When compared to the statutory rate of 21%, the effective tax rate of (12.7)% for the three months ended September 30, 2024 was due primarily to tax expense of $104.9 related to an increase in valuation allowance, tax expense of $9.9 related to geographic mix of earnings offset by benefits of $17.2 from tax credits.
We incurred business reorganization expenses of $16.8 and $3.4 during the three months ended September 30, 2024 and 2023, respectively, and $66.3 and $10.6 during the six months ended September 30, 2024 and 2023, respectively.
In connection with the 2024 Plan, we incurred the following expenses:
互動娛樂的全球市場持續增長，我們尋求在國際上增加我們的市場份額，特別是在亞洲、中東和拉丁美洲。我們在亞洲繼續執行我們的增長策略，我們的策略是建立我們的許可關係，同時擴大現有產品的分銷並增加我們的在線遊戲業務，尤其是在中國。0.2萬已獲得NBA的多年許可證，以開發我們在中國、臺灣、香港和澳門的NBA模擬遊戲的在線版本。我們的首個此類遊戲， NBA 0.2萬 在線，一款基於 NBA 2K，由0.2萬和騰訊控股共同開發，是中國排名第一的在線PC體育遊戲，註冊用戶超過6500萬。我們已經發布了兩版 NBA 0.2萬 在線 並繼續通過新功能增強該遊戲。儘管我們保留所有知識產權，但在某些地區，當地出版商根據許可協議負責軟件內容的本地化、分發和產品在其各自市場的營銷。
Changes in foreign currency exchange rates increased total operating expenses by $1.2 for the three months ended September 30, 2024, as compared to the prior year period.
Selling and marketing
Selling and marketing expenses increased by $126.7 for the three months ended September 30, 2024, as compared to the prior year period, due primarily to higher overall marketing expenses for Match Factory!, with no corresponding expense in the prior fiscal year, Game of Thrones: Legends, andour NBA 2K franchise.
General and administrative
General and administrative expenses increased by $74.7 for the three months ended September 30, 2024, as compared to the prior year period, due primarily to increases in (i) legal fees and contingencies related to the IBM case against Zynga and (ii) personnel expense due to increased headcount.
General and administrative expenses for the three months ended September 30, 2024 and 2023 included occupancy expense (primarily rent, utilities and office expenses) of $19.2 and $16.8, respectively, related to our development studios.
Research and development
Research and development expenses increased by $14.6 for the three months ended September 30, 2024, as compared to the prior year period, primarily due to increases in personnel expense due to increased headcount and IT-related expenses for cloud-based services and IT infrastructure, partially offset by additional R&D related credits related to certain titles.
Depreciation and amortization
Depreciation and amortization expenses increased by $2.0 for the three months ended September 30, 2024, as compared to the prior year period, due primarily to increases in leasehold improvements for office buildouts and IT infrastructure.
Goodwill impairment
Goodwill impairment expenses decreased by $165.4 for the three months ended September 30, 2024, as compared to the prior year period, due to a partial impairment recognized related to one of our reporting units in the prior year (refer to Note 14 - Goodwill and Intangible Assets, Net).
Business reorganization
Business reorganization increased by $13.4 for the three months ended September 30, 2024, as compared to the prior year period, due primarily to the cancellation of titles and employee-related costs as part of our cost reduction program (refer to Note 15 - Business Reorganization).
Interest and other, net
Interest and other, net was expense of $25.9 for the three months ended September 30, 2024, as compared to expense of $31.1 for the prior year period. The net decrease in expense was due primarily to an increase in interest income primarily due
32
to increases in interest rates and a decrease in foreign currency losses. These decreases in expense were partially offset by an increase in interest expense related to our debt transactions (refer to Note 9 - Debt).
Loss on fair value adjustments, net
Loss on fair value adjustments, net was a loss of $1.2 for the three months ended September 30, 2024 as compared to a loss of $2.2 for the prior year period. The change was due primarily to changes in fair value based on the observable price changes of our long-term investments.
Provision for income taxes
The provision for income taxes for the three months ended September 30, 2024 is based on our projected annual effective tax rate for fiscal year 2025, adjusted for specific items that are required to be recognized in the period in which they are incurred. The provision for income taxes was $41.2 for the three months ended September 30, 2024, as compared to the benefit from income taxes of $33.4 for the prior year period.
