TAKE TWO INTERACTIVE SOFTWARE INC [TTWO] Filings

10-Q 1 ttwo-20230930.htm 10-Q ttwo-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .

Commission file number 001-34003

TAKE-TWO INTERACTIVE SOFTWARE, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		51-0350842
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
110 West 44th Street		10036
New York	New York	(Zip Code)
(Address of principal executive offices)

Registrant's Telephone Number, Including Area Code: (646) 536-2842

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	TTWO	NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of October 27, 2023, there were 170,067,620 shares of the Registrant's Common Stock outstanding, net of treasury stock.

Table of Contents

INDEX


PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Loss	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Equity	6
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	42
PART II.	OTHER INFORMATION	43
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
	Signatures	45

(All other items in this report are inapplicable)

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)


	September 30, 2023		March 31, 2023
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	756.8	$	827.4
Short-term investments	45.1		187.0
Restricted cash and cash equivalents	424.4		307.6
Accounts receivable, net of allowances of $1.2 and $1.3 at September 30, 2023 and March 31, 2023, respectively	814.5		763.2
Software development costs and licenses	94.5		65.9
Contract assets	82.5		79.9
Prepaid expenses and other	319.0		277.1
Total current assets	2,536.8		2,508.1
Fixed assets, net	392.0		402.8
Right-of-use assets	312.8		282.7
Software development costs and licenses, net of current portion	1,270.7		1,072.2
Goodwill	6,600.3		6,767.1
Other intangibles, net	3,776.3		4,453.2
Deferred tax assets	12.3		44.8
Long-term restricted cash and cash equivalents	105.0		99.6
Other assets	201.2		231.6
Total assets	$	15,207.4	$	15,862.1
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	131.8	$	140.1
Accrued expenses and other current liabilities	1,316.2		1,225.7
Deferred revenue	1,117.5		1,078.8
Lease liabilities	61.5		60.2
Short-term debt, net	373.1		1,346.8
Total current liabilities	3,000.1		3,851.6
Long-term debt, net	2,707.1		1,733.0
Non-current deferred revenue	60.6		35.5
Non-current lease liabilities	373.0		347.0
Non-current software development royalties	99.6		110.2
Deferred tax liabilities, net	278.5		534.0
Other long-term liabilities	258.4		208.3
Total liabilities	$	6,777.3	$	6,819.6
Commitments and contingencies (See Note 11)
Stockholders' equity:
Preferred stock, $0.01 par value, 5.0 shares authorized; no shares issued and outstanding at September 30, 2023 and March 31, 2023	—		—
Common stock, $0.01 par value, 300.0 and 300.0 shares authorized; 193.7 and 192.6 shares issued and 170.0 and 168.9 outstanding at September 30, 2023 and March 31, 2023, respectively	1.9		1.9
Additional paid-in capital	9,183.2		9,010.2
Treasury stock, at cost; 23.7 and 23.7 common shares at September 30, 2023 and March 31, 2023, respectively	(1,020.6)		(1,020.6)
Retained earnings	414.7		1,164.3
Accumulated other comprehensive loss	(149.1)		(113.3)
Total stockholders' equity	$	8,430.1	$	9,042.5
Total liabilities and stockholders' equity	$	15,207.4	$	15,862.1

See accompanying Notes.

Table of Contents

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in millions, except per share amounts)


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Net revenue:
Game	$	1,128.6	$	1,218.8	$	2,224.7	$	2,238.0
Advertising	170.6		174.7		359.2		257.9
Total net revenue	1,299.2		1,393.5		2,583.9		2,495.9
Cost of revenue	883.8		713.9		1,489.3		1,149.7
Gross profit	415.4		679.6		1,094.6		1,346.2
Selling and marketing	334.6		444.4		735.5		716.4
Research and development	234.3		243.2		478.3		417.0
General and administrative	179.5		214.6		377.7		451.7
Depreciation and amortization	45.3		29.9		85.7		51.0
Goodwill impairment	165.4		—		165.4		—
Total operating expenses	959.1		932.1		1,842.6		1,636.1
Loss from operations	(543.7)		(252.5)		(748.0)		(289.9)
Interest and other, net	(31.1)		(50.5)		(56.5)		(79.8)
(Loss) gain on fair value adjustments, net	(2.2)		1.9		(1.4)		(37.7)
Loss before income taxes	(577.0)		(301.1)		(805.9)		(407.4)
Benefit from income taxes	33.4		44.1		56.3		46.4
Net loss	$	(543.6)	$	(257.0)	$	(749.6)	$	(361.0)
Loss per share:
Basic and diluted loss per share	$	(3.20)	$	(1.54)	$	(4.42)	$	(2.38)

See accompanying Notes.

