Item 1. Financial Statements

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Item 1. Financial Statements

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)


	December 31, 2023		March 31, 2023
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	898.7	$	827.4
Short-term investments	23.5		187.0
Restricted cash and cash equivalents	184.6		307.6
Accounts receivable, net of allowances of $1.2 and $1.3 at December 31, 2023 and March 31, 2023, respectively	666.3		763.2
Software development costs and licenses	69.9		65.9
Contract assets	88.7		79.9
Prepaid expenses and other	286.8		277.1
Total current assets	2,218.5		2,508.1
Fixed assets, net	400.4		402.8
Right-of-use assets	316.6		282.7
Software development costs and licenses, net of current portion	1,444.3		1,072.2
Goodwill	6,614.2		6,767.1
Other intangibles, net	3,546.9		4,453.2
Deferred tax assets	7.1		44.8
Long-term restricted cash and cash equivalents	106.5		99.6
Other assets	241.2		231.6
Total assets	$	14,895.7	$	15,862.1
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	151.8	$	140.1
Accrued expenses and other current liabilities	1,022.2		1,225.7
Deferred revenue	1,081.2		1,078.8
Lease liabilities	64.0		60.2
Short-term debt, net	373.2		1,346.8
Total current liabilities	2,692.4		3,851.6
Long-term debt, net	2,708.2		1,733.0
Non-current deferred revenue	61.3		35.5
Non-current lease liabilities	380.7		347.0
Non-current software development royalties	100.8		110.2
Deferred tax liabilities, net	223.0		534.0
Other long-term liabilities	220.7		208.3
Total liabilities	$	6,387.1	$	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 December 31, 2023 and March 31, 2023	—		—
Common stock, $0.01 par value, 300.0 and 300.0 shares authorized; 194.2 and 192.6 shares issued and 170.5 and 168.9 outstanding at December 31, 2023 and March 31, 2023, respectively	1.9		1.9
Additional paid-in capital	9,286.9		9,010.2
Treasury stock, at cost; 23.7 and 23.7 common shares at December 31, 2023 and March 31, 2023, respectively	(1,020.6)		(1,020.6)
Retained earnings	323.1		1,164.3
Accumulated other comprehensive loss	(82.7)		(113.3)
Total stockholders' equity	$	8,508.6	$	9,042.5
Total liabilities and stockholders' equity	$	14,895.7	$	15,862.1

See accompanying Notes.

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in millions, except per share amounts)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Net revenue:
Game	$	1,208.2	$	1,231.3	$	3,432.9	$	3,469.3
Advertising	158.1		176.5		517.3		434.4
Total net revenue	1,366.3		1,407.8		3,950.2		3,903.7
Cost of revenue	688.2		691.9		2,177.5		1,841.6
Gross profit	678.1		715.9		1,772.7		2,062.1
Selling and marketing	367.6		446.7		1,103.1		1,163.1
Research and development	232.4		238.2		710.7		655.2
General and administrative	165.0		168.9		542.7		620.6
Depreciation and amortization	42.6		35.0		128.3		86.0
Goodwill impairment	—		—		165.4		—
Total operating expenses	807.6		888.8		2,650.2		2,524.9
Loss from operations	(129.5)		(172.9)		(877.5)		(462.8)
Interest and other, net	(22.5)		(28.3)		(79.0)		(108.1)
(Loss) gain on fair value adjustments, net	(0.3)		1.1		(1.7)		(36.6)
Loss before income taxes	(152.3)		(200.1)		(958.2)		(607.5)
Benefit from income taxes	60.7		46.7		117.0		93.1
Net loss	$	(91.6)	$	(153.4)	$	(841.2)	$	(514.4)
Loss per share:
Basic and diluted loss per share	$	(0.54)	$	(0.91)	$	(4.95)	$	(3.27)

See accompanying Notes.

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(in millions)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Net loss	$	(91.6)	$	(153.4)	$	(841.2)	$	(514.4)
Other comprehensive income (loss)
Foreign currency translation adjustment	66.3		100.7		$	29.2	(78.4)








Change in fair value of available for sale securities	0.1		1.4		$	1.4	1.5
Other comprehensive income (loss)	66.4		102.1		$	30.6	(76.9)
Comprehensive income (loss)	$	(25.2)	$	(51.3)	$	(810.6)	$	(591.3)

See accompanying Notes.

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)


	Nine Months Ended December 31,
	2023		2022
Operating activities:
Net loss	$	(841.2)	$	(514.4)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization and impairment of software development costs and licenses	152.1		147.6
Stock-based compensation	255.0		238.5
Noncash lease expense	46.4		35.2
Amortization and impairment of intangibles	924.9		740.1
Depreciation	101.6		62.9
Goodwill impairment	165.4		—
Interest expense	103.2		79.0
Gain on debt extinguishment	(7.7)		—
Fair value adjustments	1.7		37.1
Other, net	30.6		(23.7)
Changes in assets and liabilities, net of effect from purchases of businesses:
Accounts receivable	98.0		158.0
Software development costs and licenses	(457.3)		(362.9)
Prepaid expenses and other current and other non-current assets	(47.8)		(23.5)
Deferred revenue	27.2		(88.1)
Accounts payable, accrued expenses and other liabilities	(559.3)		(450.0)
Net cash (used in) provided by operating activities	(7.2)		35.8
Investing activities:
Change in bank time deposits	21.2		123.0
Sale and maturities of available-for-sale securities	144.0		436.1

Purchases of fixed assets	(95.5)		(137.7)
Proceeds from sale of long-term investment	—		20.6
Purchases of long-term investments	(17.5)		(10.2)
Business acquisitions	(17.5)		(3,241.8)
Other	(8.2)		(4.8)
Net cash provided by (used in) investing activities	26.5		(2,814.8)
Financing activities:
Tax payment related to net share settlements on restricted stock awards	(76.6)		(90.6)
Issuance of common stock	38.1		22.3
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)		(200.0)
Payment of contingent earn-out consideration	(35.7)		(26.9)
Net cash (used in) provided by financing activities	(72.0)		1,904.6
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash and cash equivalents	7.9		(18.6)
Net change in cash, cash equivalents, and restricted cash and cash equivalents	(44.8)		(893.0)
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)	$	1,189.8	$	1,302.3

