- Published: 02 February 2011
- Written by Editor
Electronic Arts Reports Q3 FY11 Financial Results
Q3 Non-GAAP Net Income Up More than 75% Year-Over-Year
--Q3 Non-GAAP EPS Ahead of Expectations
--Q3 Non-GAAP Digital Revenues Increased 39% Year-Over-Year
--$600 Million Stock Buyback Announced
--Dead Space 2 Launched with 91-Rating
Electronic Arts Inc. (NASDAQ:ERTS) today announced preliminary financial results for its third fiscal quarter ended December 31, 2010.
"We had a solid third quarter with non-GAAP earnings up more than 75% year-over-year," said Eric Brown, Chief Financial Officer. "EA reported 39% growth in digital and is tracking toward our $750 million full year non-GAAP digital revenue target."
"We are pleased to report another strong quarter," said John Riccitiello, Chief Executive Officer. "Our $600 million stock buyback demonstrates our confidence in EA's digital strategy."
Selected Operating Highlights and Metrics:
In 2010, in Western markets, EA was the #1 publisher on high definition consoles (PlayStation(R)3 and Xbox 360(R)). In Western markets in the third quarter, EA was the #1 publisher in the Apple App Store(SM) for both iPhone(R) and iPad(TM) and #1 on Microsoft Windows(R) Phone 7. Two of our third quarter frontline titles, Medal of Honor(TM) and Need For Speed(TM) Hot Pursuit, sold in more than five million units to date. In 2010, EA launched five games which sold in more than five million units each -- FIFA 11, Medal of Honor, Madden NFL 11, Need for Speed Hot Pursuit and Battlefield: Bad Company(TM) 2. EA's SCRABBLE game outsold every book to become the #1 selling item on Kindle in the last week of December. On Facebook(R), Madden NFL Superstars and FIFA Superstars have attracted loyal audiences and good monetization. Dead Space(TM) 2 launched last week with a critical index of 91 -- outscoring the original Dead Space and outselling it two-to-one.
Q3 FY11 Financial Highlights:
Non-GAAP net revenue was $1,410 million, consistent with guidance of $1,375 million to $1,500 million. Non-GAAP EPS were $0.59, at the high end of guidance of $0.50 to $0.60.
(in millions of $ except per share amounts) Quarter Quarter
Ended Ended
12/31/10 12/31/09
Net Digital Revenue $ 195 $ 133
Net Publishing Packaged Goods and Other Revenue 767 845
Net Distribution Packaged Goods Revenue 91 265
----- -----
GAAP Total Net Revenue 1,053 1,243
===== =====
Non-GAAP Net Digital Revenue $ 211 $ 152
Non-GAAP Net Publishing Packaged Goods and Other Revenue 1,108 929
Non-GAAP Net Distribution Packaged Goods Revenue 91 265
----- -----
Non-GAAP Total Net Revenue 1,410 1,346
===== =====
GAAP Net Loss (322 ) (82 )
Non-GAAP Net Income 196 109
GAAP Diluted Loss Per Share (0.97 ) (0.25 )
Non-GAAP Diluted Earnings Per Share 0.59 0.33
Cash Flow from Operations 349 221
Trailing Twelve Month (TTM) Financial Highlights:
(in millions of $ except per share data) Year Year
Ended Ended
12/31/10 12/31/09
GAAP Net Revenue $ 3,478 $ 3,535
GAAP Net Loss (397 ) (749 )
GAAP Diluted Loss Per Share (1.20 ) (2.31 )
Non-GAAP Net Revenue 3,683 3,918
Non-GAAP Net Income 173 2
Non-GAAP Diluted Earnings Per Share 0.52 0.00
Cash Flow from Operations 320 114
Q3 FY11 Digital Metrics:
(in millions) Quarter Quarter
Ended Ended
12/31/10 12/31/09
GAAP Net Mobile Revenue $ 59 $ 56
Monthly Active Users (MAU) in Social Games 39 58
Core Registered Users 98 50
Stock Repurchase Program
EA has announced that its Board of Directors has authorized a program to repurchase up to $600 million of EA's common stock over the next eighteen months.
Under the program, EA may purchase stock in the open market or through privately negotiated transactions in accordance with applicable securities laws, including pursuant to pre-arranged stock trading plans. The timing and actual amount of the stock repurchases will depend on several factors including price, capital availability, regulatory requirements, alternative investment opportunities and other market conditions. EA is not obligated to repurchase any specific number of shares under the program and the repurchase program may be modified, suspended or discontinued at any time.
Business Outlook as of February 1, 2011
The following forward-looking statements, as well as those made above, reflect expectations as of February 1, 2011. Electronic Arts assumes no obligation to update these statements. Results may be materially different and are affected by many factors, including: product development delays; competition in the industry; the health of the economy in the U.S. and abroad and the related impact on discretionary consumer spending; changes in anticipated costs; expected savings and impact on EA's operations of the Company's cost reduction plan; consumer demand for console hardware and the ability of the console manufacturers to produce an adequate supply of consoles to meet that demand; changes in foreign exchange rates; the financial impact of potential future acquisitions by EA; the popular appeal of EA's products; EA's effective tax rate; and other factors detailed in this release and in EA's annual and quarterly SEC filings.