Table of Contents

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

(in millions)


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Net loss	$	(543.6)	$	(257.0)	$	(749.6)	$	(361.0)
Other comprehensive income (loss)
Foreign currency translation adjustment	(63.1)		(116.3)		$	(37.1)	(179.1)








Change in fair value of available for sale securities	0.4		0.5		$	1.3	0.1
Other comprehensive loss	(62.7)		(115.8)		$	(35.8)	(179.0)
Comprehensive loss	$	(606.3)	$	(372.8)	$	(785.4)	$	(540.0)

See accompanying Notes.

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)


	Six Months Ended September 30,
	2023		2022
Operating activities:
Net loss	$	(749.6)	$	(361.0)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization and impairment of software development costs and licenses	108.1		81.7
Stock-based compensation	169.1		151.8
Noncash lease expense	32.7		23.3
Amortization and impairment of intangibles	676.8		438.2
Depreciation	67.9		38.9
Goodwill impairment	165.4		—
Interest expense	71.4		60.0
Gain on debt extinguishment	(7.7)		—
Fair value adjustments	1.4		38.2
Other, net	28.8		(37.4)
Changes in assets and liabilities, net of effect from purchases of businesses:
Accounts receivable	(52.2)		15.2
Software development costs and licenses	(300.7)		(228.9)
Prepaid expenses and other current and other non-current assets	(44.5)		(44.7)
Deferred revenue	65.3		(57.4)
Accounts payable, accrued expenses and other liabilities	(162.4)		37.5
Net cash provided by operating activities	69.8		155.4
Investing activities:
Change in bank time deposits	12.5		124.4
Sale and maturities of available-for-sale securities	131.0		354.3

Purchases of fixed assets	(59.9)		(99.4)
Proceeds from sale of long-term investment	—		20.6
Purchases of long-term investments	(6.5)		(7.6)
Business acquisitions	(13.0)		(3,156.9)
Other	(3.8)		(26.0)
Net cash provided by (used in) investing activities	60.3		(2,790.6)
Financing activities:
Tax payment related to net share settlements on restricted stock awards	(57.1)		(77.7)
Issuance of common stock	18.8		11.4
Payment for settlement of convertible notes	—		(1,166.8)
Proceeds from issuance of debt	999.3		3,248.9
Cost of debt	(7.5)		(22.4)
Settlement of capped calls	—		140.1
Repayment of debt	(989.6)		—
Payment of contingent earn-out consideration	(35.0)		—
Net cash (used in) provided by financing activities	(71.1)		2,133.5
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash and cash equivalents	(7.4)		(36.2)
Net change in cash, cash equivalents, and restricted cash and cash equivalents	51.6		(537.9)
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of year (1)	1,234.6		2,195.3
Cash, cash equivalents, and restricted cash and cash equivalents, end of period (1)	$	1,286.2	$	1,657.4

(1) Cash, cash equivalents and restricted cash and cash equivalents shown on our Condensed Consolidated Statements of Cash Flow includes amounts in the Cash and cash equivalents, Restricted cash and cash equivalents, and Long-term restricted cash and cash equivalents on our Condensed Consolidated Balance Sheet.

See accompanying Notes.

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(in millions)


	Three Months Ended September 30, 2023

	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholder's Equity
	Shares	Amount				Shares	Amount

Balance, June 30, 2023	193.5	$	1.9	$	9,087.0	(23.7)	$	(1,020.6)	$	958.3	$	(86.4)	$	8,940.2
Net loss	—	—		—		—	—		(543.6)		—		(543.6)
Change in cumulative foreign currency translation adjustment	—	—		—		—	—		—		(63.1)		(63.1)
Net unrealized gain on available-for-sale securities, net of taxes	—	—		—		—	—		—		0.4		0.4
Stock-based compensation	—	—		112.0		—	—		—		—		112.0

