# TAKE TWO INTERACTIVE SOFTWARE INC (TTWO) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from TAKE TWO INTERACTIVE SOFTWARE INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/946581/000162828023019851/ttwo-20230331.htm
Accession: 0001628280-23-019851
Filing date: 2023-05-26
Report date: 2023-03-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TTWO/
All MD&A years: /company/TTWO/mda/
Previous year: /company/TTWO/mda/fy2022/ (FY 2022)
Next year: /company/TTWO/mda/fy2024/ (FY 2024)

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Our Business

    We are a leading developer, publisher, and marketer of interactive entertainment for consumers around the globe. We develop, operate, and publish products principally through Rockstar Games, 2K, Private Division, and Zynga. Our products are currently 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. Refer to Item 1 - Business for additional discussion.

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Zynga Acquisition and Related Debt Transactions

We acquired Zynga on May 23, 2022, for consideration having an acquisition date fair value of $9,521.8, consisting of $3,992.4 in cash, the issuance of 46.3 shares of our common stock, valued at $5,377.7, and $151.7 of replacement equity awards attributable to the pre-acquisition service period. Refer to Note 20 - Acquisitions of our Consolidated Financial Statements. Zynga is a leading developer of mobile games with a mission to connect the world through games.

Also, in connection with the Zynga Acquisition, we entered into several debt transactions (refer to Note 11 - Debt).

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, the 2025 Notes and the2027 Notes, the “Senior Notes”). The Senior Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee (the “Trustee”).

The 2024 Notes mature on March 28, 2024, and bear interest at an annual rate of 3.300%. The 2025 Notes mature on April 14, 2025, and bear interest at an annual rate of 3.550%. The 2027 Notes mature on April 14, 2027, and bear interest at an annual rate of 3.700%. The 2032 Notes mature on April 14, 2032, and bear interest at an annual rate of 4.000%. We will pay interest on the 2024 Notes semiannually on March 28 and September 28 of each year, commencing September 28, 2022. During the fiscal year ended March 31, 2023, we made interest payments of $31.5. 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. During the fiscal year ended March 31, 2023, we made interest payments of $31.8. The proceeds of the Senior Notes were used to finance a portion of our acquisition of Zynga.

On May 23, 2022, we entered into a new unsecured Credit Agreement (the "2022 Credit Agreement"), which replaced in its entirety the Company's prior Credit Agreement and provides for an unsecured five-year revolving credit facility with commitments of $500.0, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $100.0 and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros, and Canadian Dollars in an aggregate principal amount of up to $100.0. In addition, the 2022 Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional amount not to exceed the greater of $250.0 and 35.0% of the Company's Consolidated Adjusted EBITDA (as defined in the 2022 Credit Agreement).

Loans under the 2022 Credit Agreement will bear interest at a rate of (a) 0.000% to 0.625% above an alternate base rate (8.00% at March 31, 2023) or (b) 1.000% to 1.625% above Secured Overnight Financing Rate ("SOFR"), approximately 4.80% at March 31, 2023, which rates are determined by the Company's credit rating. On June 22, 2022, we drew down approximately $200.0 at 3.28% from our facility under the 2022 Credit Agreement. In December 2022, we fully repaid the $200.0 drawdown, and, at March 31, 2023, there were no borrowings under the 2022 Credit Agreement.

On June 22, 2022, we entered into an unsecured 364-Day Term Loan Credit Agreement ("Term Loan"). The Term Loan provides for an unsecured 364-day term loan credit facility in the aggregate principal amount of $350.0 and matures on June 21, 2023, and will bear interest at our election at a margin of (a) 0.000% to 0.375% above an alternate base rate (defined on the basis of prime rate) or (b) 0.750% to 1.375% above SOFR, which rates are determined by reference to our credit rating. We fully drew down on the Term Loan on June 22, 2022 at 3.6%. In April 2023, we fully repaid the $350.0 Term Loan.

The proceeds from our draw-downs of the 2022 Credit Agreement and Term Loan were used to finance a portion of the settlement of the Convertible Notes acquired from Zynga. In total, we paid $321.62 for the tendered or converted 2024 Convertible Notes, including interest, and $845.14 for the tendered 2026 Convertible Notes in cash, and we issued 3.7 shares of our common stock upon the conversion of the 2024 Convertible Notes. After settlement of all Convertible Notes tendered or surrendered for conversion, $21.4 aggregate principal amount of the 2024 Convertible Notes remained outstanding and $29.40 aggregate principal amount of the 2026 Convertible Notes remained outstanding at March 31, 2023.

Cybersecurity Incident

In September 2022, we experienced a network intrusion in which an unauthorized third party illegally accessed and downloaded confidential information from our systems, including early development footage of the next installment in the Grand Theft Auto franchise. We immediately took steps to isolate and contain the incident. Rockstar Games did not experience and does not anticipate any disruption to its current services nor any long-term effect on its development timelines as a result of this incident. Subsequently, also in September 2022, we became aware that an unauthorized third party illegally accessed credentials for a vendor platform that 2K Games uses to provide help desk support to its customers. The unauthorized party sent a communication to certain players containing a malicious link. 2K Games immediately notified all affected users and took steps to restrict further unauthorized activity until service was restored. In connection with this activity (the “Cybersecurity

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Incident”), we have incurred certain immaterial incremental one-time costs related to consultants, experts and data recovery efforts and expect to incur additional costs related to cybersecurity protections in the future. We are in the process of implementing a variety of measures to enhance further our cybersecurity protections.

