling and marketing
Previous report
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.
Previous report
Research and development
Previous report
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. 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 the prior year.
Previous report
General and administrative
Previous report
Depreciation and amortization
Previous report
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.
Previous report
Goodwill impairment
Previous report
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).
Previous report
Interest and other, net
Previous report
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. 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 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).
Previous report
Loss on fair value adjustments, net
Previous report
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).
Previous report
Benefit from Income Taxes
Previous report
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.
Previous report
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.
Previous report
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.
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Reworded paragraphs (42)
Previous wording
Our strategy is to be the most creative, innovative, and efficient company in the evolving interactive entertainment industry. With our diverse portfolio that spans all key platforms and numerous genres, we strive to create the highest quality, most engaging interactive entertainment franchises and captivate our global audience. Most of our intellectual property is internally owned and developed, which we believe best positions us financially and competitively. We have established a portfolio of proprietary software content for the major hardware and mobile platforms in a wide range of genres, including action, adventure, family/casual, hyper-casual, role-playing, shooter, social casino, sports, and strategy, which we distribute worldwide. We believe that our commitment to creativity and innovation is a distinguishing strength, enabling us to differentiate our products in the marketplace by combining advanced technologies and features with compelling storylines and characters that provide unique gameplay experiences for consumers. We have created, acquired, or licensed a group of highly recognizable brands to match the broad consumer demographics that we serve, ranging from adults to children and game enthusiasts to casual gamers. Another cornerstone of our strategy is to support the success of our products in the marketplace through innovative marketing programs and global distribution on platforms and through channels that are relevant to our target audience.
Current wording
Our strategy is to be the most creative, innovative, and efficient company in the evolving interactive entertainment industry. With our diverse portfolio that spans all key platforms and numerous genres, we strive to create the highest quality, most engaging interactive entertainment franchises that captivate our global audience. Most of our intellectual property is internally owned and developed, which we believe best positions us financially and competitively. 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. Another cornerstone of our strategy is to support the success of our products in the marketplace through innovative marketing programs and global distribution on platforms and through channels that are relevant to our target audience.
Previous wording
Rockstar Games. Rockstar Games' strategy is to develop a limited number of titles that are known for their quality and longevity in the market for which they can create sequels and incremental revenue opportunities through virtual currency, add-on content, and in-game purchases. Software titles published by our Rockstar Games label are primarily internally developed. We expect Rockstar Games, our wholly-owned publisher of the Grand Theft Auto, LA Noire, Max Payne, Midnight Club, Red Dead Redemption, and other popular franchises, to continue to be a leader in the action/adventure product category and to create groundbreaking entertainment. We believe that Rockstar Games has established a uniquely original, popular, cultural phenomenon with its Grand Theft Auto series, which is the interactive entertainment industry's most iconic and critically acclaimed brand and has sold-in over 415 units worldwide. 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 VIin 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 continues to expand on its established series by developing sequels, offering downloadable episodes, and providing additional content. Rockstar Games' titles are published across all key platforms, including mobile.
Current wording
Rockstar Games. Rockstar Games' strategy is to develop a limited number of titles that are known for their quality and longevity in the market for which they can create sequels and incremental revenue opportunities through virtual currency, add-on content, and in-game purchases. Software titles published by our Rockstar Games label are primarily internally developed. We expect Rockstar Games, our wholly-owned publisher of the Grand Theft Auto, LA Noire, Max Payne, Midnight Club, Red Dead Redemption, and other popular franchises, to continue to be a leader in the action/adventure product category and to create groundbreaking entertainment. We believe that Rockstar Games has established a uniquely original, popular, cultural phenomenon with its Grand Theft Auto series, which is the interactive entertainment industry's most iconic and critically acclaimed brand and has sold-in over 425 million units worldwide. Our most recent installment, Grand Theft Auto V, which was released in 2013, has sold-in over 200 million units worldwide and includes access to Grand Theft Auto Online. 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 VIin the Fall of calendar 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 million units worldwide to date. Rockstar Games continues to expand on its established series by developing sequels, offering downloadable episodes, and providing additional content. Rockstar Games' titles are published across all key platforms, including mobile.