(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 December 31, 2023

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

Balance, September 30, 2023	193.7	$	1.9	$	9,183.2		(23.7)		$	(1,020.6)	$	414.7	$	(149.1)	$	8,430.1
Net loss	—	—		—			—		—		(91.6)		—		(91.6)
Change in cumulative foreign currency translation adjustment	—	—		—			—		—		—		66.3		66.3
Net unrealized gain on available-for-sale securities, net of tax	—	—		—			—		—		—		0.1		0.1
Stock-based compensation	—	—		103.8			—		—		—		—		103.8
Issuance of restricted stock, net of forfeitures and cancellations	0.4	—		—			—		—		—		—		—
Net share settlement of restricted stock awards	(0.1)	—		(19.5)			—		—		—		—		(19.5)

Employee share purchase plan settlement	0.2	—		19.4			—		—		—		—		19.4
Balance, December 31, 2023	194.2	$	1.9	$	9,286.9		(23.7)		$	(1,020.6)	$	323.1	$	(82.7)	$	8,508.6


	Three Months Ended December 31, 2022

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

Balance, September 30, 2022	191.2	$	1.9	$	8,760.5		(23.7)		$	(1,020.6)	$	1,928.0	$	(236.3)	$	9,433.5
Net loss	—	—		—			—		—		(153.4)		—		(153.4)
Change in cumulative foreign currency translation adjustment	—	—		—			—		—		—		100.7		100.7
Net unrealized gain on available-for-sale securities, net of taxes	—	—		—			—		—		—		1.4		1.4
Stock-based compensation	—	—		104.2			—		—		—		—		104.2

Issuance of restricted stock, net of forfeitures and cancellations	0.4	—		—			—		—		—		—		—
Net share settlement of restricted stock awards	(0.1)	—		(12.9)			—		—		—		—		(12.9)
Exercise of stock options	—	—		0.1			—		—		—		—		0.1
Issuance of shares related to Popcore acquisition	0.6	—		57.8			—		—		—		—		57.8
Stock-based compensation assumed in Zynga Acquisition	—	—		8.1			—		—		—		—		8.1
Employee share purchase plan settlement	0.1	—		10.9			—		—		—		—		10.9
Balance, December 31, 2022	192.2	$	1.9	$	8,928.7		(23.7)		$	(1,020.6)	$	1,774.6	$	(134.2)	$	9,550.4

See accompanying Notes.


	Nine Months Ended December 31, 2023
	Common Stock			Additional Paid-in Capital			Treasury Stock				Retained Earnings		Accumulated Other Comprehensive 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	—	—		—			—		—		(841.2)		—		(841.2)
Change in cumulative foreign currency translation adjustment	—	—		—			—		—		—		29.2		29.2
Net unrealized gain on available-for-sale securities, net of taxes	—	—		—			—		—		—		1.4		1.4
Stock-based compensation	—	—		315.2			—		—		—		—		315.2
Issuance of restricted stock, net of forfeitures and cancellations	1.7	—		—			—		—		—		—		—
Exercise of stock options	—	—		0.2			—		—		—		—		0.2
Net share settlement of restricted stock awards	(0.5)	—		(76.6)			—		—		—		—		(76.6)
Employee share purchase plan settlement	0.4	—		37.9			—		—		—		—		37.9
Balance, December 31, 2023	194.2	$	1.9	$	9,286.9		(23.7)		$	(1,020.6)	$	323.1	$	(82.7)	$	8,508.6


	Nine Months Ended December 31, 2022
	Common Stock			Additional Paid-in Capital			Treasury Stock				Retained Earnings		Accumulated Other Comprehensive 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	—	—		—			—		—		(514.4)		—		(514.4)
Change in cumulative foreign currency translation adjustment	—	—		—			—		—		—		(78.4)		(78.4)
Net unrealized gain on available-for-sale securities, net of taxes	—	—		—			—		—		—		1.5		1.5
Stock-based compensation	—	—		290.5			—		—		—		—		290.5

Issuance of restricted stock, net of forfeitures and cancellations	2.2	—		—			—		—		—		—		—
Net share settlement of restricted stock awards	(0.7)	—		(90.6)			—		—		—		—		(90.6)
Employee share purchase plan settlement	0.2	—		22.3			—		—		—		—		22.3
Exercise of stock options	0.9	—		42.9			—		—		—		—		42.9
Issuance of shares related to Zynga Acquisition	46.3	0.5		5,377.2			—		—		—		—		5,377.7
Stock-based compensation assumed in Zynga Acquisition	—	—		151.7			—		—		—		—		151.7
Issuance of shares related to Popcore acquisition	0.6	—		57.8			—		—		—		—		57.8
Issuance of shares for conversion of Convertible Notes	3.7	—		479.7			—		—		—		—		479.7
Balance, December 31, 2022	192.2	$	1.9	$	8,928.7		(23.7)		$	(1,020.6)	$	1,774.6	$	(134.2)	$	9,550.4

See accompanying Notes.

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

Accounting for Income Taxes

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 (April 1, 2025 for the Company). The amendments in this ASU are required to be applied on a prospective basis and retrospective adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our Consolidated Financial Statements and related disclosures.

Accounting for Segment Reporting

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 (April 1, 2024 for the Company). The amendments in this ASU must be applied on a retrospective basis to all prior periods presented in the financial statements. We are currently evaluating the potential impact of adopting this guidance on our Consolidated Financial Statements and related disclosures.

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. Net revenue recognized over time also includes in-game advertising, which is recognized over a contractual term.

