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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2021

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

Commission file number 001-34003

TAKE-TWO INTERACTIVE SOFTWARE, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

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

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

Title of each class			Trading symbol			Name of each exchange on which registered
Common Stock, $.01 par value			TTWO			NASDAQ Global Select Market

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

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

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

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

Large accelerated filer

ý

Accelerated filer

o

Non-accelerated filer

o

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of July 22, 2021, there were 116,518,331 shares of the Registrant's Common Stock outstanding, net of treasury stock.

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Table of Contents

INDEX

PART I.			FINANCIAL INFORMATION			2
Item 1.			Financial Statements (Unaudited)			2
			Condensed Consolidated Balance Sheets			2
			Condensed Consolidated Statements of Operations			3
			Condensed Consolidated Statements of Comprehensive Income			4
			Condensed Consolidated Statements of Cash Flows			5
			Condensed Consolidated Statements of Equity			6
			Notes to Condensed Consolidated Financial Statements			7
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			30
Item 4.			Controls and Procedures			31
PART II.			OTHER INFORMATION			32
Item 1.			Legal Proceedings			32
Item 1A.			Risk Factors			32
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 6.			Exhibits			33
			Signatures			34

(All other items in this report are inapplicable)

1

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

			June 30, 2021						March 31, 2021
			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	1,400,876					$	1,422,884
Short-term investments			1,135,188						1,308,692
Restricted cash and cash equivalents			653,069						538,822
Accounts receivable, net of allowances of $350 and $350 at June 30, 2021 and March 31, 2021, respectively			487,171						552,762
Inventory			11,491						17,742
Software development costs and licenses			14,620						43,443
Deferred cost of goods sold			10,820						15,524
Prepaid expenses and other			300,377						320,646
Total current assets			4,013,612						4,220,515
Fixed assets, net			224,880						149,364
Right-of-use assets			163,464						164,763
Software development costs and licenses, net of current portion			607,207						490,892
Goodwill			645,591						535,306
Other intangibles, net			305,707						121,591
Deferred tax assets			78,383						90,206
Long-term restricted cash and cash equivalents			103,433						98,541
Other assets			171,978						157,040
Total assets			$	6,314,255					$	6,028,218
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable			$	67,136					$	71,001
Accrued expenses and other current liabilities			1,242,312						1,204,090
Deferred revenue			824,520						928,029
Lease liabilities			31,361						31,595
Total current liabilities			2,165,329						2,234,715
Non-current deferred revenue			51,318						37,302
Non-current lease liabilities			156,951						159,671
Non-current software development royalties			111,652						110,127
Other long-term liabilities			197,698						154,511
Total liabilities			$	2,682,948					$	2,696,326
Commitments and contingencies (See Note 13)
Equity:
Take-Two Interactive Software, Inc. stockholders' equity
Preferred stock, $.01 par value, 5,000 shares authorized; no shares issued and outstanding at June 30, 2021 and March 31, 2021			—						—
Common stock, $.01 par value, 200,000 shares authorized; 138,846 and 137,584 shares issued and 116,425 and 115,163 outstanding at June 30, 2021 and March 31, 2021, respectively			1,389						1,376
Additional paid-in capital			2,417,658						2,288,781
Treasury stock, at cost; 22,421 common shares at June 30, 2021 and March 31, 2021			(820,572)						(820,572)
Retained earnings			2,023,227						1,870,971
Accumulated other comprehensive loss			(2,770)						(8,664)
Total Take-Two Interactive Software, Inc. stockholders' equity			3,618,932						3,331,892
Non-controlling interest (See Note 15)			12,375						—
Total equity			$	3,631,307					$	3,331,892
Total liabilities and equity			$	6,314,255					$	6,028,218

   See accompanying Notes.