Previous wording
2K. Our 2K label has published a variety of popular entertainment properties across all key platforms and across a range of genres including shooter, action, role-playing, strategy, sports, and family/casual entertainment. In recent years, 2K has expanded its offerings to include several new franchises that are expected to enhance and diversify its slate of games and provide opportunities for sequels and post-launch monetization. We expect 2K to continue to develop new, successful franchises in the future. 2K's internally owned and developed franchises include the critically acclaimed, multi-million unit selling BioShock, Mafia, Sid Meier's Civilization, and XCOM franchises. 2K also publishes externally developed franchises such as Borderlandsand Tiny Tina's Wonderlands. 2K's realistic sports simulation titles include our flagship NBA 2K series, which continues to be the top-ranked NBA basketball video game, the WWE 2K professional wrestling series, and PGA TOUR 2K. 2K also publishes mobile titles, including WWE SuperCard. We have expanded our relationship with the NBA through the NBA 2K League, a competitive eSports league jointly owned by us and the NBA.
Current wording
2K. Our 2K label has published a variety of popular entertainment properties across all key platforms and across a range of genres including shooter, action, role-playing, strategy, sports, and family/casual entertainment. In recent years, 2K has expanded its offerings to include several new franchises that are expected to enhance and diversify its slate of games and provide opportunities for sequels and additional content. 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 Borderlandsand Tiny Tina's Wonderlands franchises, which were added to its portfolio with 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.
Previous wording
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 Programand OlliOlli World. Private Division actively establishes relationships with new studios and has announced upcoming projects with a number of independent studios. Kerbal Space Program 2 was released for early access in fiscal year 2023. Private Division also previously released The Outer Worlds and Ancestors: The Humankind Odyssey.
Current wording
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 Programand OlliOlli World.
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Zynga. 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: 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.
Current wording
Zynga. 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: 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.
Previous wording
International Business. The global market for interactive entertainment continues to grow, and we seek to increase our presence internationally, particularly in Asia, the Middle East, and Latin America. We are continuing to execute on our growth initiatives in Asia, where our strategy is to build on our licensing relationships and also broaden the distribution of our existing products and expand our online gaming presence, especially in China and South Korea. 2K has secured a multi-year license from the NBA to develop an online version of our NBA simulation game in China, Taiwan, Hong Kong, and Macau. Our first such title, NBA 2K Online, a free-to-play NBA simulation game based on the console edition of NBA 2K, which was co-developed by 2K and Tencent, is the top online PC sports game in China with over 60 registered users. We have released two iterations of NBA 2K Onlineand continue to enhance the title with new features. We are also a direct publisher in Japan and South Korea. While we retain title to all intellectual property, in some regions, local publishers, under license agreements, are responsible for localization of software content, distribution, and marketing of the products in their respective local markets.
Current wording
The global market for interactive entertainment continues to grow, and we seek to increase our presence internationally, particularly in Asia, the Middle East, and Latin America. We are continuing to execute on our growth initiatives in Asia, where our strategy is to build on our licensing relationships and also broaden the distribution of our existing products and expand our online gaming presence, especially in China. 2K has secured a multi-year license from the NBA to develop an online version of our NBA simulation game in China, Taiwan, Hong Kong, and Macau. Our first such title, NBA 2K Online, a free-to-play NBA simulation game based on the console edition of NBA 2K, which was co-developed by 2K and Tencent, is the top online PC sports game in China with over 60 million registered users. We have released two iterations of NBA 2K Onlineand continue to enhance the title with new features. While we retain title to all intellectual property, in some regions, local publishers, under license agreements, are responsible for localization of software content, distribution, and marketing of the products in their respective local markets.