When compared to the statutory rate of 21%, the effective tax rate of (12.7)% for the three months ended September 30, 2024 was due primarily to tax expense of $104.9 related to an increase in valuation allowance and tax expense of $9.9 related to geographic mix of earnings offset by benefits of $17.2 from tax credits.
In the prior year period, when compared to the statutory rate of 21.0%, the effective tax rate of 5.8% for the three months ended September 30, 2023 was due primarily to tax expense of $56.3 related to an increase in the U.S. valuation allowance, tax expense of $33.5 related to the impairment of nondeductible goodwill, $8.1 related to the revaluation of deferred taxes due to a change in the statutory tax rate in Turkey, offset by tax benefits of $21.6 from tax credits and by the geographic mix of earnings.
The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to decreased tax expense related to the impairment of nondeductible goodwill, decreased tax expense related to the revaluation of deferred taxes due to statutory rate changes in the prior period, offset by increased tax expense from changes in valuation allowance, increased tax expense related to geographic mix of earnings, and decreased tax benefits from tax credits.
The accounting for share-based compensation will increase or decrease our effective tax rate based upon the difference between our share-based compensation expense and the deductions taken on our tax return, which depends on the stock price at the time of the employee award vesting.
We anticipate that additional excess tax benefits or shortfalls from employee stock compensation, tax credits, and changes in our geographic mix of earnings could have a significant impact on our effective tax rate in the future. In addition, we are regularly examined by domestic and foreign taxing authorities. Examinations may result in tax assessments in excess of amounts claimed and the payment of additional taxes. We believe our tax positions comply with applicable tax law, and that we have adequately provided for reasonably foreseeable tax assessments. It is possible that settlement of audits or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.
The American Rescue Plan Act of 2021 (the “ARPA”), among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations. Effective for tax years starting after December 31, 2026 (April 1, 2027 for the Company), the ARPA expands the limitation to cover the next five most highly compensated employees. The ARPA did not have a material impact on our Condensed Consolidated Financial Statements for the three months ended September 30, 2024. We continue to evaluate the potential impact the ARPA may have on our operations and Consolidated Financial Statements in future periods.
The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) includes a new corporate alternative minimum tax (CAMT) of 15% on the adjusted financial statement income (AFSI) of corporations with an average AFSI exceeding $1.0 billion over a consecutive three-year period. The CAMT is effective for taxable year ending March 31, 2024. It is possible that the CAMT could result in an additional tax liability over the regular federal corporate tax liability in a particular year based on differences between book and taxable income. We estimate no tax liability relating to CAMT for the current fiscal year. We will continue to evaluate the potential impact the Inflation Reduction Act may have on our operations and Consolidated Financial Statements in future periods.
The Organization for Economic Co-operation and Development ("OECD") has proposed a global minimum tax of 15% of reported profits, referred to as Pillar Two. Many countries have already implemented or are taking steps to implement Pillar Two. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar Two slightly differently that the model rules and on different timelines. Many aspects of Pillar Two are effective for the fiscal year ending March 31, 2025. Pillar Two could result in additional tax liability over the regular corporate tax liability in a particular jurisdiction to the extent tax expense is less than 15% minimum rate. The impact of Pillar Two was not material to the tax
33
provision for the three months ended September 30, 2024. We will continue to evaluate the impact Pillar Two may have on our operations.
Net loss and Loss per share
For the three months ended September 30, 2024, net loss was $365.5, as compared to a net loss of $543.6 in the prior year period. Basic and diluted loss per share for the three months ended September 30, 2024 was $2.08, as compared to basic and diluted loss per share of $3.20 in the prior year period. Basic weighted average shares of 175.4 were 5.5 shares higher as compared to the prior year period basic weighted average shares, due primarily to normal stock compensation activity. See Note 10 - Loss Per Share to our Condensed Consolidated Financial Statements for additional information.