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share amounts)

			Three Months Ended June 30,
			2021						2020
Net revenue			$	813,346					$	831,310
Cost of goods sold			329,715						476,689
Gross profit			483,631						354,621
General and administrative			104,447						102,173
Selling and marketing			103,854						84,779
Research and development			92,294						73,108
Depreciation and amortization			12,465						12,418
Business reorganization			97						—
Total operating expenses			313,157						272,478
Income from operations			170,474						82,143
Interest and other, net			(1,027)						8,218
Gain on long-term investments, net			1,997						—
Income before income taxes			171,444						90,361
Provision for income taxes			19,188						1,856
Net income			$	152,256					$	88,505
Earnings per share:
Basic earnings per share			$	1.32					$	0.78
Diluted earnings per share			$	1.30					$	0.77

 See accompanying Notes.

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)

			Three Months Ended June 30,
			2021						2020
Net income			$	152,256					$	88,505
Other comprehensive income:
Foreign currency translation adjustment			6,132						4,701
Cash flow hedges:
Change in unrealized gains			—						(3,817)
Reclassification to earnings			—						(1,333)
Tax effect on effective cash flow hedges			—						845
Change in fair value of effective cash flow hedge			—						(4,305)
Change in fair value of available for sale securities			(238)						5,849
Other comprehensive income			5,894						6,245
Comprehensive income			$	158,150					$	94,750

   

See accompanying Notes.

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

			Three Months Ended June 30,
			2021						2020
Operating activities:
Net income			$	152,256					$	88,505
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and impairment of software development costs and licenses			24,511						57,441
Depreciation			12,464						12,298
Amortization and impairment of intellectual property			15,215						4,986
Stock-based compensation			49,050						53,411
Other, net			13,802						(2,924)
Changes in assets and liabilities:
Accounts receivable			74,681						(91,846)
Inventory			6,336						(131)
Software development costs and licenses			(85,887)						(60,219)
Prepaid expenses and other assets			17,622						80,759
Deferred revenue			(94,660)						153,525
Deferred cost of goods sold			4,850						5,398
Accounts payable, accrued expenses and other liabilities			(41,998)						144,220
Net cash provided by operating activities			148,242						445,423
Investing activities:
Change in bank time deposits			311,893						(161,026)
Proceeds from available-for-sale securities			161,151						117,738
Purchases of available-for-sale securities			(302,485)						(188,372)
Purchases of fixed assets			(86,433)						(8,905)
Purchases of long-term investments			(96)						(6,900)
Business acquisitions			(97,887)						—
Net cash used in investing activities			(13,857)						(247,465)
Financing activities:
Tax payment related to net share settlements on restricted stock awards			(48,261)						(38,506)
Issuance of common stock			9,230						6,503
Net cash used in financing activities			(39,031)						(32,003)
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash and cash equivalents			1,777						1,925
Net change in cash, cash equivalents, and restricted cash and cash equivalents			97,131						167,880
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of year (1)			2,060,247						1,993,392
Cash, cash equivalents, and restricted cash and cash equivalents, end of period (1)			$	2,157,378					$	2,161,272

(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.

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(in thousands)

						Three Months Ended June 30, 2021
						Take-Two Interactive Software, Inc. stockholders
						Common Stock												Additional Paid-in Capital						Treasury Stock												Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Non-controlling interest (Note 15)						Total Equity
						Shares						Amount												Shares						Amount
Balance, March 31, 2021						137,584						$	1,376					$	2,288,781					(22,421)						$	(820,572)					$	1,870,971					$	(8,664)					$	—					$	3,331,892
Net income						—						—						—						—						—						152,256						—						—						152,256
Change in cumulative foreign currency translation adjustment						—						—						—						—						—						—						6,132						—						6,132
Net unrealized gain on available-for-sale securities, net of taxes						—						—						—						—						—						—						(238)						—						(238)
Stock-based compensation						—						—						73,767						—						—						—						—						—						73,767
Issuance of restricted stock, net of forfeitures and cancellations						943						9						(9)						—						—						—						—						—						—
Net share settlement of restricted stock awards						(266)						(2)						(48,259)						—						—						—						—						—						(48,261)
Employee share purchase plan settlement						70						1						9,229						—						—						—						—						—						9,230
Issuance of shares related to Nordeus acquisition						515						5						94,149						—						—						—						—						—						94,154
Call option related to Nordeus Acquisition						—						—						—						—						—						—						—						12,375						12,375
Balance, June 30, 2021						138,846						$	1,389					$	2,417,658					(22,421)						$	(820,572)					$	2,023,227					$	(2,770)					$	12,375					$	3,631,307