Popcore Acquisition

We acquired Popcore on November 16, 2022 for initial consideration of $116.9 in cash, 0.6 shares of our common stock, and a contingent earn-out consideration arrangement that requires us to pay up to an aggregate of $105.0 in cash if Popcore achieves certain performance measures over each of the three calendar years following the closing. Refer to Note 20 - Acquisitions of our Consolidated Financial Statements. Founded in 2018, Popcore is a mobile games company based in Berlin best known for Parking Jam 3D and Pull the Pin.

Trends and Factors Affecting our Business

    Product Release Schedule.    Our financial results are affected by the timing of our product releases and the commercial success of those titles. Our Grand Theft Auto products in particular have historically accounted for a significant portion of our revenue. Sales of Grand Theft Auto products generated 14.6% of our net revenue for the fiscal year ended March 31, 2023. The timing of our Grand Theft Auto product releases may affect our financial performance on a quarterly and annual basis.

    Economic Environment and Retailer Performance.    We continue to monitor various macroeconomic and geopolitical factors that may affect our business in several areas, including consumer demand, pricing pressure on our products, credit quality of our receivables, and foreign currency exchange rates. For example, in response to the conflict in Ukraine, we suspended sales of our products in Russia and Belarus, which had a negative impact on our financial results. Actions taken to date and other potential actions could result in additional negative impact in future periods.

Additionally, our business is dependent upon a limited number of customers that account for a significant portion of our revenue. Our five largest customers accounted for 79.6%, 79.0% and 78.4% of net revenue during the fiscal years ended March 31, 2023, 2022 and 2021, respectively. As of March 31, 2023, and 2022, five customers comprised 61.1% and 72.8% of our gross accounts receivable, respectively, with our significant customers (those that individually comprised more than 10% of our gross accounts receivable balance) accounting for 50.3% and 63.8% of such balance at March 31, 2023, and 2022, respectively. We had three customers who accounted for 21.6%, 14.5%, and 14.2% of our gross accounts receivable as of March 31, 2023, and two customers who accounted for 43.5% and 20.3% of our gross accounts receivable as of March 31, 2022. We did not have any additional customers that exceeded 10% of our gross accounts receivable as of March 31, 2023, and 2022.

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.

    Hardware Platforms.    We derive a substantial portion of our revenue from the sale of products made for video game consoles manufactured by third parties, which comprised 43.1% of our net revenue by product platform for the fiscal year ended March 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. When new hardware platforms are introduced, such as those released in November 2020 by Sony and Microsoft, demand for interactive entertainment used on 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), which 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.

    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. In addition, we aim to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through virtual currency, add-on content, and in-game purchases. As disclosed in our "Results of Operations," below, net

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revenue from digital online channels comprised 95.1% of our net revenue for the fiscal year ended March 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.

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.

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, these acquisition and retention-related programs may become either less effective or costlier, negatively impacting our operating results.

Content Release Highlights

    During fiscal year 2023, 2K released The Quarry, NBA 2K23, PGA TOUR 2K23, New Tales from the Borderlands, Marvel's Midnight Suns, and WWE 2K23; and Private Division released Rollerdrome and Kerbal Space Program 2 early access on PC.

To date we have announced that, during fiscal year 2024, 2K will release LEGO 2K Drive, NBA 2K24, and WWE 2K24; Zynga will release Star Wars Hunters; and Private Division will release After Us. In addition, throughout the year, we expect to continue to deliver new content for our franchises. We will also continue to invest in opportunities that we believe will enhance and scale our business and have the potential to drive growth over the long term.

Fiscal 2023 Financial Summary

Our net revenue for fiscal year ended March 31, 2023 was led by net revenue of $2,159.2 from Zynga, which we acquired in May 2022 (refer to Note 20 - Acquisitions), including top contributors Empires & Puzzles, Toon Blast, our hyper-casual mobile portfolio, Words With Friends, and Merge Dragons!, as well as a variety of our top franchises, primarily NBA 2K, Grand Theft Auto, Red Dead Redemption, and WWE 2K. Our net revenue increased to $5,349.9, an increase of $1,845.1 or 52.6% compared to the fiscal year ended March 31, 2022.

    For the fiscal year ended March 31, 2023, our net loss was $(1,124.7), as compared to net income of $418.0 in the prior year. Diluted loss per share for the fiscal year ended March 31, 2023 was $(7.03), as compared to Diluted earnings per share of $3.58 for the fiscal year ended March 31, 2022. Our operating loss for the fiscal year ended March 31, 2023 was $(1,165.2) compared to operating income of $473.6 for fiscal year ended March 31, 2022, due to (i) higher cost of revenue due to fees paid to platform partners due to an increase in mobile revenues and higher amortization of intangible assets as a result of the Zynga acquisition and (ii) higher operating expenses for marketing, personnel, and amortization of intangible assets as a result the Zynga acquisition.