Net revenue by timing of recognition was as follows:


	Three Months Ended December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Net revenue recognized:
Over time	$	1,096.7	$	1,120.0	$	3,183.1	$	3,043.9
Point in time	269.6		287.8		767.1		859.8
Total net revenue	$	1,366.3	$	1,407.8	$	3,950.2	$	3,903.7

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 December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Net revenue recognized:
Recurrent consumer spending	$	1,034.7	$	1,115.4	$	3,103.5	$	3,042.8
Full game and other	331.6		292.4		846.7		860.9
Total net revenue	$	1,366.3	$	1,407.8	$	3,950.2	$	3,903.7

Geography

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


	Three Months Ended December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Net revenue recognized:
United States	$	818.3	$	886.8	$	2,417.8	$	2,412.6
International	548.0		521.0		1,532.4		1,491.1
Total net revenue	$	1,366.3	$	1,407.8	$	3,950.2	$	3,903.7

Platform

Net revenue by platform was as follows:


	Three Months Ended December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Net revenue recognized:
Mobile	$	706.7	$	721.2	$	2,032.9	$	1,820.9
Console	547.6		561.4		1,598.6		1,720.5
PC and other	112.0		125.2		318.7		362.3
Total net revenue	$	1,366.3	$	1,407.8	$	3,950.2	$	3,903.7

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 December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Net revenue recognized:
Digital online	$	1,297.3	$	1,336.7	$	3,777.0	$	3,693.7
Physical retail and other	69.0		71.1		173.2		210.0
Total net revenue	$	1,366.3	$	1,407.8	$	3,950.2	$	3,903.7

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 December 31, 2023 and March 31, 2023 were $1,142.5 and $1,114.3, respectively. For the nine months ended December 31, 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 December 31, 2023 and 2022, $153.7 and $115.6, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the respective period. During the nine months ended December 31, 2023 and 2022, $991.8 and $814.5, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the respective period. As of December 31, 2023, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is $1,248.5, which includes our deferred revenue balances and amounts to be invoiced and recognized as revenue in future periods. We expect to recognize approximately $1,159.0 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 December 31, 2023 and March 31, 2023, our contract asset balances were $88.7 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 $(0.7) and $(0.6) during the three months ended December 31, 2023 and 2022, respectively, and $4.5 and $3.3 during the nine months ended December 31, 2023 and 2022, respectively. We recorded stock-based compensation expense for restricted stock units granted to ZMC, which is also included in General and administrative expenses, of $14.0 and $12.9 during the three months ended December 31, 2023 and 2022, respectively, and $39.1 and $34.4 during the nine months ended December 31, 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:


	Nine Months Ended December 31,
	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 two-year or 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 December 31, 2023 and March 31, 2023, respectively. During the nine months ended December 31, 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.

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.


	December 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	$	355.2	$	—	$	—	$	355.2
Bank-time deposits	75.2		—		—		75.2



Short-term investments:
Corporate bonds	—		2.9		—		2.9
Bank-time deposits	20.6		—		—		20.6



Restricted cash and cash equivalents:
Money market funds	182.8		—		—		182.8
Bank-time deposits	0.5		—		—		0.5
Restricted cash and cash equivalents, long term:
Money market funds	106.5		—		—		106.5
Other assets:

Private equity	—		—		29.2		29.2
Total financial assets	$	740.8	$	2.9	$	29.2	$	772.9

Liabilities:
Accrued expenses and other current liabilities:
Foreign currency forward contracts	$	—	$	0.1	$	—	$	0.1
Contingent earn-out consideration	—		—		12.3		12.3
Other-long term liabilities:
Contingent earn-out consideration	—		—		7.6		7.6
Short-term debt, net:
Convertible notes	—		23.2		—		23.2
Long-term debt, net:
Convertible notes	—		24.1		—		24.1
Total financial liabilities	$	—	$	47.4	$	19.9	$	67.3


	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 nine months ended December 31, 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 nine months ended December 31, 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 nine months ended December 31, 2023, we paid $69.5 related to the second earn-out period.

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.

During the three and nine months ended December 31, 2023 we recognized General and administrative expense of $(13.1) and $(6.3), 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 $19.3, with $12.0 and $7.3 being recorded within Accrued expenses and other current liabilities and Other long-term liabilities, respectively, in our Condensed Consolidated Balance Sheet as of December 31, 2023. The change resulted from a lower probability of Popcore achieving certain performance measures in all three 12-month periods.

The remaining contingent earn-out consideration liability of $0.4 and $0.2 recorded within Accrued expenses and other current liabilities and Other long-term liabilities, respectively, in our Condensed Consolidated Balance Sheet as of December 31, 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 December 31, 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.

See Note 9 - Goodwill and Intangible Assets, Net for intangible related fair value measurements.

5. SHORT-TERM INVESTMENTS

Our Short-term investments consisted of the following:


	December 31, 2023
			Gross Unrealized
	Cost or Amortized Cost		Gains		Losses		Fair Value
Short-term investments
Bank time deposits	$	20.6	$	—	$	—	$	20.6
Available-for-sale securities:
Corporate bonds	2.9		—		—		2.9



Total Short-term investments	$	23.5	$	—	$	—	$	23.5


	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 December 31, 2023:


	December 31, 2023
	Amortized Cost		Fair Value
Short-term investments
Due in 1 year or less	$	23.5	$	23.5


Total Short-term investments	$	23.5	$	23.5

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:


	December 31, 2023		March 31, 2023
Forward contracts to sell foreign currencies	$	290.8	$	224.3
Forward contracts to purchase foreign currencies	48.8		51.2

For the three months ended December 31, 2023 and 2022, we recorded a loss of $8.0 and a loss of $14.1, respectively, and for the nine months ended December 31, 2023 and 2022 we recorded a loss of $0.6 and a loss of $16.7, 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:


	December 31, 2023				March 31, 2023
	Current		Non-current		Current		Non-current
Software development costs, internally developed	$	51.1	$	1,154.6	$	47.4	$	882.0
Software development costs, externally developed	0.2		251.6		2.2		169.7
Licenses	18.6		38.1		16.3		20.5
Software development costs and licenses	$	69.9	$	1,444.3	$	65.9	$	1,072.2

During the three months ended December 31, 2023 and 2022, we recorded $0.0 and $1.7, respectively, of software development impairment charges (a component of Cost of revenue). The impairment charges recorded during the three months ended December 31, 2022 related to decisions not to proceed with further development of certain interactive entertainment software.