Issuance of restricted stock, net of forfeitures and cancellations	0.3	—		—		—	—		—		—		—

Net share settlement of restricted stock awards	(0.1)	—		(15.8)		—	—		—		—		(15.8)
Balance, September 30, 2023	193.7	$	1.9	$	9,183.2	(23.7)	$	(1,020.6)	$	414.7	$	(149.1)	$	8,430.1


	Three Months Ended September 30, 2022

	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholder's Equity
	Shares	Amount				Shares	Amount

Balance, June 30, 2022	189.9	$	1.9	$	8,616.5	(23.7)	$	(1,020.6)	$	2,185.0	$	(120.5)	$	9,662.3
Net loss	—	—		—		—	—		(257.0)		—		(257.0)
Change in cumulative foreign currency translation adjustment	—	—		—		—	—		—		(116.3)		(116.3)
Net unrealized gain on available-for-sale securities, net of taxes	—	—		—		—	—		—		0.5		0.5
Stock-based compensation	—	—		125.0		—	—		—		—		125.0
Issuance of restricted stock, net of forfeitures and cancellations	0.6	—		—		—	—		—		—		—
Exercise of stock options	0.9	—		42.8		—	—		—		—		42.8
Net share settlement of restricted stock awards	(0.2)	—		(23.8)		—	—		—		—		(23.8)
Balance, September 30, 2022	191.2	$	1.9	$	8,760.5	(23.7)	$	(1,020.6)	$	1,928.0	$	(236.3)	$	9,433.5

See accompanying Notes.


	Six Months Ended September 30, 2023
	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Shares	Amount				Shares	Amount

Balance, March 31, 2023	192.6	$	1.9	$	9,010.2	(23.7)	$	(1,020.6)	$	1,164.3	$	(113.3)	$	9,042.5
Net loss	—	—		—		—	—		(749.6)		—		(749.6)
Change in cumulative foreign currency translation adjustment	—	—		—		—	—		—		(37.1)		(37.1)
Net unrealized gain on available-for-sale securities, net of taxes	—	—		—		—	—		—		1.3		1.3
Stock-based compensation	—	—		211.4		—	—		—		—		211.4
Issuance of restricted stock, net of forfeitures and cancellations	1.3	—		—		—	—		—		—		—
Exercise of stock options	—	—		0.2		—	—		—		—		0.2
Net share settlement of restricted stock awards	(0.4)	—		(57.1)		—	—		—		—		(57.1)
Employee share purchase plan settlement	0.2	—		18.5		—	—		—		—		18.5
Balance, September 30, 2023	193.7	$	1.9	$	9,183.2	(23.7)	$	(1,020.6)	$	414.7	$	(149.1)	$	8,430.1


	Six Months Ended September 30, 2022
	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Shares	Amount				Shares	Amount

Balance, March 31, 2022	139.0	$	1.4	$	2,597.2	(23.7)	$	(1,020.6)	$	2,289.0	$	(57.3)	$	3,809.7
Net loss	—	—		—		—	—		(361.0)		—		(361.0)
Change in cumulative foreign currency translation adjustment	—	—		—		—	—		—		(179.1)		(179.1)
Net unrealized gain on available-for-sale securities, net of taxes	—	—		—		—	—		—		0.1		0.1
Stock-based compensation	—	—		186.3		—	—		—		—		186.3
Issuance of restricted stock, net of forfeitures and cancellations	1.8	—		—		—	—		—		—		—
Exercise of stock options	0.9	—		42.8		—	—		—		—		42.8
Net share settlement of restricted stock awards	(0.6)	—		(77.7)		—	—		—		—		(77.7)
Employee share purchase plan settlement	0.1	—		11.4		—	—		—		—		11.4
Issuance of shares related to Zynga Acquisition	46.3	0.5		5,377.2		—	—		—		—		5,377.7
Stock-based compensation assumed in Zynga Acquisition	—	—		143.6		—	—		—		—		143.6
Issuance of shares for conversion of Convertible Notes	3.7	$	—	$	479.7	—	$	—	$	—	$	—	$	479.7
Balance, September 30, 2022	191.2	$	1.9	$	8,760.5	(23.7)	$	(1,020.6)	$	1,928.0	$	(236.3)	$	9,433.5

See accompanying Notes.