    At March 31, 2023, we had $1,234.6 of Cash and cash equivalents and Restricted cash and cash equivalents, compared to $2,195.4 at March 31, 2022. The decrease in Cash and cash equivalents and Restricted cash and cash equivalents from March 31, 2022 was due to Net cash used by investing activities primarily related to our acquisition of Zynga (refer to Note 20 - Acquisitions). This net decrease was partially offset by Net cash provided by financing activities (refer to Note 11 - Debt), primarily related to proceeds from the issuance of our Senior Notes and a draw-down on our Term Loan, which were partially offset by payments for Convertible Notes that were assumed as part of our Zynga acquisition. To a lesser extent, the net decrease was also partially offset by Net cash provided by operating activities from sales of our products, primarily from the previously mentioned titles, partially offset by working capital requirements used in the development, sale, and support of our products, including for personnel, as well as payments for interest on our debt and transaction-related costs related to our Zynga Acquisition.

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Critical Accounting Policies and Estimates

    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. See Note 1 - Basis of Presentation and Significant Accounting Policies in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K.

Recently Adopted and Recently Issued Accounting Pronouncements

See Note 1 - Basis of Presentation and Significant Accounting Policies.

Operating Metric

Net Bookings

    We monitor Net Bookings as a key operating metric in evaluating the performance of our business. Net Bookings is defined as the net amount of products and services sold digitally or sold-in physically during the period and includes licensing fees, merchandise, in-game advertising, strategy guides, and publisher incentives. Net Bookings were as follows:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,"],["","2023","","2022","","Increase/(decrease)","","Increase/(decrease) %"],["Net Bookings","$","5,283.6","","","$","3,408.2","","","$","1,875.4","","","55.0","%"]]
[[/GREPCENT_TABLE]]

    For the fiscal year ended March 31, 2023, Net Bookings increased by $1,875.4 as compared to the prior year. The increase was primarily due to Net Bookings from Zynga, which we acquired in May 2022 (refer to Note 20 - Acquisitions), including top contributors Empires & Puzzles, our hyper-casual mobile portfolio, Toon Blast, Words With Friends, and Merge Dragons!. This increase was partially offset by a decrease in Net Bookings from our Grand Theft Auto and Borderlands franchises.

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Results of Operations

In this section, we discuss the results of our operations for the fiscal year ended March 31, 2023 compared to the fiscal year ended March 31, 2022. For the comparison of fiscal year 2022 to fiscal year 2021, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended March 31, 2022.

The following table sets forth, for the periods indicated, our statements of operations, net revenue by geographic region, net revenue by platform, net revenue by distribution channel, and net revenue by content type:

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended March 31,"],["","","2023","","2022","","2021"],["Total net revenue","","$","5,349.9","","","100.0","%","","$","3,504.8","","","100.0","%","","$","3,372.8","","","100.0","%"],["Cost of revenue","","3,064.6","","","57.3","%","","1,535.4","","","43.8","%","","1,535.1","","","45.5","%"],["Gross profit","","2,285.3","","","42.7","%","","1,969.4","","","56.2","%","","1,837.7","","","54.5","%"],["Selling and marketing","","1,592.6","","","29.8","%","","516.4","","","14.7","%","","445.0","","","13.2","%"],["Research and development","","892.5","","","16.7","%","","406.6","","","11.6","%","","317.3","","","9.4","%"],["General and administrative","","843.1","","","15.8","%","","511.7","","","14.6","%","","390.4","","","11.6","%"],["Depreciation and amortization","","122.3","","","2.3","%","","61.1","","","1.7","%","","55.6","","","1.6","%"],["Total operating expenses","","3,450.5","","","64.5","%","","1,495.8","","","42.7","%","","1,208.3","","","35.8","%"],["(Loss) income from operations","","(1,165.2)","","","(21.8)","%","","473.6","","","13.5","%","","629.4","","","18.7","%"],["Interest and other, net","","(141.9)","","","(2.7)","%","","(14.2)","","","(0.4)","%","","8.8","","","0.3","%"],["(Loss) gain on fair value adjustments, net","","(31.0)","","","(0.6)","%","","6.0","","","0.2","%","","39.6","","","1.2","%"],["(Loss) income before income taxes","","(1,338.1)","","","(25.0)","%","","465.4","","","13.3","%","","677.8","","","20.1","%"],["(Benefit from) provision for income taxes","","(213.4)","","","(4.0)","%","","47.4","","","1.4","%","","88.9","","","2.6","%"],["Net (loss) income","","$","(1,124.7)","","","(21.0)","%","","$","418.0","","","11.9","%","","$","588.9","","","17.5","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended March 31,"],["","","2023","","2022","","2021"],["Net revenue by geographic region:"],["United States","","$","3,360.0","","","62.8","%","","$","2,100.2","","","59.9","%","","$","2,015.9","","","59.8","%"],["International","","1,989.9","","","37.2","%","","1,404.6","","","40.1","%","","1,356.9","","","40.2","%"],["Net revenue by platform:"],["Mobile","","$","2,538.6","","","47.5","%","","$","403.4","","","11.5","%","","$","274.1","","","8.1","%"],["Console","","2,303.8","","","43.1","%","","2,528.9","","","72.2","%","","2,517.0","","","74.6","%"],["PC and other","","507.5","","","9.5","%","","572.5","","","16.3","%","","581.7","","","17.2","%"],["Net revenue by distribution channel:"],["Digital online","","$","5,085.7","","","95.1","%","","$","3,149.0","","","89.8","%","","$","2,972.4","","","88.1","%"],["Physical retail and other","","264.2","","","4.9","%","","355.8","","","10.2","%","","400.4","","","11.9","%"],["Net revenue by content:"],["Recurrent consumer spending","","$","4,180.4","","","78.1","%","","$","2,271.2","","","64.8","%","","$","2,152.0","","","63.8","%"],["Full game and other","","1,169.5","","","21.9","%","","1,233.6","","","35.2","%","","1,220.8","","","36.2","%"]]
[[/GREPCENT_TABLE]]