During the nine months ended December 31, 2023 and 2022, we recorded $21.7 and $25.0, respectively, of software development impairment charges (a component of Cost of revenue). The impairment charges recorded during the nine months ended December 31, 2023 related to unamortized capitalized costs for the development of certain titles that were anticipated to exceed the net realizable value of the respective assets at the time they were impaired. The impairment charges recorded during the nine months ended December 31, 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.

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:


	December 31, 2023		March 31, 2023
Software development royalties	$	324.9	$	510.7
Compensation and benefits	275.1		177.5
Marketing and promotions	114.6		132.7
Licenses	77.2		63.0
Tax payable	51.7		33.0
Refund liability	50.1		52.4
Interest payable	28.7		29.6
Sales tax liability	26.7		14.0
Deferred acquisition payments	17.3		82.7
Other	55.9		130.1
Accrued expenses and other current liabilities	$	1,022.2	$	1,225.7

9. DEBT

The components of Long-term debt, net on our Condensed Consolidated Balance Sheet were as follows:


	Annual Interest Rate	Maturity Date	December 31, 2023		Fair Value (Level 2)
2025 Notes	3.55%	April 14, 2025	$	600.0	$	587.7
2026 Notes	5.00%	March 28, 2026	500.0		502.6
2027 Notes	3.70%	April 14, 2027	600.0		581.9
2028 Notes	4.95%	March 28, 2028	500.0		504.3
2032 Notes	4.00%	April 14, 2032	500.0		476.2
2026 Convertible Notes	0.00%	December 15, 2026	24.1		24.1
Total			$	2,724.1	$	2,676.8
Unamortized discount and issuance costs			(15.9)
Long-term debt, net			$	2,708.2


	Annual Interest Rate	Maturity Date	March 31, 2023		Fair Value (Level 2)
2025 Notes	3.55%	April 14, 2025	$	600.0	$	583.8
2027 Notes	3.70%	April 14, 2027	600.0		580.9
2032 Notes	4.00%	April 14, 2032	500.0		460.6
2024 Convertible Notes	0.25%	June 1, 2024	20.8		20.8
2026 Convertible Notes	0.00%	December 15, 2026	23.3		23.3
Total			$	1,744.1	$	1,669.4
Unamortized discount and issuance costs			(11.1)
Long-term debt, net			$	1,733.0

The components of Short-term debt, net on our Condensed Consolidated Balance Sheet were as follows:


	Annual Interest Rate	Maturity Date	December 31, 2023		Fair Value (Level 2)
2024 Notes	3.30%	March 28, 2024	$	350.0	$	347.9
2024 Convertible Notes	0.25%	June 1, 2024	23.2		23.2
Total			$	373.2	$	371.1
Unamortized discount and issuance costs			—
Short-term debt, net			$	373.2


	Annual Interest Rate	Maturity Date	March 31, 2023		Fair Value (Level 2)
2024 Notes	3.30%	March 28, 2024	$	1,000.0	$	978.2
Term Loan	3.60%	June 21, 2023	350.0		350.0
Total			$	1,350.0	$	1,328.2
Unamortized discount and issuance costs			(3.2)
Short-term debt, net			$	1,346.8

Interest expense as it relates to our debt is recorded within Interest and other, net in our Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2023, and 2022, respectively, and was as follows:


	Three Months Ended December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
2024 Notes	$	2.8	$	8.3	$	12.2	$	23.3
2025 Notes	5.3		5.3		16.0		15.1
2026 Notes	6.2		—		17.8		—
2027 Notes	5.6		5.6		16.7		15.8
2028 Notes	6.2		—		17.7		—
2032 Notes	5.0		5.0		15.0		14.2
Term Loan	—		2.9		1.5		6.4
2022 Credit Agreement	—		2.4		—		4.1
Total	$	31.1	$	29.5	$	96.9	$	78.9

The following table outlines the aggregate amount of maturities of our borrowings, as of December 31, 2023:


Fiscal Year Ending March 31,	Maturities
2024 (remaining)	$	350.0
2025	21.4
2026	1,100.0
2027	29.4
2028	1,100.0
Thereafter	500.0
Total	3,100.8
Fair value adjustments	(3.5)
Total face value	$	3,097.3

Senior Notes

On April 14, 2023, we completed our offering and sale of $1,000.0 aggregate principal amount of our senior notes, consisting of $500.0 principal amount of our 5.000% Senior Notes due 2026 (the "2026 Notes") and $500.0 principal amount of our 4.950% Senior Notes due 2028 ("the 2028 Notes").

On April 14, 2022, we completed our offering and sale of $2,700.0 aggregate principal amount of our senior notes, consisting of $1,000.0 principal amount of our 3.300% Senior Notes due 2024 (the “2024 Notes”), $600.0 principal amount of our 3.550% Senior Notes due 2025 (the “2025 Notes”), $600.0 principal amount of our 3.700% Senior Notes due 2027 (the “2027 Notes”), and $500.0 principal amount of our 4.000% Senior Notes due 2032 (the “2032 Notes” and together with the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes, and 2028 Notes, the "Senior Notes").

The Senior Notes were issued under an indenture, dated as of April 14, 2022 (the “Base Indenture”), between the Company and The Bank of New York Mellon, as trustee (the “Trustee”) and (i) a first supplemental indenture, with respect to the 2024 Notes, (ii) a second supplemental indenture, with respect to the 2025 Notes, (iii) a third supplemental indenture, with respect to the 2027 Notes, (iv) a fourth supplemental indenture, with respect to the 2032 Notes, (v) a fifth supplemental indenture, with respect to the 2026 Notes, and (vi) a sixth supplemental indenture, with respect to the 2028 Notes (collectively, the “Supplemental Indentures” and together with the Base Indenture, the “Indenture”), between the Company and the Trustee.