Fourth Quarter Fiscal Year 2011 Expectations -- Ending March 31, 2011
GAAP net revenue is expected to be approximately $975 to $1,075 million. Non-GAAP net revenue is expected to be approximately $850 to $950 million. GAAP diluted earnings per share is expected to be approximately $0.38 to $0.51. Non-GAAP diluted earnings per share is expected to be approximately $0.15 to $0.25. For purposes of calculating fourth quarter fiscal year 2011 earnings per share, the Company estimates a diluted share count of 337 million. Expected non-GAAP net income excludes the following items from expected GAAP net income: Non-GAAP net revenue is expected to be approximately $125 million lower than GAAP net revenue due to the impact of the change in deferred net revenue (packaged goods and digital content); Approximately $40 million of estimated stock-based compensation; Approximately $17 million of acquisition-related expenses; Approximately $5 million of restructuring charges; and Non-GAAP tax expenses are expected to be $14 to $26 million higher than GAAP tax expenses.
Fiscal Year 2011 Expectations -- Ending March 31, 2011
EA is revising its full year FY11 non-GAAP guidance for net revenue and raising the lower end of its earnings per share guidance range.
GAAP net revenue is expected to be approximately $3.473 to $3.573 billion and non-GAAP net revenue is expected to be approximately $3.682 to $3.782 billion. GAAP operating expense is expected to be approximately $2.35 billion and non-GAAP operating expense is expected to be approximately $2.0 billion. GAAP diluted loss per share is expected to be approximately ($0.90) to ($0.77). Non-GAAP diluted earnings per share is expected to be approximately $0.60 to $0.70. For purposes of calculating fiscal year 2011 earnings/(loss) per share, the Company estimates a share count of 331 million for loss per share computations and 334 million for earnings per share computations. Expected non-GAAP net income excludes the following items from expected GAAP net loss: Non-GAAP net revenue is expected to be approximately $209 million higher than GAAP revenue due to the impact of the change in deferred net revenue (packaged goods and digital content); Approximately $176 million of estimated stock-based compensation; Approximately $45 million of acquisition-related expenses; Approximately $167 million of restructuring charges; Approximately $23 million from net gains on sale of strategic investments; and Non-GAAP tax expenses are expected to be $73 to $85 million higher than GAAP tax expenses.
Fiscal Year 2011 Key Titles by Label and Platform
Q1
---
Games Skate(TM) 3 Console
------ ----------------------------------------------- -------
Green Day Rock Band(TM) (1) Console
----------------------------------------------- -------
APB All Points Bulletin (1) PC
----------------------------------------------- --
Sports 2010 FIFA World Cup South Africa(TM) Console Handheld/Mobile
------ ----------------------------------------------- ------- ---------------
Tiger Woods PGA TOUR(R) Online PC
----------------------------------------------- --
Tiger Woods PGA TOUR(R) 11 Console
----------------------------------------------- -------
Q2
---
Games Need for Speed(TM) World PC
------ ----------------------------------------------- --
Sports NCAA(R) Football 11 Console
------ ----------------------------------------------- -------
Madden NFL 11 Console Handheld/Mobile
----------------------------------------------- ------- ---------------
FIFA 11 Console Handheld/Mobile PC
----------------------------------------------- ------- --------------- --
NHL(R) 11 Console
----------------------------------------------- -------
FIFA Online 3 PC
----------------------------------------------- --
Play MySims Skyheroes(TM) Console Handheld/Mobile
------ ----------------------------------------------- ------- ---------------
Q3
---
Games Medal of Honor(TM) Console Handheld/Mobile PC
------ ----------------------------------------------- ------- --------------- --
Need For Speed(TM) Hot Pursuit Console Handheld/Mobile PC
----------------------------------------------- ------- --------------- --
Rock Band(R) 3 (1) Console Handheld/Mobile
----------------------------------------------- ------- ---------------
Sports EA SPORTS(TM) MMA Console Handheld/Mobile
------ ----------------------------------------------- ------- ---------------
FIFA Manager 11 PC
----------------------------------------------- --
NBA Jam Console
----------------------------------------------- -------
EA SPORTS Active NFL Training Camp Console
----------------------------------------------- -------
EA SPORTS Active 2 Console Handheld/Mobile
----------------------------------------------- ------- ---------------
Play HASBRO FAMILY GAME NIGHT 3 Console
------ ----------------------------------------------- -------
LITTLEST PET SHOP 3: Biggest Stars series Handheld/Mobile
----------------------------------------------- ---------------
MONOPOLY Streets Console Handheld/Mobile
----------------------------------------------- ------- ---------------
Harry Potter and the Deathly Hallows(TM) Part 1 Console Handheld/Mobile PC
----------------------------------------------- ------- --------------- --
Create(TM) Console PC
----------------------------------------------- ------- --
The Sims(TM) 3 Console Handheld/Mobile
----------------------------------------------- ------- ---------------
Q4
---
Games Dead Space(TM) 2 Console Handheld/Mobile PC
------ ----------------------------------------------- ------- --------------- --
Dragon Age(TM) 2 Console PC
----------------------------------------------- ------- --
Bulletstorm(TM) (2) Console PC
----------------------------------------------- ------- --
Crysis(R) 2 (2) Console PC
----------------------------------------------- ------- --
Need For Speed(TM) Shift 2 Console PC
----------------------------------------------- ------- --
Rango (1) Console
----------------------------------------------- -------
Sports Fight Night Champion Console
------ ----------------------------------------------- -------
Tiger Woods PGA TOUR 12: The Masters(R) Console Handheld/Mobile
----------------------------------------------- ------- ---------------
Play The Sims(TM) Medieval PC
------ ----------------------------------------------- --
Darkspore(TM) PC
----------------------------------------------- --
Note: (1) Distribution Title, (2) Co-Published Title
The Key Titles Schedule for fiscal year 2011 is current as of February 1, 2011 and is subject to change. Electronic Arts assumes no obligation to update this schedule.