Fiscal Years ended March 31, 2023 and 2022

[[GREPCENT_TABLE]]
[["(millions of dollars)","","2023","","% of net revenue","","2022","","% of net revenue","","Increase/(decrease)","","% Increase/(decrease)"],["Total net revenue","","$","5,349.9","","","100.0","%","","$","3,504.8","","","100.0","%","","$","1,845.1","","","52.6","%"],["Software development costs and royalties(1)","","1,604.8","","","30.0","%","","417.4","","","11.9","%","","1,187.4","","","284.5","%"],["Product costs","","714.0","","","13.3","%","","243.9","","","7.0","%","","470.1","","","192.7","%"],["Internal royalties","","438.9","","","8.2","%","","619.9","","","17.7","%","","(181.0)","","","(29.2)","%"],["Licenses","","306.9","","","5.7","%","","254.2","","","7.3","%","","52.7","","","20.7","%"],["Cost of revenue","","3,064.6","","","57.3","%","","1,535.4","","","43.8","%","","1,529.2","","","99.6","%"],["Gross profit","","$","2,285.3","","","42.7","%","","$","1,969.4","","","56.2","%","","$","315.9","","","16.0","%"]]
[[/GREPCENT_TABLE]]

(1) Includes $(9.5) and $48.4 of stock-based compensation expense in fiscal year 2023 and 2022, respectively.

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    For the fiscal year ended March 31, 2023, net revenue increased by $1,845.1, as compared to the prior year. The increase was due primarily to net revenue of $2,159.2 from Zynga, which we acquired in May 2022 (refer to Note 20 - Acquisitions), including top contributors Empires & Puzzles, our hyper-casual mobile portfolio, Toon Blast, Words With Friends, and Merge Dragons!, partially offset by a decrease in net revenue of $302.6 from our Grand Theft Auto franchise and $71.9 from our Borderlands franchise.

    Net revenue from console games decreased by $225.1 and accounted for 43.1% of our total net revenue in the fiscal year ended March 31, 2023, as compared to 72.2% in the prior year. The decrease was due to a decrease in net revenue from our Grand Theft Auto and Red Dead Redemption franchises, partially offset by an increase in net revenue from The Quarry, which released in June 2022 and our WWE 2K franchise. Net revenue from PC and other decreased by $65.0 and accounted for 9.5% of our total net revenue in the fiscal year ended March 31, 2023, as compared to 16.3% in the prior year. The decrease was due to a decrease in net revenue from our Borderlands, Grand Theft Auto, and Red Dead Redemption franchises, partially offset by an increase in net revenue from Zynga and Marvel's Midnight Suns. Net revenue from mobile increased by $2,135.2 and accounted for 47.5% of our total net revenue in the fiscal year ended March 31, 2023, as compared to 11.5% in the prior year. The increase was due to an increase in net revenue of $2,145.2 from Zynga, including top contributors Empires & Puzzles, our hyper-casual mobile portfolio, Toon Blast, Words With Friends, and Merge Dragons!, as well as an increase in Top Eleven, partially offset by a decrease in Two Dots.

    Net revenue from digital online channels increased by $1,936.7 and accounted for 95.1% of our total net revenue for the fiscal year ended March 31, 2023, as compared to 89.8% in the prior year. The increase was due to net revenue of $2,158.5 from Zynga, including top contributors Empires & Puzzles, our hyper-casual mobile portfolio, Toon Blast, Words With Friends, and Merge Dragons!, as well as an increase in net revenue from Top Eleven. These increases were partially offset by a decrease in net revenue from our Grand Theft Auto, Borderlands and Red Dead Redemption franchises. Net revenue from physical retail and other channels decreased by $91.6 and accounted for 4.9% of our total net revenue for the fiscal year ended March 31, 2023, as compared to 10.2% for the prior year. The decrease was due to a decrease in net revenue from our Grand Theft Auto and NBA 2K franchises.

    Recurrent consumer spending is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, in-game purchases, and in-game advertising. Net revenue from recurrent consumer spending increased by $1,909.2 and accounted for 78.1% of net revenue for the fiscal year ended March 31, 2023, as compared to 64.8% for the prior year. The increase was due to an increase in net revenue of $2,125.3 from Zynga, including top contributors Empires & Puzzles, our hyper-casual mobile portfolio, Toon Blast, Words With Friends, and Merge Dragons!, as well as an increase in net revenue from Top Eleven, partially offset by a decrease in net revenue from our Grand Theft Auto franchise. Net revenue from full game and other decreased by $64.1 and accounted for 21.9% of net revenue for the fiscal year ended March 31, 2023, as compared to 35.2% for the prior year. The decrease was due to a decrease in net revenue from our Grand Theft Auto, Borderlands, and Red Dead Redemption franchises, partially offset by an increase in net revenue from The Quarry, Zynga, and our WWE 2K franchise.