Table of Contents

TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in millions, except per share amounts)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Take-Two Interactive Software, Inc. (the "Company," "we," "us," or similar pronouns) was incorporated in the state of Delaware in 1993. We are a leading developer, publisher, and marketer of interactive entertainment for consumers around the globe. We develop and publish products principally through Rockstar Games, 2K, Private Division, and Zynga. Our products are designed for console gaming systems, PC, and mobile, including smartphones and tablets. We deliver our products through physical retail, digital download, online platforms, and cloud streaming services.

Acquisition of Zynga

On May 23, 2022, we completed our acquisition of 100% of the issued and outstanding shares of Zynga Inc. ("Zynga"), a leading developer of mobile games (the "Zynga Acquisition"). Refer to Note 13 - Acquisitions for additional information.

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements are unaudited and include the accounts of the Company and its wholly-owned subsidiaries and, in our opinion, reflect all normal and recurring adjustments necessary for the fair presentation of our financial position, results of operations, and cash flows. Interim results may not be indicative of the results that may be expected for the full fiscal year. All intercompany accounts and transactions have been eliminated in consolidation. The preparation of these Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in these Condensed Consolidated Financial Statements and accompanying notes. As permitted under U.S. GAAP, interim accounting for certain expenses, including income taxes, is based on full year assumptions when appropriate. Actual results could differ materially from those estimates, which may affect economic conditions in a number of different ways and result in uncertainty and risk.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"), although we believe that the disclosures are adequate to make the information presented not misleading. These Condensed Consolidated Financial Statements and accompanying notes should be read in conjunction with our annual Consolidated Financial Statements and the notes thereto, included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

Certain immaterial reclassifications have been made to prior period amounts to conform to the current period presentation.

Recent Accounting Pronouncements

There were no new accounting pronouncements issued or effective as of September 30, 2023, that had, or are expected to have, a material impact on our Condensed Consolidated Financial Statements.

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

Timing of recognition

Net revenue recognized at a point in time is primarily comprised of the portion of revenue from software products that is recognized when the customer takes control of the product (i.e. upon delivery of the software product).

Net revenue recognized over time is primarily comprised of revenue from our software products that include game related services, separate virtual currency transactions, and in-game purchases, which are recognized over an estimated service period. Over time net revenue includes in-game advertising.

Net revenue by timing of recognition was as follows:


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Net revenue recognized:
Over time	$	1,006.6	$	1,116.4	$	2,086.4	$	1,923.9
Point in time	292.6		277.1		497.5		572.0
Total net revenue	$	1,299.2	$	1,393.5	$	2,583.9	$	2,495.9

Content

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.

Full game and other revenue primarily includes the initial sale of full game software products, which may include offline and/or significant game related services.

Net revenue by content was as follows:


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Net revenue recognized:
Recurrent consumer spending	$	1,000.4	$	1,101.8	$	2,068.8	$	1,927.4
Full game and other	298.8		291.7		515.1		568.5
Total net revenue	$	1,299.2	$	1,393.5	$	2,583.9	$	2,495.9

Geography

We attribute net revenue to geographic regions based on software product destination. Net revenue by geographic region was as follows:


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Net revenue recognized:
United States	$	795.6	$	842.9	$	1,599.5	$	1,525.8
International	503.6		550.6		984.4		970.1
Total net revenue	$	1,299.2	$	1,393.5	$	2,583.9	$	2,495.9

Platform

Net revenue by platform was as follows:


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Net revenue recognized:
Mobile	$	646.2	$	730.1	$	1,326.2	$	1,099.7
Console	546.7		551.9		1,051.0		1,159.1
PC and other	106.3		111.5		206.7		237.1
Total net revenue	$	1,299.2	$	1,393.5	$	2,583.9	$	2,495.9

Distribution Channel

Our products are delivered through digital online services (digital download, online platforms, and cloud streaming) and physical retail and other. Net revenue by distribution channel was as follows:


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Net revenue recognized:
Digital online	$	1,239.7	$	1,319.2	$	2,479.7	$	2,357.0
Physical retail and other	59.5		74.3		104.2		138.9
Total net revenue	$	1,299.2	$	1,393.5	$	2,583.9	$	2,495.9