Previous wording
Product Release Schedule. Our financial results are affected by the timing of our product releases and the commercial success of those titles. 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 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 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.
Current wording
Product Release Schedule. Our financial results are affected by the timing of our product releases and the commercial success of our titles. Generally, a significant portion of our revenue has been derived from a few popular franchises, particularly around new releases within those franchises, some of which have annual or biennial releases. 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. The timing of our Grand Theft Auto product releases may affect our financial performance on a quarterly and annual basis.
Previous wording
The economic environment has affected our customers in the past and may do so in the future. Bankruptcies or consolidations of our large retail customers could seriously hurt our business, due to uncollectible accounts receivable and the concentration of purchasing power among the remaining large retailers. There has been increased consolidation in our industry, as larger, better capitalized competitors will be in a stronger position to withstand prolonged periods of economic downturn and sustain their business through the financial volatility.
Current wording
The economic environment has affected our customers in the past and may do so in the future. There has been increased consolidation in our industry, as larger, better capitalized competitors will be in a stronger position to withstand prolonged periods of economic downturn and sustain their business through the financial volatility. Also, bankruptcies or consolidations of our large retail customers could seriously hurt our business, due to uncollectible accounts receivable and the concentration of purchasing power among the remaining large retailers.
Previous wording
Hardware Platforms. 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 40.5% 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. We manage our product delivery on each current and future platform in a manner we believe to be most effective to maximize our revenue opportunities and achieve the desired return on our investments in product development. Accordingly, our strategy for these platforms is to focus our development efforts on a select number of the highest quality titles.
Current wording
Hardware Platforms. 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. The success of our business is dependent upon consumer acceptance of these platforms and the continued growth in the installed base of these platforms. When new hardware platforms are introduced, demand for interactive entertainment developed for older platforms typically declines, which may negatively affect our business during the market transition to the new consoles. The latest Sony and Microsoft consoles provide "backwards compatibility" (i.e., the ability to play games for the previous generation of consoles). The inclusion of such features on new consoles could mitigate the risk of such a decline. However, we cannot be certain how backwards compatibility will affect demand for our products. Further, events beyond our control may impact the availability of these new consoles, which may also affect demand. We manage our product delivery on each current and future platform in a manner we believe to be most effective to maximize our revenue opportunities and achieve the desired return on our investments in product development. Accordingly, our strategy for these platforms is to focus our development efforts on a select number of the highest quality titles.
Previous wording
Online Content and Digital Distribution. The interactive entertainment software industry is delivering a growing amount of content through digital online delivery methods. We provide a variety of online delivered products and offerings. Virtually all of our titles that are available through retailers as packaged goods products are also available through direct digital download (from 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 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.
Current wording
Online Content and Digital Distribution. 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. We expect online delivery of games and game offerings to continue to be the primary part of our business over the long term.
Previous wording
We also publish an expanding variety of titles for mobile, which are delivered to consumers through digital download, and are primarily distributed, marketed, and promoted through third parties, primarily Apple’s App Store and the Google Play Store. Virtual items for our mobile games are purchased through the payment processing systems of these platform providers. We generate a significant portion of our net revenue through the Apple and Google platforms and expect to continue to do so for the foreseeable future as we launch more games for mobile. Apple and Google generally have the discretion to set the amounts of their platform fees and change their platforms’ terms of service and other policies with respect to us or other developers at their sole discretion, and those changes may be unfavorable to us. These platform fees are recorded as cost of revenue as incurred. Further, as a result of the platform fees associated with online game sales, our mobile net revenue generally generates a lower gross margin percentage than our Console or PC revenue. Accordingly, the overall product mix between mobile and other game sales may affect our gross margin percentage. We are also starting to expand our direct-to-consumer efforts more meaningfully across our mobile portfolio to enhance profitability.