The Senior Notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations. We will pay interest on the 2024 Notes, 2026 Notes, and 2028 Notes semi-annually on March 28 and September 28 of each year, commencing September 28, 2022 for the 2024 Notes and September 28, 2023 for the 2026 Notes and 2028 Notes. We will pay interest on each of the 2025 Notes, 2027 Notes, and 2032 Notes semi-annually on April 14 and October 14 of each year, commencing October 14, 2022. During the nine months ended December 31, 2023, we made interest payments of $95.9. The proceeds from the issuances of the Senior Notes were used to finance a portion of our acquisition of Zynga and repay certain of our debt.

The Senior Notes are not entitled to any sinking fund payments. We may redeem each series of the Senior Notes at any time in whole or from time to time in part at the applicable redemption prices set forth in each Supplemental Indenture. Upon the occurrence of a Change of Control Repurchase Event (as defined in each of the Supplemental Indentures) with respect to a series of the Senior Notes, each holder of the Senior Notes of such series will have the right to require the Company to purchase that holder’s Notes of such series at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase, unless the Company has exercised its option to redeem all the Senior Notes.

In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company, all outstanding Senior Notes will become due and payable immediately. If any other event of default specified in the Indenture occurs and is continuing with respect to any series of the Senior Notes, the Trustee or the holders of at least 25% in aggregate principal amount of that series of the outstanding Notes may declare the principal of such series of Senior Notes immediately due and payable.

The Indenture contains certain limitations on the ability of the Company and its subsidiaries to grant liens without equally securing the Senior Notes, or to enter into certain sale and lease-back transactions. These covenants are subject to a number of important exceptions and limitations, as further provided in the Indenture.

Debt issuance costs of $26.6 and original issuance discount of $1.9 were incurred in connection with the Senior Notes. These debt issuance costs and original issuance discount are included as a reduction of the debt within Long-term debt, net on our Condensed Consolidated Balance Sheet and will be amortized into Interest and other, net in our Consolidated Statements of Operations over the contractual term of the Senior Notes. During the three months ended December 31, 2023 and 2022, we recognized $1.2 and $1.4, respectively, of amortization of debt issuance costs and $0.1 and $0.1, respectively, of amortization of the original issuance discount. During the nine months ended December 31, 2023 and 2022, we recognized $4.8 and $4.0, respectively, of amortization of debt issuance costs and $0.3 and $0.3, respectively, of amortization of the original issuance discount.

On June 5, 2023, pursuant to a tender offer, we purchased and retired $650.0 in aggregate principal amount of our 2024 Notes, resulting in a remaining principal amount of $350.0 recorded within Short-term debt, net on our Condensed Consolidated Balance Sheet. During the nine months ended December 31, 2023, we recognized a debt extinguishment gain of approximately $7.7, net of unamortized debt discount and debt issuance costs recorded within Interest and other, net in our Condensed Consolidated Statement of Operations. The purchase of a portion of our 2024 Notes was funded with proceeds received from the 2026 Notes and 2028 Notes.

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 (8.50% at December 31, 2023) or (b) 1.000% to 1.625% above Secured Overnight Financing Rate ("SOFR"), approximately 5.35% at December 31, 2023, which rates are determined by the Company's credit rating.

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).

Upon execution of the 2022 Credit Agreement, we incurred $3.5 of debt issuance costs that were capitalized within Other assets on our Condensed Consolidated Balance Sheet and will be amortized on a straight-line basis over the five-year term of the 2022 Credit Agreement, with the expense recorded within Interest and other, net in our Condensed Consolidated Statements of Operations. During the three months ended December 31, 2023, and 2022, we amortized $0.2 and $0.2, respectively, and during the nine months ended December 31, 2023 and 2022 we amortized $0.5 and $0.5, respectively, of these debt issuance costs.

As of December 31, 2023, there were no borrowings under the 2022 Credit Agreement, and we had approximately $499.5 available for additional borrowings.

Information related to availability on our 2022 Credit Agreement for each period was as follows:


	December 31, 2023		March 31, 2023
Available borrowings	$	499.5	$	499.5
Outstanding letters of credit	2.8		2.8

Term Loan

On June 22, 2022, we entered into an unsecured 364-Day Term Loan Credit Agreement ("Term Loan"). The Term Loan provided for an unsecured 364-day term loan credit facility in the aggregate principal amount of $350.0, maturing on June 21, 2023. 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 (see below). A portion of the proceeds from the April 14, 2023 issuance of the 2026 Notes and 2028 Notes were used to fully repay the Term Loan on April 27, 2023.

Convertible Notes

In conjunction with the acquisition of Zynga on May 23, 2022 (refer to Note 13 - Acquisitions), we entered into (a) the First Supplemental Indenture (the “2024 Supplemental Indenture”) to the Indenture, dated as of June 14, 2019 (the “2024 Indenture”), between Zynga and Computershare Trust Company, N.A. (as successor to Wells Fargo Bank, National Association) (the “Convertible Notes Trustee”), relating to Zynga’s 0.25% Convertible Senior Notes due 2024 (the “2024 Convertible Notes”), and (b) the First Supplemental Indenture (the “2026 Supplemental Indenture” and, together with the 2024 Supplemental Indenture, the “Supplemental Indentures”) to the Indenture, dated as of December 17, 2020 (the “2026 Indenture” and, together with the 2024 Indenture, the “Indentures”), between Zynga and the Convertible Notes Trustee, relating to Zynga’s 0.00% Convertible Senior Notes due 2026 (the “2026 Convertible Notes” and, together with the 2024 Convertible Notes, the “Convertible Notes”). As of the closing date of the acquisition, approximately $690.0 aggregate principal amount of the 2024 Convertible Notes was outstanding and approximately $874.5 aggregate principal amount of the 2026 Convertible Notes was outstanding.