Six Months Ended September 30, 2024 Compared to September 30, 2023
2024
%
2023
%
Increase/ (decrease)
% Increase/ (decrease)
Total net revenue
$
2,691.3
100.0
%
$
2,583.9
100.0
%
$
107.4
4.2
%
Product costs
415.8
15.4
%
354.6
13.7
%
61.2
17.3
%
Game intangibles
336.9
12.5
%
596.3
23.1
%
(259.4)
(43.5)
%
Licenses
152.3
5.7
%
154.2
6.0
%
(1.9)
(1.2)
%
Internal royalties
146.2
5.4
%
185.4
7.2
%
(39.2)
(21.1)
%
Software development costs and royalties (1)
141.1
5.2
%
198.8
7.7
%
(57.7)
(29.0)
%
Cost of revenue
1,192.3
44.2
%
1,489.3
57.7
%
(297.0)
(19.9)
%
Gross profit
$
1,499.0
55.8
%
$
1,094.6
42.3
%
$
404.4
36.9
%
(1) Includes $6.0 and $14.2 of stock-based compensation expense in 2024 and 2023, respectively, in software development costs and royalties.
For the six months ended September 30, 2024, net revenue increased by $107.4 as compared to the prior year period. The increase was primarily due to an increase in net revenue of (i) $136.8 from Match Factory!, which released in November 2023, (ii) $67.2 from Toon Blast, and (iii) $21.2 from TopSpin 2K25, which released in April 2024. The increase was partially offset by a decrease in net revenue of (i) $38.0 from our NBA 2K franchise, (ii) $27.3 from our Grand Theft Auto franchise, and (iii) $19.6 from our hyper-casual mobile portfolio.
Net revenue from mobile increased by $136.5 and accounted for 54.3% of our total net revenue for six months ended September 30, 2024, as compared to 51.3% for the prior year period. The increase was primarily due to an increase in net revenue from Match Factory! and Toon Blast. These increases were partially offset by a decrease in net revenue from our hyper-casual mobile portfolio. Net revenue from console games decreased by $51.0 and accounted for 37.2% of our total net revenue for the six months ended September 30, 2024, as compared to 40.7% for the prior year period. The decrease was due to a decrease in net revenue from our Grand Theft Auto and NBA 2K franchises. These decreases werepartially offset by an increase in net revenue from TopSpin 2K25.Net revenue from PC and other increased by $21.9 and accounted for 8.5% of our total net revenue for the six months ended September 30, 2024, as compared to 8.0% for the prior year period. The increase was due to an increase in net revenue from our Risk of Rain franchise, whichwas acquired in connection with our acquisition of Gearbox in June 2024 (refer to Note 13 - Acquisitions), our Grand Theft Auto franchise, and No Rest for the Wicked, which released for early access in April 2024. These increases were partially offset by a decrease in net revenue from our Red Dead Redemption franchise, which included our August 2023 release of Red Dead Redemption and Undead Nightmare.
Recurrent consumer spending ("RCS") is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, in-game purchases, and in-game advertising. Net revenue from RCS increased by $107.9 and accounted for 80.9% of net revenue for the six months ended September 30, 2024, as compared to 80.1% of net revenue for the prior year period. The increase was primarily due to an increase in net revenue from Match Factory! and Toon Blast. These increases were partially offset by a decrease in net revenue from our Grand Theft Auto franchise, our hyper-casual mobile portfolio, Merge Dragons!, and our NBA 2K franchise. Net revenue from full game and other decreased by $0.5 and accounted for 19.1% of net revenue for the six months ended September 30, 2024 as compared to 19.9% of net revenue for the prior year period. The decrease was due to a decrease in net revenue from our NBA 2K franchise. This decrease was partially offset by an increase in net revenue from TopSpin 2K25.
Net revenue from digital online channels increased by $115.8 and accounted for 96.4% of our total net revenue for the six months ended September 30, 2024, as compared to 96.0% for the prior year period. The increase was primarily due to an increase in net revenue from Match Factory! and Toon Blast. This increase was partially offset by a decrease in net revenue
34
from our NBA 2K and Grand Theft Auto franchises, and our hyper-casual mobile portfolio.Net revenue from physical retail and other channels decreased by $8.4 and accounted for 3.6% of our total net revenue for the six months ended September 30, 2024, as compared to 4.0% for the same period in the prior year period. The decrease in net revenue from physical retail and other channels was due primarily to a decrease in net revenue from our NBA 2K franchise and LEGO 2K Drive. These decreases were partially offset by an increase in net revenue from TopSpin 2K25.