Conference Call and Supporting Documents
Electronic Arts will host a conference call today at 2:00 pm PT (5:00 pm ET) to review its results for the third quarter ended December 31, 2010 and its outlook for the future. During the course of the call, Electronic Arts may disclose material developments affecting its business and/or financial performance. Listeners may access the conference call live through the following dial-in number: (706) 643-3915, access code 37361642, or via webcast at http://ir.ea.com.
EA will also post a slide presentation that accompanies the call at http://ir.ea.com.
A dial-in replay of the conference call will be provided until February 8, 2011 at (706) 645-9291, access code 37361642. A webcast archive of the conference call will be available for one year at http://ir.ea.com.
Non-GAAP Financial Measures
To supplement the Company's unaudited condensed consolidated financial statements presented in accordance with GAAP, Electronic Arts uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP. The non-GAAP financial measures used by Electronic Arts include: non-GAAP net revenue, non-GAAP gross profit, non-GAAP operating income (loss), non-GAAP net income (loss) and historical and estimated non-GAAP diluted earnings (loss) per share. These non-GAAP financial measures exclude the following items, as applicable in a given reporting period, from the Company's unaudited condensed consolidated statements of operations:
Acquisition-related expenses Change in deferred net revenue (packaged goods and digital content) Gain (loss) on strategic investments Loss on lease obligation and facilities acquisition Loss on licensed intellectual property commitment Restructuring charges Stock-based compensation Income tax adjustments
Electronic Arts may consider whether other significant non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.
Electronic Arts believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the Company's performance by excluding certain items that may not be indicative of the Company's core business, operating results or future outlook. Electronic Arts' management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing the Company's operating results both as a consolidated entity and at the business unit level, as well as when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate comparisons of the Company's performance to prior periods.
In addition to the reasons stated above, which are generally applicable to each of the items Electronic Arts excludes from its non-GAAP financial measures, the Company believes it is appropriate to exclude certain items for the following reasons:
Acquisition-Related Expenses. GAAP requires expenses to be recognized for various types of events associated with a business acquisition. These events include, expensing acquired intangible assets, including acquired in-process technology, post-closing adjustments associated with changes in the estimated amount of contingent consideration to be paid in an acquisition, and the impairment of accounting goodwill created as a result of an acquisition when future events indicated there has been a decline in its value. When analyzing the operating performance of an acquired entity, Electronic Arts' management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity as compared to the purchase price paid including the final amounts paid for contingent consideration) without taking into consideration any allocations made for accounting purposes. Because the final purchase price paid for an acquisition necessarily reflects the accounting value assigned to both contingent consideration and to the intangible assets (including acquired in-process technology and goodwill), when analyzing the operating performance of an acquisition in subsequent periods, the Company's management excludes the GAAP impact of any adjustments to the fair value of these acquisition-related balances to its financial results. Electronic Arts believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting expense.
Change in Deferred Net Revenue (Packaged Goods and Digital Content). Electronic Arts is not able to objectively determine the fair value of the online service included in certain of its packaged goods and digital content. As a result, the Company recognizes the revenue from the sale of these games and content over the estimated online service period. In other transactions, at the date we sell the software product we have an obligation to provide incremental unspecified digital content in the future without an additional fee. In these cases, we account for the sale of the software product as a multiple element arrangement and recognize the revenue on a straight-line basis over the estimated life of the game. Internally, Electronic Arts' management excludes the impact of the change in deferred net revenue related to packaged goods games and digital content in its non-GAAP financial measures when evaluating the Company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. The Company believes that excluding the impact of the change in deferred net revenue from its operating results is important to (1) facilitate comparisons to prior periods during which the Company was able to objectively determine the fair value of the online service and not delay the recognition of significant amounts of net revenue related to online-enabled packaged goods and (2) understanding our operations because all related costs are expensed as incurred instead of deferred and recognized ratably.
Gain (Loss) on Strategic Investments. From time to time, the Company makes strategic investments. Electronic Arts' management excludes the impact of any losses and gains on such investments when evaluating the Company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. In addition, the Company believes that excluding the impact of such losses and gains on these investments from its operating results is important to facilitate comparisons to prior periods.
Loss on Lease Obligation and Facilities Acquisition. During the second quarter of fiscal 2010, Electronic Arts completed the acquisition of its headquarters facilities in Redwood City, California pursuant to the terms of the loan financing agreements underlying the build-to-suit leases for the facilities. These leases expired in July 2009, and had previously been accounted for as operating leases. The total amount paid under the terms of the leases was $247 million, of which $233 million related to the purchase price of the facilities and $14 million was for the loss on our lease obligation. In addition, Electronic Arts recorded a tax benefit of approximately $31 million, consisting of approximately $6 million related to the loss on our lease obligation, and a $25 million reduction in our valuation allowance due to the acquisition. As a result of this lease obligation and facility acquisition, on an after-tax basis, Electronic Arts incurred a positive net income effect of $17 million. Electronic Arts' management excluded the effect of this transaction when evaluating the Company's operating performance and when assessing the performance of its management team during this period and will continue to do so, when it plans, forecasts and analyzes future periods.