Deferred Revenue

We record deferred revenue when payments are due or received in advance of the fulfillment of our associated performance obligations. The balance of deferred revenue, including current and non-current balances as of September 30, 2023 and March 31, 2023 were $1,178.1 and $1,114.3, respectively. For the six months ended September 30, 2023, the additions to our deferred revenue balance were due primarily to cash payments received or due in advance of satisfying our performance obligations, while the reductions to our deferred revenue balance were due primarily to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

During the three months ended September 30, 2023 and 2022, $314.3 and $259.3, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the respective period. During the six months ended September 30, 2023 and 2022, $838.2 and $698.9, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the respective period. As of September 30, 2023, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is $1,327.2, which includes our deferred revenue balances and amounts to be invoiced and recognized as revenue in future periods. We expect to recognize approximately $1,232.0 of this balance as revenue over the next 12 months, and the remainder thereafter. This balance does not include an estimate for variable consideration arising from sales-based royalty license revenue in excess of the contractual minimum guarantee.

As of September 30, 2023 and March 31, 2023, our contract asset balances were $82.5 and $79.9, respectively.

3. MANAGEMENT AGREEMENT

In November 2017, we entered into a management agreement (the "2017 Management Agreement") with ZelnickMedia Corporation ("ZelnickMedia") that replaced our previous agreement with ZelnickMedia and pursuant to which ZelnickMedia was to provide financial and management consulting services to the Company through March 31, 2024. The 2017 Management Agreement became effective January 1, 2018. As part of the 2017 Management Agreement, Strauss Zelnick, the President of ZelnickMedia, continued to serve as Executive Chairman and Chief Executive Officer of the Company, and Karl Slatoff, a partner of ZelnickMedia, continued to serve as President of the Company. The 2017 Management Agreement provided for an annual management fee of $3.1 over the term of the agreement and a maximum annual bonus opportunity of $7.4 over the term of the agreement, based on the Company achieving certain performance thresholds.

In May 2022, we entered into a new management agreement (the "2022 Management Agreement") with ZelnickMedia that replaced the 2017 Management Agreement and pursuant to which ZelnickMedia will continue to provide financial and management consulting services to the Company through March 31, 2029. The 2022 Management Agreement became effective on May 23, 2022, when our acquisition of Zynga closed (refer to Note 13 - Acquisitions). On May 21, 2022, ZelnickMedia assigned substantially all of its rights and obligations and other liabilities under the 2022 Management Agreement to ZMC Advisors, L.P. ("ZMC Advisors"). References to "ZMC" herein shall mean either ZelnickMedia or ZMC Advisors, as appropriate. As part of the 2022 Management Agreement, Strauss Zelnick continues to serve as Executive Chairman and Chief Executive Officer of the Company, and Karl Slatoff continues to serve as President of the Company. The 2022 Management Agreement provides for an annual management fee of $3.3 over the term of the agreement and a maximum annual bonus opportunity of $13.2 over the term of the agreement, based on the Company achieving certain performance thresholds. In connection with the 2022 Management Agreement, we have and expect to grant time-based and performance-based restricted units to ZMC.

In consideration for ZMC's services, we recorded consulting expense in General and administrative expenses on our Condensed Consolidated Statements of Operations of $2.4 and $1.2 during the three months ended September 30, 2023 and 2022, respectively, and $5.2 and $3.9 during the six months ended September 30, 2023 and 2022, respectively. We recorded stock-based compensation expense for restricted stock units granted to ZMC, which is also included in General and

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administrative expenses, of $13.9 and $13.0 during the three months ended September 30, 2023 and 2022, respectively, and $25.1 and $21.5 during the six months ended September 30, 2023 and 2022, respectively.

In connection with the 2022 Management Agreement and 2017 Management Agreement, we have granted restricted stock units (in thousands) to ZMC as follows:


	Six Months Ended September 30,
	2023	2022
Time-based	97	192
Market-based(1)	295	510
Performance-based(1)
IP	—	18
RCS	98	153
Total Performance-based	98	171
Total Restricted Stock Units	490	873

(1) Represents the maximum of shares eligible to vest

Time-based restricted stock units granted pursuant to the 2022 Management Agreement in fiscal year 2024 will vest on June 1, 2024, June 1, 2025, and June 1, 2026, and those granted in fiscal year 2023, partially vested on June 1, 2023 and will also vest June 1, 2024, and June 1, 2025. Time-based restricted stock units granted in fiscal year 2023 pursuant to the 2017 Management Agreement will vest on April 13, 2024.