Following the acquisition and according to the Supplemental Indentures, we assumed all of Zynga’s rights and obligations under the Indentures, and the Company guaranteed the payment and other obligations of Zynga under the Convertible Notes. As a result of our acquisition of Zynga, the right to convert each one thousand dollar principal amount of such Convertible Notes into shares of Zynga common stock was changed into a right to convert such principal amount of such Convertible Notes into the number of units of Reference Property equal to the conversion rate in effect immediately prior to the closing, in each case pursuant to the terms and procedures set forth in the applicable Indenture. A unit of Reference Property is defined in each Indenture as 0.0406 shares of Take-Two common stock and $3.50 in cash, without interest, plus cash in lieu of any fractional shares of Take-Two common stock.

The 2024 Convertible Notes and 2026 Convertible Notes mature on June 1, 2024, and December 15, 2026, respectively, unless earlier converted, redeemed, or repurchased in accordance with their terms, respectively, prior to the maturity date. Interest is payable semiannually on the 2024 Convertible Notes in arrears on March 1 and September 1 of each year. The 2026 Convertible Notes do not bear regular interest, and the principal amount does not accrete.

The acquisition of Zynga constituted a Fundamental Change, a Make-Whole Fundamental Change, and a Share Exchange Event (each as defined in the Indentures) under the Indentures. The effective date of the Fundamental Change, Make-Whole Fundamental Change and Share Exchange Event in respect of the Convertible Notes was May 23, 2022, and the related tender and conversion periods expired on June 22, 2022. As a result, each holder of Convertible Notes had the right to tender its Convertible Notes to the Company for cash or surrender its Convertible Notes for conversion into the Reference Property at the applicable conversion rate, in each case pursuant to the terms and procedures set forth in the applicable Indenture.

As of the expiration of the Fundamental Change, Make-Whole Fundamental Change, and Share Exchange Event, (a) $0.3 aggregate principal amount of the 2024 Convertible Notes and (b) $845.1 aggregate principal amount of the 2026 Convertible Notes were tendered for cash. In addition, (a) $668.3 aggregate principal amount of the 2024 Convertible Notes, and (b) no 2026 Convertible Notes were surrendered for conversion into the applicable Reference Property. In total, we paid $321.6 for the tendered or converted 2024 Convertible Notes, including interest, and $845.1 for the tendered 2026 Convertible Notes in cash, and we issued 3.7 shares of our common stock upon the conversion of the 2024 Convertible Notes. After settlement of all Convertible Notes tendered or surrendered for conversion, $21.4 aggregate principal amount of the 2024 Convertible Notes remained outstanding and $29.4 aggregate principal amount of the 2026 Convertible Notes remained outstanding at December 31, 2023.

The 2024 Convertible Notes and 2026 Convertible Notes constitute senior unsecured indebtedness of Zynga, ranking pari passu with all of our other existing and future senior unsecured unsubordinated obligations of Zynga. As a result, the 2024 Convertible Notes and 2026 Convertible Notes are structurally senior to the indebtedness of the Company as to Zynga, its subsidiaries, and their respective assets. As noted above, the Company also guaranteed the payment and other obligations of Zynga under the Convertible Notes. The Company's guarantees of the 2024 Convertible Notes and 2026 Convertible Notes are the Company's senior unsecured obligations and rank equally with all of the Company's other existing and future senior unsecured unsubordinated obligations.

Under the terms of the applicable Indentures, prior to the close of business on the business day immediately preceding March 1, 2024 with respect to the 2024 Convertible Notes and September 15, 2026 with respect to the 2026 Convertible Notes, the Convertible Notes will be convertible only under the following circumstances:

during any calendar quarter, if the value of a unit of Reference Property (based on the last reported sales price of our common stock), for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the applicable series of the 2024 Convertible Notes or 2026 Convertible Notes, respectively, on each applicable trading day;
during the five business-day period after any five consecutive trading-day period in which the trading price per one thousand dollar principal amount of each applicable series of the 2024 Convertible Notes or 2026 Convertible Notes for such trading day was less than 98% of the product of the value of a unit of Reference Property (based on the last reported sale price of our common stock) and the conversion rate of the applicable series of the 2024 Convertible Notes or 2026 Convertible Notes, respectively, on each such trading day;
if we call the 2024 Convertible Notes or 2026 Convertible Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the respective redemption date; or
upon the occurrence of specified corporate events described in the respective Indentures.

Upon any conversion, holders will receive either cash or a combination of cash and shares of Take-Two common stock, at our election. As of December 31, 2023, the conditions allowing holders of the Convertible Notes to convert their respective series of the Convertible Notes have not been met, and, therefore, both the Convertible Notes are not yet convertible.

We have elected to account for these Convertible Notes, which are considered derivatives, using the fair value option (Level 2) under ASC 825, as the Convertible Notes were initially recognized at fair value under the acquisition method of accounting in connection with the Zynga Acquisition (refer to Note 13 - Acquisitions) and we do not expect significant fluctuations in fair value through maturity. We initially recorded $778.6 as the acquisition date fair value for the 2024 Convertible Notes and $874.5 for the 2026 Convertible Notes. The fair value was determined as the expected cash payment and value of shares to be issued to settle the Convertible Notes. As of December 31, 2023, we recorded $23.2 as the fair value of the remaining outstanding 2024 Convertible Notes, within Short-term debt, net, and $24.1 as the fair value of the remaining outstanding 2026 Convertible Notes, within Long-term debt, net, in our Condensed Consolidated Balance Sheet. During the three months ended December 31, 2023 and 2022, we recognized a gain of $0.0 and a gain of $1.5, respectively, and during the nine months ended December 31, 2023 and 2022, we recognized a loss of $3.2 and a loss of $44.8, respectively, within (Loss) gain on fair value adjustments, net in our Condensed Consolidated Statements of Operations.