Loss on Licensed Intellectual Property Commitment. During the fourth quarter of fiscal 2009, Electronic Arts amended an agreement with a content licensor. This amendment resulted in the termination of our rights to use the licensor's intellectual property in certain products and we incurred a related estimated loss of $38 million. This significant non-recurring loss is excluded from our non-GAAP financial measures in order to provide comparability between periods. Further, the Company excluded this loss when evaluating its operating performance and the performance of its management team during this period and will continue to do so when it plans, forecasts and analyzes future periods.
Restructuring Charges. Although Electronic Arts has engaged in various restructuring activities in the past, each has been a discrete, extraordinary event based on a unique set of business objectives. Each of these restructurings has been unlike its predecessors in terms of its operational implementation, business impact and scope. As such, the Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures.
Stock-Based Compensation. When evaluating the performance of its individual business units, the Company does not consider stock-based compensation charges. Likewise, the Company's management teams exclude stock-based compensation expense from their short and long-term operating plans. In contrast, the Company's management teams are held accountable for cash-based compensation and such amounts are included in their operating plans. Further, when considering the impact of equity award grants, Electronic Arts places a greater emphasis on overall shareholder dilution rather than the accounting charges associated with such grants.
Video game platforms have historically had a life cycle of four to six years, which causes the video game software market to be cyclical. The Company's management analyzes its business and operating performance in the context of these business cycles, comparing Electronic Arts' performance at similar stages of different cycles. For comparability purposes, Electronic Arts believes it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of its core business.
Income Tax Adjustments. The Company uses a fixed, long-term projected tax rate of 28 percent internally to evaluate its operating performance, to forecast, plan and analyze future periods, and to assess the performance of its management team. Accordingly, the Company has applied the same 28 percent tax rate to its non-GAAP financial results.
In the financial tables below, Electronic Arts has provided a reconciliation of the most comparable GAAP financial measure to the historical non-GAAP financial measures used in this press release.
Forward-Looking Statements
Some statements set forth in this release, including the estimates relating to EA's fiscal year 2011 guidance information under the heading "Business Outlook", and the fiscal year 2011 key title slate, contain forward-looking statements that are subject to change. Statements including words such as "anticipate", "believe", "estimate" or "expect" and statements in the future tense are forward-looking statements. These forward-looking statements are preliminary estimates and expectations based on current information and are subject to business and economic risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth in the forward-looking statements.
Some of the factors which could cause the Company's results to differ materially from its expectations include the following: sales of the Company's titles; the general health of the U.S. and global economy and the related impact on discretionary consumer spending; fluctuations in foreign exchange rates; consumer spending trends; the Company's ability to manage expenses; the competition in the interactive entertainment industry; the effectiveness of the Company's sales and marketing programs; timely development and release of Electronic Arts' products; the consumer demand for, and the availability of an adequate supply of console hardware units (including the Xbox 360(R) video game and entertainment system, the PlayStation(R)3 computer entertainment system and the Wii(TM)); the Company's ability to predict consumer preferences among competing hardware platforms; the financial impact of recent acquisitions and potential future acquisitions by EA; the Company's ability to realize the anticipated benefits of acquisitions; the seasonal and cyclical nature of the interactive game segment; the Company's ability to attract and retain key personnel; changes in the Company's effective tax rates; the performance of strategic investments; the impact of certain accounting requirements, such as the Company's ability to estimate and recognize goodwill impairment charges and determine deferred tax valuation allowances; adoption of new accounting regulations and standards; potential regulation of the Company's products in key territories; developments in the law regarding protection of the Company's products; the Company's ability to secure licenses to valuable entertainment properties on favorable terms; the stability of the Company's key customers, and other factors described in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2010.
These forward-looking statements are current as of February 1, 2011. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements. In addition, the preliminary financial results set forth in this release are estimates based on information currently available to Electronic Arts.
While Electronic Arts believes these estimates are meaningful, they could differ from the actual amounts that Electronic Arts ultimately reports in its Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2010. Electronic Arts assumes no obligation and does not intend to update these estimates prior to filing its Form 10-Q for the fiscal quarter ended December 31, 2010.
About Electronic Arts
Electronic Arts Inc. (EA), headquartered in Redwood City, California, is a leading global interactive entertainment software company. Founded in 1982, the Company develops, publishes, and distributes interactive software worldwide for video game systems, personal computers, wireless devices and the Internet. Electronic Arts markets its products under four brand names: EA SPORTS(TM), EA(TM), EA Mobile(TM) and POGO(TM). In fiscal 2010, EA posted GAAP net revenue of $3.7 billion and had 27 titles that sold more than one million units. EA's homepage and online game site is www.ea.com. More information about EA's products and full text of press releases can be found on the Internet at http://info.ea.com.
EA, EA SPORTS, EA Mobile, POGO, Dead Space, EA SPORTS Active, Medal of Honor, MySims, MySims SkyHeroes, Need for Speed, Skate, Create, Darkspore and The Sims are trademarks of Electronic Arts Inc. Dragon Age is a trademark of EA International (Studio and Publishing) Ltd. Battlefield: Bad Company is a trademark of EA Digital Illusions CE AB. FAMILY GAME NIGHT, LITTLEST PET SHOP, SCRABBLE and MONOPOLY are trademarks of Hasbro and used with permission. Crysis is a registered trademark of Crytek. HARRY POTTER characters, names and related indicia are trademarks of and (C) Warner Bros. Entertainment Inc. APB All Points Bulletin is a trademark of Realtime Worlds Inc. and its affiliated companies. Bulletstorm is a trademark or registered trademark of People Can Fly in the United States of America and elsewhere. Harmonix, Rock Band, Rock Band 2, Rock Band 3, Rock Band Network and all related titles and logos are trademarks of Harmonix Music Systems, Inc., an MTV Networks company. John Madden is a trademark or other intellectual property of Red Bear, Inc. or John Madden.