Market-based restricted stock units granted pursuant to the 2022 Management Agreement in fiscal year 2024 are eligible to vest on June 1, 2026, and those granted in fiscal year 2023 are eligible to vest on June 1, 2024 and June 1, 2025. Market-based restricted stock units granted in fiscal year 2023 pursuant to the 2017 Management Agreement are eligible to vest on April 13, 2024. Market-based restricted stock units are eligible to vest based on the Company's Total Shareholder Return (as defined in the relevant grant agreement) relative to the Total Shareholder Return (as defined in the relevant grant agreement) of the companies that constitute either the NASDAQ Composite Index under the 2017 Management Agreement or the NASDAQ 100 index under the 2022 Management Agreement (as defined in the relevant grant agreement) as of the grant date measured over a two-year period or three-year period, as applicable. To earn the target number of market-based restricted stock units (which represents 50% of the number of the market-based restricted stock units set forth in the table above), the Company must perform at the 50th percentile, with the maximum number of market-based restricted stock units earned if the Company performs at the 75th percentile.

Performance-based restricted stock units granted pursuant to the 2022 Management Agreement in fiscal year 2024 are eligible to vest on June 1, 2026, and those granted in fiscal year 2023 are eligible to vest on June 1, 2024 and June 1, 2025. Performance-based restricted stock units granted in fiscal year 2023 pursuant to the 2017 Management Agreement are eligible to vest on April 13, 2024. The performance-based restricted stock units, of which certain are tied to "IP" and "RCS" (as defined in the relevant grant agreement), are eligible to vest based on the Company's achievement of certain performance metrics (as defined in the relevant grant agreement) of either individual product releases of "IP" measured over a two-year period or "RCS" measured over a three-year period. The target number of performance-based restricted stock units that may be earned pursuant to these grants is equal to 50% of the grant amounts set forth in the above table (the numbers in the table represent the maximum number of performance-based restricted stock units that may be earned). At the end of each reporting period, we assess the probability of each performance metric and upon determination that certain thresholds are probable, we record expense for the unvested portion of the shares of performance-based restricted stock units.

The unvested portions of time-based, market-based and performance-based restricted stock units held by ZMC were 1.3 and 1.1 as of September 30, 2023 and March 31, 2023, respectively. During the six months ended September 30, 2023, 0.2 restricted stock units previously granted to ZMC vested, and 0.0 restricted stock units were forfeited by ZMC.

4. FAIR VALUE MEASUREMENTS

Recurring fair value measurements

The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, prepaid expenses and other, accounts payable, and accrued expenses and other current liabilities, approximate fair value because of their short maturities.

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We follow a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of "observable inputs" and minimize the use of "unobservable inputs." The three levels of inputs used to measure fair value are as follows:

•Level 1—Quoted prices in active markets for identical assets or liabilities.

•Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data.

•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

The table below segregates all assets and liabilities that are measured at fair value on a recurring basis (which is measured at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.


	September 30, 2023
	Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)		Total
Assets:
Cash and cash equivalents:
Money market funds	$	264.2	$	—	$	—	$	264.2
Bank-time deposits	58.8		—		—		58.8



Short-term investments:
Corporate bonds	—		15.8		—		15.8
Bank-time deposits	29.3		—		—		29.3



Restricted cash and cash equivalents:
Money market funds	423.9		—		—		423.9
Bank-time deposits	0.5		—		—		0.5
Restricted cash and cash equivalents, long term:
Money market funds	105.0		—		—		105.0
Other assets:
Foreign currency forward contracts	—		0.3		—		0.3
Private equity	—		—		29.0		29.0
Total financial assets	$	881.7	$	16.1	$	29.0	$	926.8

Liabilities:
Accrued expenses and other current liabilities:

Contingent earn-out consideration	$	—	$	—	$	16.5	$	16.5
Other-long term liabilities:
Contingent earn-out consideration	—		—		19.2		19.2
Short-term debt, net:
Convertible notes	—		23.1		—		23.1
Long-term debt, net:
Convertible notes	—		24.2		—		24.2
Total financial liabilities	$	—	$	47.3	$	35.7	$	83.0