Current wording
A significant portion of our mobile titles are distributed, marketed, and promoted through third parties, primarily Apple’s App Store and the Google Play Store. Virtual items for our mobile games are purchased through the payment processing systems of these platform providers. We generate a significant portion of our net revenue through the Apple and Google platforms and expect to continue to do so for the foreseeable future. Apple and Google generally have the discretion to set the amounts of their platform fees and change their platforms’ terms of service and other policies with respect to us or other developers at their sole discretion, and those changes may be unfavorable to us. These platform fees are recorded as cost of revenue as incurred. Further, as a result of the platform fees associated with online game sales, our mobile net revenue generally generates a lower gross margin percentage than our Console or PC revenue. Accordingly, the overall product mix between mobile and other game sales may affect our gross margin percentage. We are also expanding our direct-to-consumer efforts more meaningfully across our mobile portfolio to enhance profitability.
Previous wording
Player acquisition costs. Principally for our mobile titles, we use advertising and other forms of player acquisition and retention to grow and retain our player audience. These expenditures, which are recorded within Sales and marketing in our Consolidated Statements of Operations, generally relate to the promotion of new game launches and ongoing performance-based programs to drive new player acquisition and lapsed player reactivation. Over time, the effectiveness or cost of these acquisition and retention-related programs may change, affecting our operating results.
Current wording
Player acquisition costs. Principally for our mobile titles, we use advertising and other forms of player acquisition and retention to grow and retain our player audience. These expenditures, which are recorded within Sales and marketing in our Condensed Consolidated Statements of Operations, generally relate to the promotion of new game launches and ongoing performance-based programs to drive new player acquisition and lapsed player reactivation. Over time, the effectiveness or cost of these acquisition and retention-related programs may change, affecting our operating results.
Previous wording
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 VIin 2025.
Current wording
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
Previous wording
Our most critical accounting policies, which are those that require significant judgment, include revenue recognition; price protection and allowances for returns; capitalization and recognition of software development costs and licenses; fair value estimates including valuation of goodwill, and intangible assets; valuation and recognition of stock-based compensation; and income taxes. In-depth descriptions of our other critical accounting policies and estimates can be found in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.
Current wording
Our most critical accounting policies, which are those that require significant judgment, include revenue recognition; capitalization and recognition of software development costs and licenses; fair value estimates including valuation of goodwill and intangible assets; valuation and recognition of stock-based compensation; and income taxes. In-depth descriptions of our other critical accounting policies and estimates can be found in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.
Previous wording
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!; Golf Rival; Words with Friends; Tiny Tina's Wonderlands, which released in March 2022; Toy Blast; our Sid Meier's Civilization franchise; Wizard of Oz Slots; Two Dots; The Quarry, which released in June 2022; and Harry Potter: Puzzles & Spells. These decreases were partially offset by an increase in Net Bookings from our Grand Theft Autoand Red Dead Redemption franchises, including our August 2023 release of Red Dead Redemptionand Undead Nightmare; Toon Blast!; LEGO 2K Drive, which released in May 2023; Match Factory!, which released in November 2023; and Top Troops, which released in October 2023.
Current wording
For the three months ended June 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; Toon Blast; 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 2Kfranchise, our hyper-casual mobile portfolio, LEGO 2K Drive, which released in May 2023; Empires & Puzzles, and Merge Dragons!.
Previous wording
(1) Includes $6.3 and $8.4 of stock-based compensation expense in 2023 and 2022, respectively, in software development costs and royalties.
Current wording
(1) Includes $2.9 and $6.7 of stock-based compensation expense in 2024 and 2023, respectively, in software development costs and royalties.
Previous wording
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 2Kfranchises.
Current wording
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 2Kfranchise, LEGO 2K Drive, which released in May 2023; and our PGA TOUR 2Kand 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 2Kfranchise.
Previous wording
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 $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 Autoand Red Dead Redemption franchises. These increases were partially offset by a decrease in net revenue in Marvel's Midnight Suns and our PGA TOUR 2K franchise.