NFL is a trademark of the National Football League. NBA is a registered trademark of NBA Properties, Inc. NCAA is a registered trademark of the National Collegiate Athletic Association. 2010 FIFA World Cup South Africa is a trademark of FIFA. 'TIGERWOODS' is a trademark of ETW Corp. PGA TOUR is a registered trademark of PGA TOUR, INC. "Masters" is a trademark of Augusta National, Inc. NHL is a registered trademark of National Hockey League. Microsoft, Windows, Xbox and Xbox 360 are trademarks of the Microsoft group of companies. "PlayStation" is a registered trademark of Sony Computer Entertainment Inc. Wii is a trademark of Nintendo. Apple, iPhone and iPad are trademarks and App Store is a service mark of Apple Inc. Kindle is a registered trademark of Amazon Technologies, Inc. Facebook is a registered trademark of Facebook, Inc. All other trademarks are the property of their respective owners.
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------------ ------------------------------
2010 2009 2010 2009
-------------- -------------- -------------- --------------
Net revenue $ 1,053 $ 1,243 $ 2,499 $ 2,675
Cost of goods sold 586 654 1,171 1,568
----- ----- ----- -----
Gross profit 467 589 1,328 1,107
Operating expenses:
Marketing and sales 253 208 553 559
General and administrative 75 84 226 241
Research and development 273 290 825 918
Acquisition-related contingent consideration 1 - (25 ) -
Amortization of intangibles 14 14 44 38
Restructuring and other 154 100 162 120
----- ----- ----- -----
Total operating expenses 770 696 1,785 1,876
----- ----- ----- -----
Operating loss (303 ) (107 ) (457 ) (769 )
Gain (loss) on strategic investments - (1 ) 23 (25 )
Interest and other income (expense), net - (2 ) 6 8
----- ----- --- ----- -----
Loss before provision for (benefit from) income taxes (303 ) (110 ) (428 ) (786 )
Provision for (benefit from) income taxes 19 (28 ) (1 ) (79 )
----- ----- --- ----- --- ----- ---
Net loss $ (322 ) $ (82 ) $ (427 ) $ (707 )
=== ===== === === ===== === === ===== === === ===== ===
Loss per share
Basic and diluted $ (0.97 ) $ (0.25 ) $ (1.29 ) $ (2.18 )
Number of shares used in computation
Basic and diluted 332 325 330 324
Non-GAAP Results (in millions, except per share data)
The following tables reconcile the Company's net loss and loss per
share as presented in its Unaudited Condensed Consolidated
Statements of Operations and prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") to its non-GAAP net income
and non-GAAP diluted earnings per share.
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------------ ------------------------------
2010 2009 2010 2009
-------------- -------------- -------------- --------------
Net loss $ (322 ) $ (82 ) $ (427 ) $ (707 )
Acquisition-related expenses 18 16 28 46
Change in deferred net revenue (packaged goods and digital content) 357 103 334 634
Loss on lease obligation (G&A) - - - 14
Loss on licensed intellectual property commitment (COGS) - - (1 ) (2 )
Loss (gain) on strategic investments - 1 (23 ) 25
Restructuring and other 154 100 162 120
Stock-based compensation 46 42 136 119
Income tax adjustments (57 ) (71 ) (59 ) (127 )
----- --- ----- --- ----- --- ----- ---
Non-GAAP net income $ 196 $ 109 $ 150 $ 122
=== ===== === ===== === ===== === =====
Non-GAAP diluted earnings per share $ 0.59 $ 0.33 $ 0.45 $ 0.37
Number of shares used in computation
Basic 332 325 330 324
Diluted 335 327 333 326
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
December 31, March 31,
2010 2010 (a)
------------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 1,353 $ 1,273
Short-term investments 511 432
Marketable equity securities 107 291
Receivables, net of allowances of $336 and $217, respectively 390 206
Inventories 105 100
Deferred income taxes, net 22 44
Other current assets 226 239
----- -----
Total current assets 2,714 2,585
Property and equipment, net 502 537
Goodwill 1,107 1,093
Acquisition-related intangibles, net 160 204
Deferred income taxes, net 44 52
Other assets 200 175
----- -----
TOTAL ASSETS $ 4,727 $ 4,646
==== ===== ==== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 162 $ 91
Accrued and other current liabilities 746 717
Deferred net revenue (packaged goods and digital content) 1,100 766
----- -----
Total current liabilities 2,008 1,574
Income tax obligations 184 242
Deferred income taxes, net 4 2
Other liabilities 173 99
----- -----
Total liabilities 2,369 1,917
Common stock 3 3
Paid-in capital 2,504 2,375
Retained earnings (accumulated deficit) (304 ) 123
Accumulated other comprehensive income 155 228
----- -----
Total stockholders' equity 2,358 2,729
----- -----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,727 $ 4,646
==== ===== ==== =====
(a) Derived from audited consolidated financial statements.