						Three Months Ended June 30, 2020
						Common Stock												Additional Paid-in Capital						Treasury Stock												Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Total Stockholders' Equity
						Shares						Amount												Shares						Amount
Balance, March 31, 2020						135,927						$	1,359					$	2,134,748					(22,421)						$	(820,572)					$	1,282,085					$	(58,376)					$	2,539,244
Net income						—						—						—						—						—						88,505						—						88,505
Change in cumulative foreign currency translation adjustment						—						—						—						—						—						—						4,701						4,701
Change in gains on cash flow hedge, net						—						—						—						—						—						—						(4,305)						(4,305)
Net unrealized gain on available-for-sale securities, net of taxes						—						—						—						—						—						—						5,849						5,849
Stock-based compensation						—						—						49,037						—						—						—						—						49,037
Repurchased common stock						—						—						—						—						—						—						—						—
Issuance of restricted stock, net of forfeitures and cancellations						979						10						(10)						—						—						—						—						—
Net share settlement of restricted stock awards						(282)						(3)						(38,503)						—						—						—						—						(38,506)
Employee share purchase plan settlement						65						1						6,502						—						—						—						—						6,503
Balance, June 30, 2020						136,689						$	1,367					$	2,151,774					(22,421)						$	(820,572)					$	1,370,590					$	(52,131)					$	2,651,028

See accompanying Notes.

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands, 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 T2 Mobile Games, which includes Socialpoint, Playdots, and Nordeus. Our products are designed for console systems, including but not limited to, Sony's PlayStation®4 ("PS4") and PlayStation 5 ("PS5"), Microsoft's Xbox One® ("Xbox One") and Xbox Series X|S ("Xbox Series X|S"), and Nintendo's Switch™ ("Switch"), personal computers ("PC"), and mobile including smart phones and tablets ("Mobile"), and are delivered through physical retail, digital download, online platforms, and cloud streaming services.

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, are based on full year assumptions when appropriate. Actual results could differ materially from those estimates, including as a result of the COVID-19 pandemic, 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, 2021.

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

Recently Adopted Accounting Pronouncements

Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. We adopted this update effective April 1, 2021. The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements.

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of revenue

Service and other revenue

Service and other revenue is primarily comprised of revenue from game related services, virtual currency transactions, and in-game purchases which are recognized over an estimated service period.

Product revenue

Product revenue 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).

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Net revenue by product revenue and service and other was as follows:

						Three Months Ended June 30,
						2021						2020
Net revenue recognized:
Service and other						$	633,638					$	532,050
Product						179,708						299,260
Total net revenue						$	813,346					$	831,310

Recurrent consumer spending revenue

Recurrent consumer spending revenue is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases.