Current wording
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. 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 2Kfranchise and LEGO 2K Drive.
Previous wording
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 2Kfranchise, 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 2Kand NBA 2Kfranchises. 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.
Current wording
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. 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 2Kand PGA TOUR 2Kfranchises. 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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
(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.
Current wording
(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. The change was due primarily to changes in fair value based on the observable price changes of our long-term investments.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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. Basic weighted average shares of 172.3 were 2.9 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. See Note 10 - Loss Per Share to our Condensed Consolidated Financial Statements for additional information.
Previous wording
Our primary cash requirements are to fund (i) the development, marketing, and manufacturing of our published products, (ii) working capital, (iii) capital expenditures, (iv) debt and interest payments, (v) tax payments, and (vi) acquisitions. We expect to rely on cash and cash equivalents as well as on short-term investments, funds provided by our operating activities, and our 2022 Credit Agreement to satisfy our working capital needs. Refer to Note 9 - Debt for additional discussion of our outstanding debt obligations.
Current wording
Our primary cash requirements are to fund (i) the development, manufacturing and marketing of our published products, (ii) working capital, (iii) capital expenditures, (iv) debt and interest payments, (v) tax payments, and (vi) acquisitions. We expect to rely on cash and cash equivalents as well as on short-term investments, funds provided by our operating activities, and our 2022 Credit Agreement to satisfy our working capital needs. Refer to Note 9 - Debt for additional discussion of our outstanding debt obligations.
Previous wording
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 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. Federal
Current wording
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. From time to time, we may make additional short-term investments depending on future market conditions and liquidity needs.
Previous wording
As of December 31, 2023, there were no borrowings under the 2022 Credit Agreement, and we had approximately $499.5 available for additional borrowings.
Current wording
As of June 30, 2024, there were no borrowings under the 2022 Credit Agreement, and we had approximately $747.8 available for additional borrowings.
Previous wording
The 2024 Convertible Notes and 2026 Convertible Notes mature on June 1, 2024, and December 15, 2026, respectively, unless earlier converted, redeemed, or repurchased in accordance with their terms, respectively, prior to the maturity date. Interest is payable semiannually on the 2024 Convertible Notes in arrears on March 1 and September 1 of each year. The 2026 Convertible Notes do not bear regular interest, and the principal amount does not accrete.
Current wording
The 2026 Convertible Notes mature on December 15, 2026, unless earlier converted, redeemed, or repurchased in accordance with their terms, prior to the maturity date. 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.
Previous wording
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 79.2% 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. We are monitoring the current global economic conditions, including credit markets and other factors as they relate to our customers in order to manage the risk of uncollectible accounts receivable.
Current wording
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. 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. We are monitoring the current global economic conditions, including credit markets and other factors as it relates to our customers in order to manage the risk of uncollectible accounts receivable.
Previous wording
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. These balances are dispersed across various locations around the world. We believe that such dispersion meets the business and liquidity needs of our foreign affiliates. In addition, we expect to have the ability to generate sufficient cash domestically to support ongoing operations for the foreseeable future.
Current wording
As of June 30, 2024, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $669.6. These balances are dispersed across various locations around the world. We believe that such dispersion meets the business and liquidity needs of our foreign affiliates. In addition, we expect to have the ability to generate sufficient cash domestically to support ongoing operations for the foreseeable future.
Previous wording
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.
Current wording
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. 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.
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Nine Months Ended December 31, 2023 Compared to December 31, 2022
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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.
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(1) Includes stock-based compensation expense, which was allocated as follows (in millions):
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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.
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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.
Previous report — wording carried elsewhere
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 related to the changes in unrecognized tax benefits from a lapse in statute, increased benefits from tax credits, offset by geographic mix of earnings.
Previous report — wording carried elsewhere
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.
Previous report — wording carried elsewhere
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.
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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 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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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.
Previous report — wording carried elsewhere
Net loss and loss per share