    Gross profit as a percentage of net revenue for the fiscal year ended March 31, 2023 was 42.7%, as compared to 56.2% in the prior year. The percentage decrease was due primarily to (i) higher amortization related to intangible assets related to our Zynga acquisition, including a $465.3 impairment charge (refer to Note 9 - Goodwill and Intangible Assets, net), and (ii) higher product costs for fees paid to platform partners due to an increase in mobile revenues as a result of the Zynga acquisition, partially offset by (i) lower internal royalties due to the timing of when royalties are earned and (ii) lower capitalized software amortization due to the timing of releases.

    Net revenue earned outside of the United States increased by $585.3 and accounted for 37.2% of our total net revenue in the fiscal year ended March 31, 2023, as compared to 40.1% in the prior year. The increase in net revenue outside of the United States was due to net revenue of $732.1 from Zynga, including top contributors Empires & Puzzles, our hyper-casual mobile portfolio, Toon Blast, Zynga Poker, and Merge Dragons!, as well as an increase in net revenue from Top Eleven. These increases were partially offset by a decrease in net revenue from our Grand Theft Auto franchise. Changes in foreign currency exchange rates decreased net revenue and gross profit by $34.1 and $18.3, respectively, in the fiscal year ended March 31, 2023 as compared to the prior year.

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Operating Expenses

[[GREPCENT_TABLE]]
[["(millions of dollars)","","2023","","% of net revenue","","2022","","% of net revenue","","Increase/(decrease)","","% Increase/(decrease)"],["Selling and marketing","","$","1,592.6","","","29.8","%","","$","516.4","","","14.7","%","","$","1,076.2","","","208.4","%"],["Research and development","","892.5","","","16.7","%","","406.6","","","11.6","%","","485.9","","","119.5","%"],["General and administrative","","843.1","","","15.8","%","","511.7","","","14.6","%","","331.4","","","64.8","%"],["Depreciation and amortization","","122.3","","","2.3","%","","61.1","","","1.7","%","","61.2","","","100.2","%"],["Total operating expenses","","$","3,450.5","","","64.5","%","","$","1,495.8","","","42.7","%","","$","1,954.7","","","130.7","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","2023","","2022"],["Selling and marketing","","$","95.2","","","$","30.0"],["Research and development","","116.6","","","38.1"],["General and administrative","","115.5","","","66.5"]]
[[/GREPCENT_TABLE]]

    Foreign currency exchange rates decreased total operating expenses by $72.0 in the fiscal year ended March 31, 2023 as compared to the prior year.

Selling and marketing

    Selling and marketing expenses increased by $1,076.2 in the fiscal year ended March 31, 2023 as compared to the prior year, due primarily to (i) marketing expense for titles from our Zynga acquisition, including our hyper-casual mobile portfolio, Toon Blast, Merge Dragons!, Empires & Puzzles, and Toy Blast, (ii) higher amortization related to intangible assets related to our Zynga acquisition, and (iii) higher personnel expenses for additional headcount, including related to our acquisition of Zynga.

Research and development

    Research and development expenses increased by $485.9 for the fiscal year ended March 31, 2023, as compared to the prior year, due primarily to an increase in (i) personnel expenses due to increased headcount, including related to our acquisition of Zynga and (ii) production and development expenses related to Zynga.

General and administrative

    General and administrative expenses increased by $331.4 for the fiscal year ended March 31, 2023, as compared to the prior year, due primarily to increases in (i) professional fees related to our acquisition and integration of Zynga, (ii) personnel expenses for additional headcount, including our acquisition of Zynga, (iii) higher rent expense for additional locations and lease renewals, including our acquisition of Zynga, and (iv) right-of-use asset impairment expense related to Zynga's San Francisco office (see Note 13 - Leases).

    General and administrative expenses for the fiscal years ended March 31, 2023 and 2022 include occupancy expense (primarily rent, utilities and office expenses) of $66.8 and $37.2, respectively, related to our development studios.

Depreciation and amortization

    Depreciation and amortization expenses increased by $61.2 for the fiscal year ended March 31, 2023, as compared to the prior year, due primarily to acquired intangible assets and depreciation expense related to Zynga.

Interest and other, net

[[GREPCENT_TABLE]]
[["(millions of dollars)","","2023","","% of net revenue","","2022","","% of net revenue","","Increase/(decrease)","","% Increase/(decrease)"],["Interest income","","$","33.8","","","0.6","%","","$","17.6","","","0.5","%","","$","16.2","","","92.0","%"],["Interest expense","","(129.6)","","","(2.4)","%","","(18.6)","","","(0.5)","%","","(111.0)","","","596.8","%"],["Foreign currency exchange gain (loss)","","(31.8)","","","(0.6)","%","","(7.3)","","","(0.2)","%","","(24.5)","","","335.6","%"],["Other","","(14.3)","","","(0.3)","%","","(5.9)","","","(0.2)","%","","(8.4)","","","142.4","%"],["Interest and other, net","","$","(141.9)","","","(2.7)","%","","$","(14.2)","","","(0.4)","%","","$","(127.7)","","","899.3","%"]]
[[/GREPCENT_TABLE]]

    Interest and other, net was expense of $141.9 for the fiscal year ended March 31, 2023, as compared to $14.2 for the fiscal year ended March 31, 2022. The increase in expense was due primarily to interest expense related to our Senior Notes,

40

Term Loan, 2022 Credit Agreement, and an unsecured bridge loan facility related to our acquisition of Zynga, including the amortization of related deferred costs, in connection with our acquisition of Zynga (refer to Note 11 - Debt and Note 20 - Acquisitions) and foreign currency losses.