Full game and other revenue

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 full game and other revenue and recurrent consumer spending was as follows:

						Three Months Ended June 30,
						2021						2020
Net revenue recognized:
Recurrent consumer spending						$	572,266					$	496,853
Full game and other						241,080						334,457
Total net revenue						$	813,346					$	831,310

Geography

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

						Three Months Ended June 30,
						2021						2020
Net revenue recognized:
United States						$	493,186					$	470,490
International						320,160						360,820
Total net revenue						$	813,346					$	831,310

Platform

Net revenue by platform was as follows:

						Three Months Ended June 30,
						2021						2020
Net revenue recognized:
Console						$	602,443					$	611,685
PC and other						128,645						165,260
Mobile						82,258						54,365
Total net revenue						$	813,346					$	831,310

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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 June 30,
						2021						2020
Net revenue recognized:
Digital online						$	740,806					$	735,576
Physical retail and other						72,540						95,734
Total net revenue						$	813,346					$	831,310

Deferred Revenue

We record deferred revenue when payments are due or received in advance of the fulfillment of our associated performance obligations. Deferred revenue, including current and non-current balances as of June 30, 2021 and March 31, 2021 were $875,838 and $965,331, respectively. For the three months ended June 30, 2021, 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 June 30, 2021 and 2020, $463,241 and $371,213, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the respective period. As of June 30, 2021, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is $998,074, which includes our deferred revenue balances and amounts to be invoiced and recognized in future periods. We expect to recognize approximately $878,756 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 June 30, 2021 and March 31, 2021, our contract asset balances were $103,772 and $105,554, respectively, which are recorded within Prepaid expenses and other in our Condensed Consolidated Balance Sheets.

3. MANAGEMENT AGREEMENT

In November 2017, we entered into a new management agreement (the "2017 Management Agreement"), with ZelnickMedia Corporation ("ZelnickMedia") that replaces our previous agreement with ZelnickMedia and pursuant to which ZelnickMedia provides 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, continues to serve as Executive Chairman and Chief Executive Officer of the Company, and Karl Slatoff, a partner of ZelnickMedia, continues to serve as President of the Company. The 2017 Management Agreement provides for an annual management fee of $3,100 over the term of the agreement and a maximum annual bonus opportunity of $7,440 over the term of the agreement, based on the Company achieving certain performance thresholds.

In consideration for ZelnickMedia's services, we recorded consulting expense (a component of General and administrative expenses) of $1,705 and $2,665 during the three months ended June 30, 2021 and 2020, respectively. We recorded stock-based compensation expense for restricted stock units granted to ZelnickMedia, which is included in General and administrative expenses, of $7,218 and $6,740 during the three months ended June 30, 2021 and 2020, respectively.

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In connection with the 2017 Management Agreement, we have granted restricted stock units to ZelnickMedia as follows:

			Three Months Ended June 30,
			2021						2020
Time-based			51						79
Market-based(1)			93						145
Performance-based(1)
IP			16						24
Recurrent Consumer Spending ("RCS")			16						24
Total—Performance-based			32						48
Total Restricted Stock Units			176						272

______________________________________________________________________________

(1)Represents the maximum number of shares eligible to vest.

Time-based restricted stock units granted in fiscal year 2022 will vest on April 13, 2023, and those granted in fiscal year 2021 will vest on April 13, 2022, in each case provided that the 2017 Management Agreement has not been terminated prior to such vesting date.

Market-based restricted stock units granted in fiscal year 2022 are eligible to vest on April 13, 2023, and those granted in fiscal year 2021 are eligible to vest on April 13, 2022, in each case provided that the 2017 Management Agreement has not been terminated prior to such vesting date. 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 the NASDAQ Composite Index as of the grant date measured over a two-year period. 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 in fiscal year 2022 are eligible to vest on April 13, 2023, and those granted in fiscal year 2021 are eligible to vest on April 13, 2022, in each case provided that the 2017 Management Agreement has not been terminated prior to such vesting date. The performance-based restricted stock units, of which 50% are tied to "IP" and 50% to "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" or "RCS" measured over a two-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 portion of time-based, market-based and performance-based restricted stock units held by ZelnickMedia were 449 and 588 as of June 30, 2021 and March 31, 2021, respectively. During the three months ended June 30, 2021, 315 restricted stock units previously granted to ZelnickMedia vested, and no restricted stock units were forfeited by ZelnickMedia.

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.

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•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.