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- --------------------------
2010 2009 2010 2009
------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net loss $ (322 ) $ (82 ) $ (427 ) $ (707 )
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Acquisition-related contingent consideration 1 - (25 ) -
Depreciation, amortization and accretion, net 44 48 138 142
Net (gains) losses on investments and sale of property and equipment - (3 ) (24 ) 20
Other non-cash restructuring charges 2 20 1 27
Stock-based compensation 48 68 138 145
Change in assets and liabilities:
Receivables, net 57 162 (180 ) (356 )
Inventories 51 107 (4 ) 77
Other assets (23 ) (19 ) (9 ) (53 )
Accounts payable (47 ) (87 ) 59 36
Accrued and other liabilities 176 (115 ) 34 (42 )
Deferred income taxes, net 5 19 32 (24 )
Deferred net revenue (packaged goods and digital content) 357 103 334 634
----- ----- ----- -----
Net cash provided by (used in) operating activities 349 221 67 (101 )
----- ----- ----- ----- --
INVESTING ACTIVITIES
Purchase of headquarters facilities - - - (233 )
Capital expenditures (15 ) (16 ) (38 ) (50 )
Proceeds from sale of marketable equity securities - 6 132 10
Proceeds from maturities and sales of short-term investments 85 302 282 657
Purchase of short-term investments (105 ) (72 ) (367 ) (477 )
Acquisition-related restricted cash - (100 ) - (100 )
Acquisition of subsidiaries, net of cash acquired (16 ) (275 ) (16 ) (278 )
----- -- ----- -- ----- -- ----- --
Net cash used in investing activities (51 ) (155 ) (7 ) (471 )
----- -- ----- -- ----- -- ----- --
FINANCING ACTIVITIES
Proceeds from issuance of common stock - - 17 25
Excess tax benefit from stock-based compensation - 13 - 13
----- ----- ----- -----
Net cash provided by financing activities - 13 17 38
----- ----- ----- -----
Effect of foreign exchange on cash and cash equivalents (1 ) (7 ) 3 27
----- -- ----- -- ----- -----
Increase (decrease) in cash and cash equivalents 297 72 80 (507 )
Beginning cash and cash equivalents 1,056 1,042 1,273 1,621
----- ----- ----- -----
Ending cash and cash equivalents 1,353 1,114 1,353 1,114
----- ----- ----- -----
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
Q3 Q4 Q1 Q2 Q3 YOY %
FY10 FY10 FY11 FY11 FY11 Change
--------- -------- --------- --------- --------- ------
QUARTERLY RECONCILIATION OF RESULTS
Net Revenue
GAAP net revenue $ 1,243 $ 979 $ 815 $ 631 $ 1,053 (15 %)
Change in deferred net revenue (packaged goods and digital content) 103 (129 ) (276 ) 253 357
----- ---- -- ----- -- ----- -----
Non-GAAP net revenue $ 1,346 $ 850 $ 539 $ 884 $ 1,410 5 %
== ===== == ==== == ===== == ===== == =====
Gross Profit
GAAP gross profit $ 589 $ 681 $ 593 $ 268 $ 467 (21 %)
Change in deferred net revenue (packaged goods and digital content) 103 (129 ) (276 ) 253 357
Acquisition-related expenses 2 2 3 3 3
Loss on licensed intellectual property commitment (COGS) - (1 ) - (1 ) -
Stock-based compensation - 1 1 - 1
----- ---- ----- ----- -----
Non-GAAP gross profit $ 694 $ 554 $ 321 $ 523 $ 828 19 %
== ===== == ==== == ===== == ===== == =====
GAAP gross profit % (as a % of GAAP net revenue) 47 % 70 % 73 % 42 % 44 %
Non-GAAP gross profit % (as a % of non-GAAP net revenue) 52 % 65 % 60 % 59 % 59 %
Operating Income (Loss)
GAAP operating income (loss) $ (107 ) $ 83 $ 98 $ (252 ) $ (303 ) 183 %
Acquisition-related expenses 16 19 20 (10 ) 18
Change in deferred net revenue (packaged goods and digital content) 103 (129 ) (276 ) 253 357
Loss on licensed intellectual property commitment (COGS) - (1 ) - (1 ) -
Restructuring and other 100 20 2 6 154
Stock-based compensation 42 42 47 43 46
----- ---- ----- ----- -----
Non-GAAP operating income (loss) $ 154 $ 34 $ (109 ) $ 39 $ 272 77 %
== ===== == ==== == ===== == == ===== == =====
GAAP operating income (loss) % (as a % of GAAP net revenue) (9 %) 8 % 12 % (40 %) (29 %)
Non-GAAP operating income (loss) % (as a % of non-GAAP net 11 % 4 % (20 %) 4 % 19 %
revenue)
Net Income (Loss)
GAAP net income (loss) $ (82 ) $ 30 $ 96 $ (201 ) $ (322 ) 293 %
Acquisition-related expenses 16 19 20 (10 ) 18