10. LOSS PER SHARE

The following table sets forth the computation of basic and diluted loss per share:


	Three Months Ended December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Computation of Basic and diluted loss per share:
Net loss	$	(91.6)	$	(153.4)	$	(841.2)	$	(514.4)
Weighted average shares outstanding—basic	170.3		168.0		169.9		157.2
Basic and diluted loss per share	$	(0.54)	$	(0.91)	$	(4.95)	$	(3.27)

We incurred a net loss for the three and nine months ended December 31, 2023 and 2022; therefore, the diluted weighted average shares outstanding excludes the effect of unvested common stock equivalents because their effect would be antidilutive. For the three months ended December 31, 2023, we had 2.2 potentially dilutive shares from share-based awards and 0.2 of shares from Convertible Notes that are excluded due to the net loss for the period. For the nine months ended December 31, 2023, we had 2.2 potentially dilutive shares from share-based awards and 0.2 of shares from Convertible Notes that are excluded due to the net loss for the period.

During the nine months ended December 31, 2023, 1.8 restricted stock awards vested, we granted 2.3 unvested restricted stock awards, and 0.5 unvested restricted stock awards were forfeited.

11. COMMITMENTS AND CONTINGENCIES

We have entered into various agreements in the ordinary course of business that require substantial cash commitments over the next several years. Other than agreements entered into in the ordinary course of business and in addition to the agreements requiring known cash commitments as reported in Note 14 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, we did not have any significant changes to our commitments since March 31, 2023.

Legal and Other Proceedings

We are, or may become, subject to demands and claims (including intellectual property and employment related claims) and are involved in routine litigation in the ordinary course of business which we do not believe to be material to our business or financial condition or results of operations. We have appropriately accrued amounts related to certain of these claims and legal and other proceedings. While it is reasonably possible that a loss may be incurred in excess of the amounts accrued in our financial statements, we believe that such losses, unless otherwise disclosed, would not be material.

12. INCOME TAXES

The benefit from income taxes for the three months ended December 31, 2023 is based on our projected annual effective tax rate for fiscal year 2024, adjusted for specific items that are required to be recognized in the period in which they are incurred. The benefit from income taxes was $60.7 for the three months ended December 31, 2023, as compared to the benefit from income taxes of $46.7 for the prior year period.

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

The benefit from income taxes for the nine months ended December 31, 2023 is based on our projected annual effective tax rate for fiscal year 2024, adjusted for specific items that are required to be recognized in the period in which they are incurred. The benefit from income taxes was $117.0 for the nine months ended December 31, 2023, as compared to the benefit from income taxes of $93.1 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of 12.2% for the nine months ended December 31, 2023 was due primarily to tax expense of $86.5 related to an increase in the U.S. valuation allowance, tax expense of $33.5 related to the impairment of nondeductible goodwill, tax expense of $7.0 related to geographic mix of earnings offset by tax benefits of $46.5 from tax credits and tax benefits of $40.0 related to the changes in unrecognized tax benefits from a lapse in statute.

The Tax Cuts and Jobs Act of 2017 (“TCJA”) requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code ("IRC") Section 174. The requirement was effective for the Company beginning April

1, 2022. Congress is considering legislation that would repeal or otherwise modify the domestic capitalization and amortization under Section 174 of the TCJA.

The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) includes a new corporate alternative minimum tax (CAMT) of 15% on the adjusted financial statement income (AFSI) of corporations with an average AFSI exceeding $1.0 billion over a consecutive three-year period. The CAMT is effective for taxable year ending March 31, 2024. It is possible that the CAMT could result in an additional tax liability over the regular federal corporate tax liability in a particular year based on differences between book and taxable income. We estimate no tax liability relating to CAMT for the current fiscal year. We will continue to evaluate the potential impact the Inflation Reduction Act may have on our operations and Consolidated Financial Statements in future periods.

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 may have an impact on our effective tax rate in future periods.

13. ACQUISITIONS

Zynga Acquisition

On May 23, 2022, we completed the Zynga Acquisition. Under the terms and conditions of the merger agreement, each Zynga stockholder received $3.50 in cash and 0.0406 shares of our common stock and cash in lieu of fractional shares for each share of Zynga common stock outstanding at closing. Our consideration consisted of an aggregate of $3,992.4 in cash, 46.3 shares of our common stock, and $151.7 of replacement equity awards attributable to the pre-acquisition service period. In connection with the transaction, on April 14, 2022, we completed our offering and sale of $2,700.0 aggregate principal amount of our Senior Notes (refer to Note 9 - Debt). The cash portion of the merger consideration was funded from our cash on hand, including the proceeds from our senior notes offering.

We acquired Zynga as part of our ongoing strategy to expand selectively our portfolio of owned intellectual property and to diversify and strengthen further our mobile offerings.

The acquisition-date fair value of the consideration totaled $9,521.8, which consisted of the following:


	Fair value of purchase consideration
Cash	$	3,992.4
Common stock (46.3 shares)	5,377.7
Replacement equity awards	151.7
Total	$	9,521.8

We used the acquisition method of accounting and recognized assets acquired and liabilities assumed at their fair value as of the date of acquisition, with the excess recorded to goodwill. The following table summarizes the acquisition date fair value of net tangible and intangible assets acquired, net of liabilities assumed from Zynga:


	Fair Value		Weighted average useful life
Cash acquired	$	864.9	N/A
Accounts receivable	271.2		N/A
Prepaid expenses and other	194.4		N/A
Fixed assets	54.3		N/A
Right-of-use assets	92.7		N/A
Other tangible assets	67.1		N/A
Accounts payable	(78.5)		N/A
Accrued expenses and other current liabilities	(352.8)		N/A
Deferred revenue	(333.1)		N/A
Lease liabilities	(15.7)		N/A
Long-term debt	(1,653.1)		N/A
Non-current lease liabilities	(131.6)		N/A
Deferred tax liabilities, net	(922.9)		N/A
Other liabilities assumed	(61.5)		N/A
Intangible Assets
Developed game technology	4,440.0		7
Branding and trade names	384.0		12
Game engine technology	261.0		4
User base	316.0		1
Developer relationships	57.0		4
Advertising technology	43.0		3
Customer relationships	31.0		5
Goodwill	5,994.4		N/A
Total	$	9,521.8

Popcore Acquisition

On November 16, 2022, we completed the acquisition of 100% of Popcore, a privately-held Germany-based free-to-play mobile game developer, 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. The cash portion was funded from our cash on hand.