			June 30, 2021						Quoted prices in active markets for identical assets (level 1)						Significant other observable inputs (level 2)						Significant unobservable inputs (level 3)						Balance Sheet Classification
Money market funds			$	633,114					$	633,114					$	—					$	—					Cash and cash equivalents
Bank-time deposits			382,000						382,000						—						—						Cash and cash equivalents
Commercial paper			17,980						—						17,980						—						Cash and cash equivalents
US Agencies			5,000						—						5,000						—						Cash and cash equivalents
Corporate bonds			1,001						—						1,001						—						Cash and cash equivalents
Corporate bonds			661,790						—						661,790						—						Short-term investments
Bank-time deposits			266,869						266,869						—						—						Short-term investments
US Treasuries			55,489						55,489						—						—						Short-term investments
Asset-backed securities			229						—						229						—						Short-term investments
Commercial paper			150,811						—						150,811						—						Short-term investments
Money market funds			642,912						642,912						—						—						Restricted cash and cash equivalents
Bank-time deposits			557						557						—						—						Restricted cash and cash equivalents
Money market funds			103,433						103,433						—						—						Long-term restricted cash and cash equivalents
Private equity			9,670						—						—						9,670						Other assets
Foreign currency forward contracts			(161)						—						(161)						—						Accrued expenses and other current liabilities
Contingent earn-out consideration			(28,294)						—						—						(28,294)						Accrued expenses and other current liabilities
Contingent earn-out consideration			(50,370)						—						—						(50,370)						Other long-term liabilities
Total recurring fair value measurements, net			$	2,852,030					$	2,084,374					$	836,650					$	(68,994)

 

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			March 31, 2021						Quoted prices in active markets for identical assets (level 1)						Significant other observable inputs (level 2)						Significant unobservable inputs (level 3)						Balance Sheet Classification
Money market funds			$	837,614					$	837,614					$	—					$	—					Cash and cash equivalents
Bank-time deposits			95,000						95,000						—						—						Cash and cash equivalents
Commercial paper			100,105						—						100,105						—						Cash and cash equivalents
Corporate bonds			—						—						—						—						Cash and cash equivalents
Money market funds			528,659						528,659						—						—						Restricted cash and cash equivalents
Bank-time deposits			563						563						—						—						Restricted cash and cash equivalents
Corporate bonds			521,224						—						521,224						—						Short-term investments
Bank-time deposits			578,762						578,762						—						—						Short-term investments
US Treasuries			60,086						60,086						—						—						Short-term investments
Commercial paper			148,150						—						148,150						—						Short-term investments
Asset-backed securities			470						—						470						—						Short-term investments
Money market funds			98,541						98,541						—						—						Long-term restricted cash and cash equivalents
Private equity			7,578						—						—						7,578						Other assets
Foreign currency forward contracts			$	(125)					$	—					$	(125)					$	—					Accrued expenses and other current liabilities
Total recurring fair value measurements, net			$	2,976,627					$	2,199,225					$	769,824					$	7,578

In connection with the Nordeus acquisition (see Note 15 - Acquisitions), we recorded $78,664 as the initial fair value of contingent earn-out consideration. Due to the timing of the acquisition, the preliminary initial fair value was estimated using a simplified approach that had a limited number of scenarios and inputs, including projected financial information and relevant discount rates, which are considered significant unobservable Level 3 inputs. Subsequently, we will finalize our initial fair value using several scenarios and additional inputs, including market volatility.

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 three months ended June 30, 2021.

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 June 30, 2021, we held $20,000 of such investments in Other assets within our Condensed Consolidated Balance Sheet.