Gain/(loss) on long-term investments, net

Gain/(loss) on long-term investments, net for the fiscal year ended March 31, 2023 was a loss of $31.0 compared to a gain of $6.0 in the prior year period. The change was due primarily to a loss relating to our Convertible Notes, partially offset by a gain related to our Capped Calls, both as result of our Zynga Acquisition (refer to Note 11 - Debt and Note 20 - Acquisitions).

Provision for income taxes

    Our benefit from income taxes was $213.4 for the fiscal year ended March 31, 2023 as compared to income tax expense of $47.4 for the fiscal year ended March 31, 2022.

    When compared to the statutory rate of 21%, the effective tax rate of 15.9% for the fiscal year ended March 31, 2023 was due primarily to an expense of $84.0 from an increase in the U.S. valuation allowance, expense of $39.7 from our geographic mix and foreign earnings, and $20.2 nondeductible expense relating to compensation expense related to covered employees pursuant to Section 162(m) and loss on the redemption of convertible debt, partially offset by a $76.8 benefit from tax credits anticipated to be utilized.

When compared to the statutory rate of 21%, the effective tax rate of 10.2% for the fiscal year ended March 31, 2022 was due primarily to a $30.9 benefit from tax credits anticipated to be utilized, $14.6 in excess tax benefits from employee stock compensation, an $11.6 benefit due to an increase to the net deferred tax asset that arose from a step up in tax basis related to the Federal Act on Tax Reform and AVH (Old-Age and Survivors Insurance) Financing ("TRAF") enacted in Switzerland, discussed below, and an $8.0 benefit from our geographic mix of earnings, partially offset by a $10.1 nondeductible expense due to an increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus.

The effective tax rate in the current year was higher compared to the prior year primarily due to increased benefits from tax credits and reduced benefits from excess tax benefits from employee stock compensation, partially offset by increased expense related to an increase in our valuation allowance, increased expense from nondeductible costs, and the impact of geographic mix and foreign earnings.

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

We anticipate that additional excess tax benefits or shortfalls from employee stock compensation, tax credits, changes in valuation allowance, and changes in our geographic mix of earnings could have a significant impact on our effective tax rate in the future. In addition, we are regularly examined by domestic and foreign taxing authorities. Examinations may result in tax assessments in excess of amounts claimed and the payment of additional taxes. We believe our tax positions comply with applicable tax law, and that we have adequately provided for reasonably foreseeable tax assessments. It is possible that settlement of audits or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.

The 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. The actual impact of Section 174 capitalization and amortization on the income tax payable and deferred tax asset will depend on multiple factors, including the amount of research and development expenses we will incur and whether we conduct our research and development activities inside or outside the United States. Section 174 capitalization increased the income tax payable by $46.7 and deferred tax assets by $128.9.

The American Rescue Plan Act of 2021 (“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 Consolidated Financial Statements for the fiscal year ended March 31, 2023. We continue to evaluate the potential impact the ARPA may have on our operations and Consolidated Financial Statements in future periods. The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) includes a new corporate alternative minimum tax (CAMT) of 15% on the adjusted financial statement income (AFSI) of corporations with an average AFSI exceeding $1.0 billion over a consecutive three-year period. The CAMT is effective for the taxable year ending

41

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

On May 19, 2019, a public referendum held in Switzerland approved the TRAF, which was effective for us on January 1, 2020. The TRAF abolished preferential tax regimes for holding companies, domicile companies, and mixed companies at the cantonal level. The TRAF allows the cantons to establish transition rules, the implementation of which may be subject to a ruling from the canton. For the fiscal year ended March 31, 2023, we recorded a net tax benefit of $5.7 due to an increase of the deferred tax asset of $20.6, offset by an increase in the valuation of allowance of $14.9, as it is more-likely-than-not that such deferred tax assets would be realized.

As of March 31, 2023, we had gross unrecognized tax benefits, including interest and penalties, of $294.8, of which $137.2 would affect our effective tax rate if realized. For the fiscal year ended March 31, 2023, gross unrecognized tax benefits increased by $118.8.

    We are no longer subject to audit for U.S. federal income tax returns for periods prior to our fiscal year ended March 31, 2020 and state income tax returns for periods prior to the fiscal year ended March 31, 2019. With few exceptions, we are no longer subject to income tax examinations in non-U.S. jurisdictions for years prior to fiscal year ended March 31, 2016. Certain taxing authorities are currently examining our income tax returns for the fiscal years ended March 31, 2016 through March 31, 2021.

Net (loss) income and (loss) earnings per share

    For the fiscal year ended March 31, 2023, our Net loss was $1,124.7, as compared to income of $418.0 in the prior year. Diluted loss per share for the fiscal year ended March 31, 2023 was $7.03, as compared to diluted earnings per share of $3.58 for the fiscal year ended March 31, 2022. Basic weighted average shares of 159.9 were 43.1 higher due primarily to stock issued as consideration for the Zynga Acquisition and for the conversion of Convertible Notes. See Note 12 - (Loss) Earnings Per Share to our Consolidated Financial Statements for additional information.