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	March 31, 2023
	Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)		Total
Assets:
Cash and cash equivalents:
Money market funds	$	368.0	$	—	$	—	$	368.0
Bank-time deposits	145.8		—		—		145.8
Short-term investments:
Corporate bonds	—		145.2		—		145.2
Bank-time deposits	41.8		—		—		41.8
Restricted cash and cash equivalents:
Money market funds	306.1		—		—		306.1
Bank-time deposits	0.5		—		—		0.5
Restricted cash and cash equivalents, long term:
Money market funds	99.6		—		—		99.6
Other assets:
Private equity	—		—		26.5		26.5
Total financial assets	$	961.8	$	145.2	$	26.5	$	1,133.5

Liabilities:
Accrued expenses and other current liabilities:
Foreign currency forward contracts	$	—	$	2.5	$	—	$	2.5
Contingent earn-out consideration	—		—		66.6		66.6
Other long-term liabilities:
Contingent earn-out consideration	—		—		27.3		27.3
Long-term debt, net:
Convertible notes	—		44.1		—		44.1
Total financial liabilities	$	—	$	46.6	$	93.9	$	140.5

We did not have any transfers between Level 1 and Level 2 fair value measurements, nor did we have any transfers into or out of Level 3 during the six months ended September 30, 2023.

In connection with the Nordeus acquisition we completed on June 1, 2021, our consideration included a contingent earn-out consideration arrangement that requires us to pay an aggregate of $153.0 in cash if Nordeus achieves certain performance measures over the 12- and 24-month periods following the closing. We recorded $61.1 as the initial fair value of contingent earn-out consideration. The fair value was estimated using a Monte-Carlo simulation model, which included significant unobservable Level 3 inputs, such as projected financial performance over the earn-out period along with estimates for market volatility and the discount rate applicable to potential cash payouts.

During the six months ended September 30, 2023, we recognized General and administrative expense of $4.5 within our Condensed Consolidated Statements of Operations for the increase in fair value of the contingent earn-out consideration liability associated with the Nordeus acquisition, which increased the fair value of the contingent consideration liability related to the second earn-out period to $69.5. During the three months ended September 30, 2023, we paid $69.5 related to these earn-out consideration arrangements.

In connection with our acquisition of Popcore GmbH ("Popcore") we completed on November 16, 2022, our consideration included a contingent earn-out consideration arrangement that requires us to pay an aggregate of $105.0 in cash if Popcore achieves certain performance measures over each of the three calendar years following the closing. We recorded $23.3 as the initial fair value of contingent earn-out consideration. The fair value was estimated using a Monte-Carlo simulation model, which included significant unobservable Level 3 inputs, such as projected financial performance over the earn-out period along with estimates for market volatility and the discount rate applicable to potential cash payouts.

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During the three and six months ended September 30, 2023 we recognized General and administrative expense of $(2.8) and $6.8, respectively, within our Condensed Consolidated Statements of Operations for the change in fair value of the contingent earn-out consideration liability associated with the Popcore acquisition. The fair value of the contingent consideration liability related to the earn-out period is $32.4, with $15.2 and $17.2 being recorded within Accrued expenses and other current liabilities and Other long-term liabilities, respectively, in our Condensed Consolidated Balance Sheet as of September 30, 2023. The change resulted from a higher probability of Popcore achieving certain performance measures in all three 12-month periods.

The remaining contingent earn-out consideration liability of $1.3 and $2.0 recorded within Accrued expenses and other current liabilities and Other long-term liabilities, respectively, in our Condensed Consolidated Balance Sheet as of September 30, 2023 relates to immaterial earn-out arrangements from Zynga's historical acquisitions. For these acquisitions, we estimated the acquisition date fair value of the contingent consideration obligations using a discounted cash flow model.

Nonrecurring fair value measurements

We hold equity investments in certain unconsolidated entities without a readily determinable fair value. These strategic investments represent less than a 20% ownership interest in each of the privately-held affiliates, and we do not maintain significant influence over or control of the entities. We have elected the practical expedient in Topic 321, Investments-Equity Securities, to measure these investments at cost less any impairment, adjusted for observable price changes, if any. Based on these considerations, we estimate that the carrying value of the acquired shares represents the fair value of the investment. At September 30, 2023, and March 31, 2023, we held $8.0 and $8.0, respectively, of such investments in Other assets within our Condensed Consolidated Balance Sheet.