Change in deferred net revenue (packaged goods and digital content) 103 (129 ) (276 ) 253 357
Loss on licensed intellectual property commitment (COGS) - (1 ) - (1 ) -
Loss (gain) on strategic investments 1 1 5 (28 ) -
Restructuring and other 100 20 2 6 154
Stock-based compensation 42 42 47 43 46
Income tax adjustments (71 ) 41 28 (30 ) (57 )
----- -- ---- ----- ----- -- ----- --
Non-GAAP net income (loss) $ 109 $ 23 $ (78 ) $ 32 $ 196 80 %
== ===== == ==== == ===== == == ===== == =====
GAAP net income (loss) % (as a % of GAAP net revenue) (7 %) 3 % 12 % (32 %) (31 %)
Non-GAAP net income (loss) % (as a % of non-GAAP net revenue) 8 % 3 % (14 %) 4 % 14 %
Diluted Earnings (Loss) Per Share
GAAP earnings (loss) per share $ (0.25 ) $ 0.09 $ 0.29 $ (0.61 ) $ (0.97 ) 288 %
Non-GAAP earnings (loss) per share $ 0.33 $ 0.07 $ (0.24 ) $ 0.10 $ 0.59 79 %
Number of shares used in computation
Basic 325 327 328 329 332
Diluted 327 330 332 333 335
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
Q3 Q4 Q1 Q2 Q3 YOY %
FY10 FY10 FY11 FY11 FY11 Change
------- ------- ------- ------ -------- ------
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
Geography Net Revenue
North America 693 510 451 327 528 (24 %)
Europe 489 418 317 262 477 (2 %)
Asia 61 51 47 42 48 (21 %)
------ ------ ---- --- -----
Total GAAP Net Revenue 1,243 979 815 631 1,053 (15 %)
------ ------ ---- --- -----
North America 87 (55 ) (184 ) 142 169
Europe 8 (78 ) (81 ) 122 163
Asia 8 4 (11 ) (11 ) 25
------ ------ ---- --- --- --- -----
Change In Deferred Net Revenue (Packaged Goods and Digital 103 (129 ) (276 ) 253 357
Content)
------ ------ - ---- --- --- -----
North America 780 455 267 469 697 (11 %)
Europe 497 340 236 384 640 29 %
Asia 69 55 36 31 73 6 %
------ ------ ---- --- -----
Total Non-GAAP Net Revenue 1,346 850 539 884 1,410 5 %
====== ====== ==== === =====
North America 56 % 52 % 55 % 52 % 50 %
Europe 39 % 43 % 39 % 41 % 45 %
Asia 5 % 5 % 6 % 7 % 5 %
------ - ------ - ---- --- --- --- ----- ---
Total GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
====== = ====== = ==== === === === ===== ===
North America 58 % 54 % 49 % 53 % 50 %
Europe 37 % 40 % 44 % 43 % 45 %
Asia 5 % 6 % 7 % 4 % 5 %
------ - ------ - ---- --- --- --- ----- ---
Total Non-GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
====== = ====== = ==== === === === ===== ===
Net Revenue Composition (a)
Publishing and Other 845 794 586 441 767 (9 %)
Wireless, Internet-derived, and Advertising (Digital) 133 144 176 161 195 47 %
Distribution 265 41 53 29 91 (66 %)
------ ------ ---- --- -----
Total GAAP Net Revenue 1,243 979 815 631 1,053 (15 %)
------ ------ ---- --- -----
Publishing and Other 84 (141 ) (288 ) 248 341
Wireless, Internet-derived, and Advertising (Digital) 19 12 12 5 16
Distribution - - - - -
------ ------ ---- --- -----
Change In Deferred Net Revenue (Packaged Goods and Digital 103 (129 ) (276 ) 253 357
Content)
------ ------ - ---- --- --- -----
Publishing and Other 929 653 298 689 1,108 19 %
Wireless, Internet-derived, and Advertising (Digital) 152 156 188 166 211 39 %
Distribution 265 41 53 29 91 (66 %)
------ ------ ---- --- -----
Total Non-GAAP Net Revenue 1,346 850 539 884 1,410 5 %
====== ====== ==== === =====
Publishing and Other 68 % 81 % 72 % 70 % 73 %
Wireless, Internet-derived, and Advertising (Digital) 11 % 15 % 21 % 26 % 18 %
Distribution 21 % 4 % 7 % 4 % 9 %
------ - ------ - ---- --- --- --- ----- ---
Total GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
====== = ====== = ==== === === === ===== ===
Publishing and Other 69 % 77 % 55 % 78 % 79 %
Wireless, Internet-derived, and Advertising (Digital) 11 % 18 % 35 % 19 % 15 %
Distribution 20 % 5 % 10 % 3 % 6 %
------ - ------ - ---- --- --- --- ----- ---
Total Non-GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
====== = ====== = ==== === === === ===== ===
(a) Beginning with the quarter ended June 30, 2010, the Company is no
longer presenting licensing and other revenue in a separate caption.
This revenue has accordingly been combined with publishing and other
or distribution. For comparability purposes, the results for prior
periods have been reclassified.