Liquidity and Capital Resources

    Our primary cash requirements are to fund (i) the development, manufacturing and marketing of our published products, (ii) working capital, (iii) capital expenditures, (iv) debt and interest payments, (v) acquisitions, and (vi) tax payments. 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 11 - Debt for additional discussion of our outstanding debt obligations.

Short-term Investments

    As of March 31, 2023, we had $187.0 of short-term investments, which are readily marketable 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 March 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 Reserve, in response to the rising inflation and related adverse economic conditions, we anticipate investment yields may increase, which could increase our future interest income. Such impact is not expected to be material to our liquidity.

Senior Notes

On April 14, 2022, we completed our offering and sale of $2,700.0 aggregate principal amount of our senior notes, consisting of $1,000.0 principal amount of our 3.300% Senior Notes due 2024 (the “2024 Notes”), $600.0 principal amount of our 3.550% Senior Notes due 2025 (the “2025 Notes”), $600.0 principal amount of our 3.700% Senior Notes due 2027 (the “2027 Notes”), and $500.0 principal amount of our 4.000% Senior Notes due 2032 (the “2032 Notes” and, together with the 2024 Notes, the 2025 Notes and the 2027 Notes, the “Senior Notes”). The Senior Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee.

The Senior Notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations. The 2024 Notes mature on March 28, 2024 and bear interest at an annual rate of 3.300%. The 2025 Notes mature on April 14, 2025 and bear interest at an annual rate of 3.550%. The 2027 Notes mature on April 14, 2027 and bear interest at an annual rate of 3.700%. The 2032 Notes mature on April 14, 2032 and bear interest at an annual rate of 4.000%. We will pay interest on the 2024 Notes semi-annually on March 28 and September 28 of each year, commencing September 28, 2022. During the fiscal year ended March 31, 2023, we made interest payments of $31.5. 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

42

October 14, 2022. During the fiscal year ended March 31, 2023, we made interest payments of $31.8. The proceeds from the issuance of the Senior Notes were used to finance a portion of our acquisition of Zynga.

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"). The 2026 Notes mature on March 28, 2026 and bear interest at an annual rate of 5.000%. The 2028 Notes mature on March 28, 2028 and bear interest at an annual rate of 4.950%. We will pay interest on the 2026 Notes and 2028 Notes semi-annually on March 28 and September 28 of each year, commencing September 28, 2023. The 2026 Notes and 2028 Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee. These notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations.

Credit Agreement

    On May 23, 2022, we entered into a new unsecured Credit Agreement (the "2022 Credit Agreement"), which replaced in its entirety the Company's prior Credit Agreement, dated as of February 8, 2019, which was paid off in full and terminated. The 2022 Credit Agreement provides for an unsecured five-year revolving credit facility with commitments of $500.0, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $100.0 and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros, and Canadian Dollars in an aggregate principal amount of up to $100.0. In addition, the 2022 Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional amount not to exceed the greater of $250.0 and 35.0% of the Company's Consolidated Adjusted EBITDA (as defined in the 2022 Credit Agreement).

Loans under the 2022 Credit Agreement will bear interest at a rate of (a) 0.000% to 0.625% above an alternate base rate (8.00% at March 31, 2023) or (b) 1.000% to 1.625% above Secured Overnight Financing Rate ("SOFR"), approximately 4.80% at March 31, 2023, which rates are determined by the Company's credit rating.

On June 22, 2022, we drew down $200.0 at approximately 3.28% from our facility under the 2022 Credit Agreement. The proceeds were used to finance a portion of the repurchase of the Convertible Notes. In December 2022, we fully repaid the $200.0 drawdown. As of March 31, 2023, there were no borrowings under the 2022 Credit Agreement, and we had approximately $499.5 available for additional borrowings.

    The 2022 Credit Agreement also includes, among other terms and conditions, a maximum leverage ratio covenant, as well as customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur subsidiary indebtedness, grant liens, and dispose of all or substantially all assets, in each case subject to certain exceptions and baskets. In addition, the 2022 Credit Agreement provides for events of default customary for a credit facility of this size and type, including, among others, non-payment of principal and interest when due thereunder, breaches of representations and warranties, noncompliance with covenants, acts of insolvency, cross-defaults to material indebtedness, and material judgment defaults (subject to certain limitations and cure periods).

Term Loan

On June 22, 2022, we entered into an unsecured 364-Day Term Loan Credit Agreement ("Term Loan"). The Term Loan provides for an unsecured 364-day term loan credit facility in the aggregate principal amount of $350.0 and matures on June 21, 2023, and will bear interest at our election at a margin of (a) 0.000% to 0.375% above an alternate base rate (defined on the basis of prime rate) or (b) 0.750% to 1.375% above SOFR, which rates are determined by reference to our credit rating.

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 11 - Debt). In April 2023, we fully repaid the $350.0 Term Loan.

Financial Condition

    We are subject to credit risks, particularly if any of our receivables represent a limited number of customers or are concentrated in foreign markets. If we are unable to collect our accounts receivable as they become due, it could adversely affect our liquidity and working capital position.

    Generally, we have been able to collect our accounts receivable in the ordinary course of business. We do not hold any collateral to secure payment from customers. We have trade credit insurance on the majority of customers who sell our physical products to mitigate accounts receivable risk.