Gross profit as a percentage of net revenue for the six months ended September 30, 2024 was 55.8% as compared to 42.3% for the prior year period. The increase in gross profit as a percentage of net revenue was primarily due to lower amortization of intangible assets due primarily to impairment charges in the prior year for acquisition-related intangible assets.
Changes in foreign currency exchange rates decreased net revenue by $0.8 and decreased gross profit by $0.4 for the six months ended September 30, 2024 as compared to the prior year period.
Operating Expenses
2024
% of net revenue
2023
% of net revenue
Increase/ (decrease)
% Increase/ (decrease)
Selling and marketing
$
892.7
33.2
%
$
734.0
28.4
%
$
158.7
21.6
%
Research and development
466.5
17.3
%
470.7
18.2
%
(4.2)
(0.9)
%
General and administrative
463.5
17.2
%
376.2
14.6
%
87.3
23.2
%
Depreciation and amortization
92.1
3.4
%
85.7
3.3
%
6.4
7.5
%
Goodwill impairment
—
—
%
165.4
6.4
%
(165.4)
(100.0)
%
Business reorganization
66.3
2.5
%
10.6
0.4
%
55.7
525.5
%
Total operating expenses (1)
$
1,981.1
73.6
%
$
1,842.6
71.3
%
$
138.5
7.5
%
(1) Includes stock-based compensation expense, which was allocated as follows:
2024
2023
Selling and marketing
$
45.7
$
48.9
Research and development
49.4
52.5
General and administrative
60.4
53.5
Changes in foreign currency exchange rates decreased total operating expenses by $0.8 for the six months ended September 30, 2024, as compared to the prior year period.
Selling and marketing
Selling and marketing expenses increased by $158.7 for the six months ended September 30, 2024, as compared to the prior year period, due primarily to higher overall marketing expenses for Match Factory!, with no corresponding expense in the prior fiscal year.
Research and development
Research and development expenses decreased by $4.2 for the six months ended September 30, 2024, as compared to the prior year period, due primarily to the timing of tax related credits for certain titles, partially offset by an increase in personnel expense due to increased headcount and IT-related expenses for cloud-based services and IT infrastructure.
General and administrative
General and administrative expenses increased by $87.3 for the six months ended September 30, 2024, as compared to the prior year period, due to increases in (i) legal fees and contingencies related to the IBM case against Zynga, (ii) personnel expense due to increased headcount, and (iii) IT-related expenses for cloud-based services and IT infrastructure.
General and administrative expenses for the six months ended September 30, 2024 and 2023 included occupancy expense (primarily rent, utilities and office expenses) of $36.4 and $33.6, respectively, related to our development studios.
Depreciation and amortization
Depreciation and amortization expenses increased by $6.4 for the six months ended September 30, 2024, as compared to the prior year period, primarily due to an increase in IT infrastructure and leasehold improvements for office buildouts.
35
Goodwill impairment
Goodwill impairment expenses decreased by $165.4 for the six months ended September 30, 2024, as compared to the prior year period, due to a partial impairment recognized related to one of our reporting units in the prior year (refer to Note 14 - Goodwill and Intangible Assets, Net).
Business reorganization
Business reorganization increased by $55.7 for the six months ended September 30, 2024, as compared to the prior year period, due primarily to the cancellation of titles and employee-related costs as part of our cost reduction program (refer to Note 15 - Business Reorganization).
Interest and other, net
Interest and other, net was expense of $50.1 for the six months ended September 30, 2024, as compared to $56.5 for the prior year period. The net decrease in expense was due primarily to an increase in interest income primarily due to increases in interest rates and a decrease in foreign currency losses. These decreases in expense were partially offset by an increase in interest expense related to our debt transactions (refer to Note 9 - Debt) and a gain on debt extinguishment recognized in the prior year on the partial repayment of our 2024 Notes.