We acquired Popcore as part of our ongoing strategy to expand selectively our portfolio of owned intellectual property and to diversify and strengthen further our mobile offerings.

The acquisition-date fair value of the consideration totaled $198.0, which consisted of the following:


	Fair value of purchase consideration
Cash	$	116.9
Common stock (0.6 shares)	57.8
Contingent earn-out	23.3
Total	$	198.0

The fair value of the contingent earn-out consideration arrangement at the acquisition date was $23.3. We estimated the fair value of the contingent earn-out consideration using a Monte Carlo simulation model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. (Refer to Note 4 - Fair Value Measurements).

We used the acquisition method of accounting and recognized assets and liabilities at their fair value as of the date of acquisition, with the excess recorded to goodwill. The following table summarizes the acquisition date fair value of net tangible and intangible assets acquired, net of liabilities assumed from Popcore:


	Fair Value		Weighted average useful life
Cash acquired	$	37.1	N/A
Other tangible assets	22.4		N/A
Other liabilities assumed	(81.2)		N/A
Intangible Assets
Developed game technology	113.0		5
Game engine technology	27.7		7
Branding and trade names	3.4		4
Goodwill	75.6		N/A
Total	$	198.0

Goodwill, which is not deductible for tax purposes, is primarily attributable to the assembled workforce of the acquired business and expected synergies at the time of the acquisition.

14. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The change in our goodwill balance is as follows:


	Total
Balance at March 31, 2023	$	6,767.1
Additions from immaterial acquisitions	9.7
Impairment	(165.4)
Currency translation adjustment	2.8
Balance at December 31, 2023	$	6,614.2

During the nine months ended December 31, 2023, we recognized a goodwill impairment charge of $165.4, representing a partial impairment related to one of our reporting units. We identified various qualitative factors that, collectively, indicated that the fair value of one of our reporting units was more likely than not less than its carrying amount, including a reduction in the forecasted performance of the reporting unit due to industry conditions and changes in our strategies for games within the reporting unit in response to those conditions. As a result of this qualitative analysis, we performed a valuation of the reporting unit using discounted cash flow and guideline public company methodologies. Key assumptions and estimates used in deriving the fair value are forecasted revenue, EBITDA margins, long-term growth rate, and discount rate. There were no goodwill impairment charges for the three and nine months ended December 31, 2022.

Intangibles

The following table sets forth the intangible assets that are subject to amortization:


	December 31, 2023						March 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value		Weighted average useful life
Developed Game Technology	$	4,127.0	$	(1,191.1)	$	2,935.9	$	4,434.5	$	(744.0)	$	3,690.5	7 years
Branding and Trade Names	395.3		(59.8)		335.5		395.2		(33.1)		362.1		12 years
Game Engine Technology	323.5		(129.0)		194.5		323.2		(73.5)		249.7		4 years
User Base	319.2		(319.2)		—		319.2		(274.4)		44.8		0 years
Developer Relationships	57.0		(22.9)		34.1		57.0		(12.2)		44.8		5 years
Advertising Technology	43.0		(23.1)		19.9		43.0		(12.3)		30.7		3 years
Customer relationships	31.0		(10.0)		21.0		31.0		(5.3)		25.7		5 years
Analytics Technology	30.7		(30.7)		—		30.1		(30.1)		—		0 years
Intellectual Property	27.5		(22.2)		5.3		22.3		(18.2)		4.1		6 years
In Place Lease	2.0		(1.3)		0.7		1.9		(1.1)		0.8		4 years
Total intangible assets	$	5,356.2	$	(1,809.3)	$	3,546.9	$	5,657.4	$	(1,204.2)	$	4,453.2

Amortization of intangible assets is included in our Condensed Consolidated Statements of Operations as follows:


	Three Months Ended December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Cost of revenue	$	230.4	$	202.8	$	827.2	$	501.7
Selling and marketing	1.6		80.5		49.5		196.5
Research and development	7.2		7.2		21.5		17.5
Depreciation and amortization	8.9		11.4		26.7		24.4
Total amortization of intangible assets	$	248.1	$	301.9	$	924.9	$	740.1

During the three and nine months ended December 31, 2023, we recorded impairment charges of $53.4 and $273.1, respectively, for acquisition-related Developed Game Technology intangible assets within Cost of revenue as a result of a reduction in the forecasted performance of certain games due to industry conditions and changes in our strategies for certain games in response to those conditions. The fair value of those intangible assets was measured using the multi-period excess earnings method, consistent with the approach used at acquisition. Key assumptions and estimates used in deriving the fair value are forecasted revenue, EBITDA margins, long-term decay rate, and discount rate. There were no impairment charges for intangible assets for the three and nine months ended December 31, 2022.

Estimated future amortization of intangible assets that will be recorded in Cost of revenue and operating expenses are as follows:


Fiscal Year Ended March 31,	Amortization
2024 (remaining)	$	196.1
2025	757.3
2026	739.1
2027	677.1
2028	626.9

15. SUBSEQUENT EVENTS

On January 8, 2024, we completed our add-on offering and sale of $350.0 aggregate principal amount of our senior notes, consisting of $50.0 principal amount of 5.000% Senior Notes due 2026 (the "2026 Notes") and $300.0 principal amount of 4.950% Senior Notes due 2028 (the "2028 Notes"). The additional 2026 Notes and 2028 Notes (the “New Notes”) were issued as additional notes under the existing Indenture (refer to Note 9 - Debt) pursuant to which we previously issued $500.0 aggregate principal amount of the 5.000% Senior Notes due 2026 and $500.0 aggregate principal amount of the 4.950% Senior Notes due 2028 (the “Existing Notes” and, together with the New Notes, the “Notes”), all of which remain outstanding. The New Notes have the same terms as the respective series of Existing Notes other than the date of issuance and the initial offering price, are treated as a single series of securities with the respective series of Existing Notes under the Indenture, are fungible with the respective series of Existing Notes for U.S. federal income tax purposes and have the same respective CUSIP numbers as the Existing Notes.

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