5. SHORT-TERM INVESTMENTS

Our Short-term investments consisted of the following:


	September 30, 2023
			Gross Unrealized
	Cost or Amortized Cost		Gains		Losses		Fair Value
Short-term investments
Bank time deposits	$	29.3	$	—	$	—	$	29.3
Available-for-sale securities:
Corporate bonds	15.9		—		(0.1)		15.8



Total Short-term investments	$	45.2	$	—	$	(0.1)	$	45.1


	March 31, 2023
			Gross Unrealized
	Cost or Amortized Cost		Gains		Losses		Fair Value
Short-term investments
Bank time deposits	$	41.8	$	—	$	—	$	41.8
Available-for-sale securities:
Corporate bonds	147.2		—		(2.0)		145.2



Total Short-term investments	$	189.0	$	—	$	(2.0)	$	187.0

The following table summarizes the contracted maturities of our short-term investments at September 30, 2023:


	September 30, 2023
	Amortized Cost		Fair Value
Short-term investments
Due in 1 year or less	$	45.2	$	45.1


Total Short-term investments	$	45.2	$	45.1

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6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Our risk management strategy includes the use of derivative financial instruments to reduce the volatility associated with changes in foreign currency exchange rates on earnings, cash flows, and certain balance sheet amounts. We do not enter into derivative financial contracts for speculative or trading purposes. We recognize derivative instruments as either assets or liabilities on our Consolidated Balance Sheets, and we measure those instruments at fair value. We classify cash flows from derivative transactions as cash flows from operating activities in our Consolidated Statements of Cash Flows.

Foreign currency forward contracts

The following table shows the gross notional amounts of foreign currency forward contracts:


	September 30, 2023		March 31, 2023
Forward contracts to sell foreign currencies	$	292.8	$	224.3
Forward contracts to purchase foreign currencies	30.3		51.2

For the three months ended September 30, 2023 and 2022, we recorded a gain of $3.6 and a loss of $4.6, respectively, and for the six months ended September 30, 2023 and 2022 we recorded a gain of $7.4 and a loss of $2.6, respectively, related to foreign currency forward contracts in Interest and other, net on our Condensed Consolidated Statements of Operations. Our foreign currency exchange forward contracts are not designated as hedging instruments under hedge accounting and are used to reduce the impact of foreign currency on certain balance sheet exposures. These instruments are generally short term in nature, with typical maturities of less than one year, and are subject to fluctuations in foreign exchange rates.

7. SOFTWARE DEVELOPMENT COSTS AND LICENSES

Details of our capitalized software development costs and licenses were as follows:


	September 30, 2023				March 31, 2023
	Current		Non-current		Current		Non-current
Software development costs, internally developed	$	74.7	$	1,032.7	$	47.4	$	882.0
Software development costs, externally developed	0.1		227.7		2.2		169.7
Licenses	19.7		10.3		16.3		20.5
Software development costs and licenses	$	94.5	$	1,270.7	$	65.9	$	1,072.2

During the three months ended September 30, 2023 and 2022, we recorded $3.5 and $6.4, respectively, of software development impairment charges (a component of Cost of revenue). The impairment charges recorded during the three months ended September 30, 2023 and 2022 related to unamortized capitalized costs for the development of titles, which were anticipated to exceed the net realizable value of the asset at the time they were impaired.

During the six months ended September 30, 2023 and 2022, we recorded $21.7 and $23.3, respectively, of software development impairment charges (a component of Cost of revenue). The impairment charges recorded during the six months ended September 30, 2023 related to unamortized capitalized costs for the development of titles, which were anticipated to exceed the net realizable value of the asset at the time they were impaired. The impairment charges recorded during the six months ended September 30, 2022 related to (i) a decision not to proceed with further development of certain interactive entertainment software and (ii) recognizing unamortized capitalized costs for the development of a title, which were anticipated to exceed the net realizable value of the asset at the time they were impaired.

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8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:


	September 30, 2023		March 31, 2023
Software development royalties	$	651.3	$	510.7
Compensation and benefits	190.3		177.5
Licenses	113.0		63.0
Marketing and promotions	94.1		132.7
Tax payable	71.9		33.0
Refund liability	53.8		52.4
Deferred acquisition payments	30.2