Loss on fair value adjustments, net
Loss on fair value adjustments, net was $4.3 for the six months ended September 30, 2024 as compared to $1.4 for the prior year period. The change was due primarily to changes in fair value based on the observable price changes of our long-term investments.
Provision for Income Taxes
The provision for income taxes for the six months ended September 30, 2024 is based on our projected annual effective tax rate for fiscal year 2025, adjusted for specific items that are required to be recognized in the period in which they are incurred. The provision for income taxes was $91.0 for the six months ended September 30, 2024, as compared to the benefit from income taxes of $56.3 for the prior year period.
When compared to the statutory rate of 21%, the effective tax rate of (17.0)% for the six months ended September 30, 2024 was due primarily to tax expense of $201.8 related to an increase in the U.S. valuation allowance, tax expense of $18.1 related to geographic mix of earnings offset by benefits of $35.0 from tax credits.
In the prior year period, when compared to the statutory rate of 21.0%, the effective tax rate of 7.0% for the six months ended September 30, 2023 was due primarily to tax expense of $81.6 related to an increase in the U.S. valuation allowance, tax expense of $33.5 related to the impairment of nondeductible goodwill, $8.1 related to the revaluation of deferred taxes due to a change in the statutory tax rate in Turkey, offset by tax benefits of $42.0 from tax credits and by the geographic mix of earnings.
The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to decreased tax expense related to the impairment of nondeductible goodwill, decreased tax expense related to the revaluation of deferred taxes due to statutory rate changes in the prior period and decreased tax expense from employee stock-based compensation, offset by increased tax expense from changes in valuation allowance, increased tax expense related to geographic mix of earnings, and decreased tax benefits from tax credits.
The accounting for share-based compensation will increase or decrease our effective tax rate based upon the difference between our share-based compensation expense and the deductions taken on our tax return, which depends on the stock price at the time of the employee award vesting.
We anticipate that additional excess tax benefits or shortfalls from employee stock compensation, tax credits, and changes in our geographic mix of earnings could have a significant impact on our effective tax rate in the future. In addition, we are regularly examined by domestic and foreign taxing authorities. Examinations may result in tax assessments in excess of amounts claimed and the payment of additional taxes. We believe our tax positions comply with applicable tax law, and that we have adequately provided for reasonably foreseeable tax assessments. It is possible that settlement of audits or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.
The American Rescue Plan Act of 2021 (the “ARPA”), among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations. Effective for tax years starting after December 31, 2026 (April 1, 2027 for the Company), the ARPA expands the limitation to cover the next five most highly compensated employees. The ARPA did not have a material impact on our Condensed Consolidated Financial
36
Statements for the six months ended September 30, 2024. We continue to evaluate the potential impact the ARPA may have on our operations and Consolidated Financial Statements in future periods.
The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) includes a new corporate alternative minimum tax (CAMT) of 15% on the adjusted financial statement income (AFSI) of corporations with an average AFSI exceeding $1.0 billion over a consecutive three-year period. The CAMT is effective for taxable year ending March 31, 2024. It is possible that the CAMT could result in an additional tax liability over the regular federal corporate tax liability in a particular year based on differences between book and taxable income. We estimate no tax liability relating to CAMT for the current fiscal year. We will continue to evaluate the potential impact the Inflation Reduction Act may have on our operations and Consolidated Financial Statements in future periods.
The Organization for Economic Co-operation and Development ("OECD") has proposed a global minimum tax of 15% of reported profits, referred to as Pillar Two. Many countries have already implemented or are taking steps to implement Pillar Two. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar Two slightly differently that the model rules and on different timelines. Many aspects of Pillar Two are effective for the fiscal year ending March 31, 2025. Pillar Two could result in additional tax liability over the regular corporate tax liability in a particular jurisdiction to the extent tax expense is less than 15% minimum rate. The impact of Pillar Two was not material to the tax provision for the six months ended September 30, 2024. We will continue to evaluate the impact Pillar Two may have on our operations.