    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 79.6%, 79.0%, and 78.4% of net revenue during the fiscal

43

years ended March 31, 2023, 2022, and 2021, respectively. As of March 31, 2023 and 2022, five customers accounted for 61.1% and 72.8% of our gross accounts receivable, respectively. Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 50.3% and 63.8% of such balances at March 31, 2023 and 2022, respectively. We had three customers who accounted for 21.6%, 14.5%, and 14.2% of our gross accounts receivable as of March 31, 2023 and two customers who accounted for 43.5%, and 20.3% of our gross accounts receivable as of March 31, 2022. We did not have any additional customers that exceeded 10% of our gross accounts receivable as of March 31, 2023 and 2022. 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, including as a result of the COVID-19 pandemic.

    We believe that our current cash and cash equivalents, short-term investments, and projected cash flow from operations, along with availability under our 2022 Credit Agreement will provide us with sufficient liquidity to satisfy our cash requirements for working capital, capital expenditures, and commitments on both a short-term and long-term basis. Our liquidity and capital resources have not been materially affected by the COVID-19 pandemic and related volatility and slowdown in the global financial markets to date. For further discussion regarding the potential future impacts of the COVID-19 pandemic and related economic conditions on our business, refer to Item 1A, Risk Factors.

As of March 31, 2023, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $329.7. 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.

    Our Board of Directors has authorized the repurchase of up to 21.7 shares of our common stock. Under this program, we may purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. Repurchases are subject to the availability of stock, prevailing market conditions, the trading price of the stock, our financial performance and other conditions. The program does not require us to repurchase shares and may be suspended or discontinued at any time for any reason.

During the fiscal years ended March 31, 2023, 2022, and 2021, we repurchased 0.0, 1.3, and 0.0 shares of our common stock, respectively, in the open market for $0.0, $200.0, and $0.0, respectively, including commissions as part of the program. As of March 31, 2023, we had repurchased a total of 11.7 shares of our common stock under the program, and 10.0 shares of our common stock remained available for repurchase under the share repurchase program.

Our changes in cash flows were as follows:

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended March 31,"],["(millions of dollars)","","2023","","2022","","2021"],["Net cash provided by operating activities","","$","1.1","","","$","258.0","","","$","912.3"],["Net cash (used in) provided by investing activities","","(2,876.3)","","","139.2","","","(806.8)"],["Net cash provided by (used in) financing activities","","1,930.3","","","(256.8)","","","(57.4)"],["Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash and cash equivalents","","(15.9)","","","(5.2)","","","18.6"],["Net change in cash, cash equivalents, and restricted cash and cash equivalents","","$","(960.8)","","","$","135.2","","","$","66.8"]]
[[/GREPCENT_TABLE]]

    At March 31, 2023, we had $1,234.6 of Cash, cash equivalents, and restricted cash and cash equivalents, compared to $2,195.4 at March 31, 2022. The decrease was due to Net cash used in investing activities primarily related to our Zynga Acquisition (refer to Note 20 - Acquisitions). This net decrease was partially offset by Net cash provided by financing activities (refer to Note 11 - Debt), primarily related to proceeds from the issuance of Senior Notes and draw-downs on our Term Loan, which were partially offset by payments for Convertible Notes that were part of our Zynga Acquisition. To a lesser extent, the net decrease was also partially offset by Net cash provided by operating activities from sales of our products, partially offset by working capital requirements used in the development, sale, and support of our products, including for personnel, as well as payments for interest on our debt and transaction-related costs related to our Zynga Acquisition.

44

Commitments

    Refer to Note 14 - Commitments and Contingencies to our Consolidated Financial Statements for disclosures regarding our commitments.

Capital Expenditures

    In fiscal year 2024, we anticipate capital expenditures to be $180.

Off-Balance Sheet Arrangements

    As of March 31, 2023 and 2022, we did not have any material relationships with unconsolidated entities or financial parties, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

International Operations

    Net revenue earned outside of the United States is principally generated by our operations in Europe, Asia, Australia, Canada and Latin America. For the fiscal years ended March 31, 2023, 2022 and 2021, 37.2%, 40.1% and 40.2%, respectively, of our net revenue was earned outside the United States. We are subject to risks inherent in foreign trade, including increased credit risks, tariffs and duties, fluctuations in foreign currency exchange rates, shipping delays and international political, regulatory and economic developments, all of which can have a significant effect on our operating results.

Fluctuations in Quarterly Operating Results and Seasonality

    We have experienced fluctuations in quarterly and annual operating results as a result of the timing of the introduction of new titles, variations in sales of titles developed for particular platforms, market acceptance of our titles, development and promotional expenses relating to the introduction of new titles, sequels or enhancements of existing titles, projected and actual changes in platforms, the timing and success of title introductions by our competitors, product returns, changes in pricing policies by us and our competitors, the accuracy of retailers' forecasts of consumer demand, the size and timing of acquisitions, the timing of orders from major customers, and order cancellations and delays in product shipment. Sales of our full game products are also seasonal, with peak demand typically occurring in the fourth calendar quarter during the holiday season. For certain of our software products with multiple performance obligations, we defer the recognition of our net revenue over an estimated service period which generally ranges from six to fifteen months. As a result, the quarter in which we generate the highest Net Bookings may be different from the quarter in which we recognize the highest amount of Net revenue. Quarterly comparisons of operating results are not necessarily indicative of future operating results.