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
Q3 Q4 Q1 Q2 Q3 YOY %
FY10 FY10 FY11 FY11 FY11 Change
------- ------- ------- ------ -------- ------
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
Platform Net Revenue
Xbox 360 348 276 262 172 285 (18 %)
PLAYSTATION 3 236 272 209 152 282 19 %
Wii 196 71 40 25 130 (34 %)
PlayStation 2 44 22 11 29 20 (55 %)
------ ------ ---- --- -----
Total Consoles 824 641 522 378 717 (13 %)
Mobile 56 55 52 49 59 5 %
PSP 30 37 19 17 22 (27 %)
Nintendo DS 63 22 11 8 49 (22 %)
------ ------ ---- --- -----
Total Mobile and Handhelds 149 114 82 74 130 (13 %)
PC 212 178 186 157 155 (27 %)
Other 58 46 25 22 51 (12 %)
------ ------ ---- --- -----
Total GAAP Net Revenue 1,243 979 815 631 1,053 (15 %)
------ ------ ---- --- -----
Xbox 360 29 6 (121 ) 96 126
PLAYSTATION 3 49 (83 ) (89 ) 150 131
Wii 1 (31 ) (5 ) 24 39
PlayStation 2 - (11 ) (5 ) 1 (1 )
Mobile 1 - - - 5
PSP 3 (20 ) (1 ) 4 -
Nintendo DS 12 (6 ) (4 ) 1 8
PC 8 16 (51 ) (23 ) 49
------ ------ ---- --- --- --- -----
Change in Deferred Net Revenue (Packaged Goods and Digital 103 (129 ) (276 ) 253 357
Content)
------ ------ - ---- --- --- -----
Xbox 360 377 282 141 268 411 9 %
PLAYSTATION 3 285 189 120 302 413 45 %
Wii 197 40 35 49 169 (14 %)
PlayStation 2 44 11 6 30 19 (57 %)
------ ------ ---- --- -----
Total Consoles 903 522 302 649 1,012 12 %
Mobile 57 55 52 49 64 12 %
PSP 33 17 18 21 22 (33 %)
Nintendo DS 75 16 7 9 57 (24 %)
------ ------ ---- --- -----
Total Mobile and Handhelds 165 88 77 79 143 (13 %)
PC 220 194 135 134 204 (7 %)
Other 58 46 25 22 51 (12 %)
------ ------ ---- --- -----
Total Non-GAAP Net Revenue 1,346 850 539 884 1,410 5 %
====== ====== ==== === =====
Xbox 360 28 % 28 % 32 % 27 % 27 %
PLAYSTATION 3 19 % 28 % 26 % 24 % 27 %
Wii 16 % 7 % 5 % 4 % 12 %
PlayStation 2 3 % 2 % 1 % 5 % 2 %
------ - ------ - ---- --- --- --- ----- ---
Total Consoles 66 % 65 % 64 % 60 % 68 %
Mobile 5 % 6 % 7 % 8 % 5 %
PSP 2 % 4 % 2 % 3 % 2 %
Nintendo DS 5 % 2 % 1 % 1 % 5 %
------ - ------ - ---- --- --- --- ----- ---
Total Mobile and Handhelds 12 % 12 % 10 % 12 % 12 %
PC 17 % 18 % 23 % 25 % 15 %
Other 5 % 5 % 3 % 3 % 5 %
------ - ------ - ---- --- --- --- ----- ---
Total GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
====== = ====== = ==== === === === ===== ===
Xbox 360 28 % 33 % 26 % 30 % 29 %
PLAYSTATION 3 21 % 22 % 22 % 34 % 30 %
Wii 15 % 5 % 7 % 6 % 12 %
PlayStation 2 3 % 1 % 1 % 3 % 1 %
------ - ------ - ---- --- --- --- ----- ---
Total Consoles 67 % 61 % 56 % 73 % 72 %
Mobile 4 % 6 % 10 % 6 % 4 %
PSP 2 % 2 % 3 % 2 % 2 %
Nintendo DS 6 % 2 % 1 % 1 % 4 %
------ - ------ - ---- --- --- --- ----- ---
Total Mobile and Handhelds 12 % 10 % 14 % 9 % 10 %
PC 17 % 24 % 25 % 15 % 14 %
Other 4 % 5 % 5 % 3 % 4 %
------ - ------ - ---- --- --- --- ----- ---
Total Non-GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
====== = ====== = ==== === === === ===== ===
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
Q3 Q4 Q1 Q2 Q3 YOY %
FY10 FY10 FY11 FY11 FY11 Change
----- -------- -------- -------- ----- ------
CASH FLOW DATA
Operating cash flow 221 253 (148 ) (134 ) 349 58 %
Operating cash flow - TTM 114 152 332 192 320 181 %
Capital expenditures 16 22 11 12 15 (6 %)
Capital expenditures - TTM 75 72 75 61 60 (20 %)
BALANCE SHEET DATA
Cash and cash equivalents 1,114 1,273 1,057 1,056 1,353 21 %
Short-term investments 352 432 480 495 511 45 %
Marketable equity securities 318 291 193 106 107 (66 %)
Receivables, net 495 206 103 444 390 (21 %)
Inventories 144 100 82 155 105 (27 %)
Deferred net revenue (packaged goods and digital content)
End of the quarter 895 766 490 743 1,100
Less: Beginning of the quarter 792 895 766 490 743
----- ----- ----- ----- -----
Change in deferred net revenue (packaged goods and digital content) 103 (129 ) (276 ) 253 357
===== ===== === ===== === ===== =====
STOCK-BASED COMPENSATION
Cost of goods sold - 1 1 - 1
Marketing and sales 4 4 4 6 6
General and administrative 9 9 12 10 10
Research and development 29 28 30 27 29
----- ----- ----- ----- -----
Total Stock-Based Compensation (excluding restructuring and other) 42 42 47 43 46
Restructuring and other 26 - - - 2
----- ----- ----- ----- -----
Total Stock-Based Compensation (including restructuring and other) 68 42 47 43 48
===== ===== ===== ===== =====
EMPLOYEES 8,537 7,842 7,758 7,820 7,742 (9 %)
SOURCE: Electronic Arts Inc.
Electronic Arts Inc. Peter Ausnit, 650-628-7327 Vice President, Investor Relations This email address is being protected from spambots. You need JavaScript enabled to view it. Jeff Brown, 650-628-7922 Vice President, Corporate Communications This email address is being protected from spambots. You need JavaScript enabled to view it.