Net loss and loss per share
For the six months ended September 30, 2024, net loss was $627.5, as compared to net loss of $749.6 in the prior year period. For the six months ended September 30, 2024, basic and diluted loss per share was $3.61 as compared to basic and diluted loss per share of $4.42 in the prior year period. Basic weighted average shares of 173.8 were 4.2 shares higher as compared to the prior year period basic weighted average shares, due primarily to normal stock compensation activity, including vests as well as grants and forfeitures in the prior year being fully outstanding in the current year, as well as stock issued as consideration for the acquisition of Gearbox. See Note 10 - Loss Per Share to our Condensed 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) tax payments, and (vi) acquisitions. We expect to rely on cash and cash equivalents as well as on short-term investments, funds provided by our operating activities, and our 2022 Credit Agreement to satisfy our working capital needs. Refer to Note 9 - Debt for additional discussion of our outstanding debt obligations.
Short-term investments
As of September 30, 2024, we had $3.5 of short-term investments, which primarily consisted of bank time deposits with maturities greater than 90 days. From time to time, we may make additional short-term investments depending on future market conditions and liquidity needs.
Senior Notes
As of September 30, 2024, we had $3,650.0 of Senior Notes outstanding.
Credit Agreement
As of September 30, 2024, there were no borrowings under the 2022 Credit Agreement, and we had approximately $747.7 available for additional borrowings.
Convertible Notes
The 2026 Convertible Notes mature on December 15, 2026, unless earlier converted, redeemed, or repurchased in accordance with their terms, prior to the maturity date. The 2026 Convertible Notes do not bear regular interest, and the principal amount does not accrete. An aggregate principal amount of $29.4 of the 2026 Convertible Notes remained outstanding at September 30, 2024.
37
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 our customers 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 82.2% and 79.5% of net revenue during the six months ended September 30, 2024 and 2023, respectively. As of September 30, 2024 and March 31, 2024, five customers accounted for 77.4% and 69.9% of our gross accounts receivable, respectively. Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 67.2% and 57.7% of such balances at September 30, 2024 and March 31, 2024, respectively. We had three customers who accounted for 33.9%, 17.8%, and 15.5% of our gross accounts receivable as of September 30, 2024, and three customers who accounted for 21.8%, 18.1%, and 16.9% of our gross accounts receivable as of March 31, 2024. We did not have any additional customers that exceeded 10% of our gross accounts receivable as of September 30, 2024, and March 31, 2024. Based upon performing ongoing credit evaluations, maintaining trade credit insurance on a majority of our customers who sell our physical products, and our past collection experience, we believe that the receivable balances from these largest customers do not represent a significant credit risk, although we actively monitor each customer's creditworthiness and economic conditions that may affect our customers' business and access to capital. 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.
We believe that our current cash and cash equivalents, short-term investments, and projected cash flow from operations, along with availability under our 2022 Credit Agreement will provide us with sufficient liquidity to satisfy our cash requirements for working capital, capital expenditures, and commitments on both a short-term and long-term basis.
As of September 30, 2024, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $664.3. These balances are dispersed across various locations around the world. We believe that such dispersion meets the business and liquidity needs of our foreign affiliates. In addition, we expect to have the ability to generate sufficient cash domestically to support ongoing operations for the foreseeable future.
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 three months ended September 30, 2024, we did not repurchase shares of our common stock in the open market, as part of the program. We have repurchased a total of 11.7 shares of our common stock under the program, and as of September 30, 2024, 10.0 shares of our common stock remained available for repurchase under the share repurchase program.
Our changes in cash flows were as follows:
Six Months Ended September 30,
(millions of dollars)
2024
2023
Net cash (used in) provided by operating activities
$
(319.4)
$
69.8
Net cash (used in) provided by investing activities
(68.0)
60.3
Net cash provided by (used in) financing activities
597.0
(71.1)
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash and cash equivalents
8.0
(7.4)
Net change in cash, cash equivalents, and restricted cash and cash equivalents
$
217.6
$
51.6
At September 30, 2024, we had $1,319.6 of cash and cash equivalents and restricted cash and cash equivalents, compared to $1,102.0 at March 31, 2024. The increase was primarily due to Net cash provided by financing activities, primarily related to proceeds from the issuance of our 2029 Notes and 2034 Notes (refer to Note 9 - Debt). This increase was partially offset by the decrease in (i) Net cash used in operating activities, which was due primarily to investments in software
38
development and licenses, partially offset by sales of our products and (ii) Net cash used in investing activities which was due primarily to the purchase of fixed assets and our immaterial investments.