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5. SHORT-TERM INVESTMENTS

Our Short-term investments consisted of the following:

			June 30, 2021
									Gross Unrealized
			Cost or Amortized Cost						Gains						Losses						Fair Value
Short-term investments
Bank time deposits			$	266,869					$	—					$	—					$	266,869
Available-for-sale securities:
Corporate bonds			661,327						713						(250)						661,790
US Treasuries			55,463						26						—						55,489
Asset-backed securities			229						—						—						229
Commercial paper			150,811						—						—						150,811
Total Short-term investments			$	1,134,699					$	739					$	(250)					$	1,135,188

 

			March 31, 2021
									Gross Unrealized
			Cost or Amortized Cost						Gains						Losses						Fair Value
Short-term investments
Bank time deposits			$	578,762					$	—					$	—					$	578,762
Available-for-sale securities:
Corporate bonds			520,486						994						(256)						521,224
US Treasuries			60,029						57						—						60,086
Asset-backed securities			469						1						—						470
Commercial paper			148,149						1						—						148,150
Total Short-term investments			$	1,307,895					$	1,053					$	(256)					$	1,308,692

The following table summarizes the contracted maturities of our short-term investments at June 30, 2021:

			June 30, 2021
			Amortized Cost						Fair Value
Short-term investments
Due in 1 year or less			$	892,200					$	892,781
Due in 1 - 2 years			242,499						242,407
Total Short-term investments			$	1,134,699					$	1,135,188

6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Our risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. 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.

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Table of Contents

Foreign currency forward contracts

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

			June 30, 2021						March 31, 2021
Forward contracts to sell foreign currencies			$	64,463					$	140,510
Forward contracts to purchase foreign currencies			105,830						92,123

For the three months ended June 30, 2021 and 2020, we recorded a loss of $1,828 and a loss of $2,657, respectively, related to foreign currency forward contracts in Interest and other, net in 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 and certain revenue and expense. 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. INVENTORY

Inventory balances by category were as follows:

			June 30, 2021						March 31, 2021
Finished products			$	10,693					$	16,941
Parts and supplies			798						801
Inventory			$	11,491					$	17,742

Estimated product returns included in Inventory at June 30, 2021 and March 31, 2021 were $220 and $186, respectively.

8. SOFTWARE DEVELOPMENT COSTS AND LICENSES

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

			June 30, 2021												March 31, 2021
			Current						Non-current						Current						Non-current
Software development costs, internally developed			$	7,055					$	504,520					$	22,225					$	412,919
Software development costs, externally developed			3,014						95,966						7,349						75,086
Licenses			4,551						6,721						13,869						2,887
Software development costs and licenses			$	14,620					$	607,207					$	43,443					$	490,892

During the three months ended June 30, 2021 and 2020, we recorded $9,771 and $19,695, respectively, of software development impairment charges (a component of Cost of goods sold). The impairment charge recorded during the three months ended June 30, 2021, and 2020, respectively, related to unamortized capitalized costs for the development of a title, which were anticipated to exceed the net realizable value of the asset at the time they were impaired.

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9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

			June 30, 2021						March 31, 2021
Software development royalties			$	892,023					$	814,998
Compensation and benefits			90,833						122,404
Licenses			82,087						84,330
Deferred acquisition payments			40,382						13,343
Refund liability			33,856						53,361
Marketing and promotions			26,237						32,591
Other			76,894						83,063
Accrued expenses and other current liabilities			$	1,242,312					$	1,204,090

10. DEBT

Credit Agreement

On February 8, 2019, we entered into an unsecured Credit Agreement, and on June 28, 2021, we amended our unsecured Credit Agreement solely to increase the commitments under the facility by $50,000 (as amended, the “Credit Agreement”) that runs through February 8, 2024. The Credit Agreement provides for an unsecured five-year revolving credit facility with commitments of $250,000, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $25,000 and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros, and Canadian Dollars in an aggregate principal amount of up to $25,000. In addition, the Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional $200,000 in term loans or revolving credit facilities.

Loans under the Credit Agreement will bear interest at a rate of (a) 0.250% to 0.750% above a certain base rate (3.25% at June 30, 2021) or (b) 1.125% to