In fiscal year 2025, we anticipate capital expenditures to be approximately $150.0. During the six months ended September 30, 2024, capital expenditures were $71.9.
International Operations
Net revenue earned outside of the United States is principally generated by our operations in Europe, Asia, Australia, Canada, and Latin America. For the three months ended September 30, 2024 and 2023, 39.8% and 38.8%, respectively, of our net revenue was earned outside the United States. We are subject to risks inherent in foreign trade, including increased credit risks, tariffs and duties, fluctuations in foreign currency exchange rates, shipping delays and international political, regulatory and economic developments, all of which can have a significant effect on our operating results.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from fluctuations in market rates and prices. Our market risk exposures primarily include fluctuations in interest rates and foreign currency exchange rates.
Interest Rate Risk
Our exposure to fluctuations in interest rates relates primarily to our short-term investment portfolio and variable rate debt under the 2022 Credit Agreement.
We seek to manage our interest rate risk by maintaining a short-term investment portfolio that includes corporate bonds with high credit quality and maturities of less than two years. Since short-term investments mature relatively quickly and can be reinvested at the then-current market rates, interest income on a portfolio consisting of short-term securities is more subject to market fluctuations than a portfolio of longer-term maturities. However, the fair value of a short-term portfolio is less sensitive to market fluctuations than a portfolio of longer-term securities. We do not currently use derivative financial instruments in our short-term investment portfolio. Our investments are held for purposes other than trading.
As of September 30, 2024, we had $3.5 of short-term investments, which included $0.0 of available-for-sale securities. The available-for-sale securities were recorded at fair market value with unrealized gains or losses resulting from changes in fair value reported as a separate component of Accumulated other comprehensive loss, in Stockholders' equity. We also had $876.1 of cash and cash equivalents that are comprised primarily of money market funds and bank-time deposits. We determined that, based on the composition of our investment portfolio, there was no material interest rate risk exposure to our Condensed Consolidated Financial Statements or liquidity as of September 30, 2024.
Historically, fluctuations in interest rates have not had a significant effect on our operating results.
Under our 2022 Credit Agreement, loans will bear interest at a rate of (a) 0.000% to 0.625% above an alternate base rate (8.00% at September 30, 2024) or (b) 1.000% to 1.625% above SOFR, approximately 4.84% at September 30, 2024, which rates are determined by the Company's credit rating. At September 30, 2024, there were no borrowings under our 2022 Credit Agreement.
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Foreign Currency Exchange Rate Risk
We transact business in foreign currencies and are exposed to risks resulting from fluctuations in foreign currency exchange rates. In particular, during the six months ended September 30, 2023, there was a significant devaluation of the Turkish Lira against the U.S. Dollar, which negatively affected our results. It is possible that further devaluations could occur, which would have a negative impact on our results. Accounts relating to foreign operations are translated into U.S. dollars using prevailing exchange rates at the relevant period end. Translation adjustments are included as a separate component of Stockholders' equity on our Condensed Consolidated Balance Sheets.
For the three months ended September 30, 2024 and 2023, our foreign currency translation adjustment was a gain of $71.6 and a loss of $63.1, respectively. For the three months ended September 30, 2024 and 2023, we recognized a foreign currency exchange transaction loss of $3.4 and a loss of $5.5, respectively, included in Interest and other, net in our Condensed Consolidated Statements of Operations. For the six months ended September 30, 2024 and 2023, our foreign currency translation adjustment was a gain of $66.2 and a loss of $37.1, respectively. For the six months ended September 30, 2024 and 2023, we recognized a foreign currency exchange transaction loss of $6.2 and a loss of $19.3, respectively, included in Interest and other, net in our Condensed Consolidated Statements of Operations.
Balance Sheet Hedging Activities
We use foreign currency forward contracts to mitigate foreign currency exchange rate risk associated with non-functional currency denominated cash balances and intercompany funding loans, non-functional currency denominated accounts receivable and non-functional currency denominated accounts payable. These transactions are not designated as hedging instruments and are accounted for as derivatives whereby the fair value of the contracts is reported as either assets or liabilities on our Condensed Consolidated Balance Sheets, and gains and losses resulting from changes in the fair value are reported in Interest and other, net, in our Condensed Consolidated Statements of Operations. We do not enter into derivative financial contracts for speculative or trading purposes.
At September 30, 2024, we had $332.6 of forward contracts outstanding to sell foreign currencies in exchange for U.S. dollars and $156.9 of forward contracts outstanding to buy foreign currencies in exchange for U.S. dollars, all of which have maturities of less than one year. At March 31, 2024, we had $243.0 of forward contracts outstanding to sell foreign currencies in exchange for U.S. dollars and $72.2 of forward contracts outstanding to buy foreign currencies in exchange for U.S. dollars, all of which had maturities of less than one year. For the three months ended September 30, 2024 and 2023, we recorded a loss of $3.3 and a gain of $3.6, respectively, related to foreign currency forward contracts in Interest and other, net on our Condensed Consolidated Statements of Operations. For the six months ended September 30, 2024 and 2023, we recorded a gain of $0.2 and a gain of $7.4, respectively, related to foreign currency forward contracts in Interest and other, net on our Condensed Consolidated Statements of Operations. As of September 30, 2024 and March 31, 2024, the fair value of these outstanding forward contracts were immaterial and were included in Accrued expenses and other current liabilities. The fair value of these outstanding forward contracts is estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period.
Our hedging programs are designed to reduce, but do not entirely eliminate, the effect of currency exchange rate movements. We believe that the counterparties to these foreign currency forward contracts are creditworthy multinational commercial banks and that the risk of counterparty nonperformance is not material. Notwithstanding our efforts to mitigate some foreign currency exchange rate risks, there can be no assurance that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations. For the three months ended September 30, 2024, 39.8% of our revenue was generated outside the United States. Using sensitivity analysis, a hypothetical 10% increase in the value of the U.S. dollar against all currencies would decrease revenues by 4.0%, while a hypothetical 10% decrease in the value of the U.S. dollar against all currencies would increase revenues by 4.0%. In our opinion, a substantial portion of this fluctuation would be offset by cost of revenue and operating expenses incurred in local currency.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act") were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On June 11, 2024, we acquired Gearbox. Our management plans to exclude Gearbox from its assessment of and report on internal control over financial reporting for the fiscal year ending March 31, 2025. We are currently in the process of incorporating the internal controls and procedures for Gearbox into our internal control over financial reporting for purposes of our assessment of and report on internal control over financial reporting for the fiscal year ending March 31, 2026.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.
There have been no material changes to the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Share Repurchase Program—Our Board of Directors previously authorized the repurchase of up to 21.7 shares of our common stock. The authorizations permit us to 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 may be suspended or discontinued at any time for any reason.
During the three months ended September 30, 2024, we did not repurchase any shares of our common stock in the open market, as part of the program. As of September 30, 2024, we had repurchased a total of 11.7 shares of our common stock under this program, and 10.0 shares of common stock remained available for repurchase under our share repurchase program. The table below details the share repurchases made by us during the three months ended September 30, 2024:
Period
Shares purchased
Average price per share
Total number of shares purchased as part of publicly announced plans or programs
Maximum number of shares that may yet be purchased under the repurchase program
July 1-31, 2024
—
$
—
—
10.0
August 1-31, 2024
—
$
—
—
10.0
September 1-30, 2024
—
$
—
—
10.0
Item 5. Other Information
Securities Trading Plans of Directors and Executive Officers
Our Section 16 officers and directors, as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934 (the “Exchange Act”), may from time to time enter into plans for the purchase or sale of our common stock that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act. During the quarter ended September 30, 2024, no Section 16 officer or director, as define in Rule 16a-1(f), adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as defined in Item 408 of Regulation S-K.
Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2024 (Unaudited) and March 31, 2024, (ii) Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2024 and 2023 (Unaudited), (iii) Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended September 30, 2024 and 2023 (Unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2024 and 2023 (Unaudited), (v) Condensed Consolidated Statements of Equity for the three and six months ended September 30, 2024 and 2023 (Unaudited); and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.