Electronic Arts Reports Q3 FY19 Financial Results

REDWOOD CITY, Calif.–(BUSINESS WIRE)–Electronic
Arts Inc. (NASDAQ: EA) today announced preliminary financial results
for its third fiscal quarter ended December 31, 2018.


News and ongoing updates regarding EA and its games are available on
EA’s blog at www.ea.com/news.


“The video game industry continues to grow through a year of intense
competition and transformational change,” said CEO Andrew Wilson. “Q3
was a difficult quarter for Electronic Arts and we did not perform to
our expectations. We are now applying the strengths of our company to
sharpen our execution and focus on delivering great new games and
long-term live services for our players. We’re very excited about Apex
Legends, the upcoming launch of Anthem, and a deep line-up of new
experiences that we’ll bring to our global communities next fiscal year.”


“FIFA stands out as a robust franchise through a tumultuous year in the
video game industry,” said COO and CFO Blake Jorgensen. “Elsewhere in
the business, we’re making adjustments to improve execution and we’re
refocusing R&D. Looking forward, we’re delighted to launch Anthem, our
new IP, to grow Apex Legends and related Titanfall experiences, to
deliver new Plants vs. Zombies and Need for Speed titles, and to add
Star Wars Jedi: Fallen Order to our sports titles in the fall.”


Selected Operating Highlights and Metrics


Digital net bookings* for the trailing twelve months was $3.577
billion, up 6% year-over-year and represents 74% of total net bookings.


During the quarter, launched Battlefield V and Command & Conquer:
Rivals.


On February 4, 2019, launched Apex Legends, a new battle royale
experience from Respawn.


During the quarter, FIFA Ultimate Team matches played increased 15%
year-over-year.


During calendar 2018, FIFA 19 was the highest-selling console game in
Europe.


* Net bookings is defined as the net amount of products and services
sold digitally or sold-in physically in the period. Net bookings is
calculated by adding total net revenue to the change in deferred net
revenue for online-enabled games and, for periods after the fourth
quarter of fiscal 2018, mobile platform fees.


Selected Financial Highlights and Metrics


All financial measures are presented on a GAAP basis.


Net cash from operating activities was $954 million for the quarter
and $1.563 billion for the trailing twelve months, a record third
quarter trailing twelve months.


EA repurchased 3.2 million shares for $292 million during the quarter
and 9.0 million shares for $1.039 billion during the trailing twelve
months.


Impact of Recently Adopted Accounting Standard


At the beginning of fiscal year 2019, April 1, 2018, EA adopted FASB ASU
2014-09 (Topic 606), Revenue from Contracts with Customers. For more
information about the adoption of Topic 606, please refer to the
Investor Accounting FAQ on our IR website. Financial data for periods
prior to April 1, 2018 has not been restated.


Quarterly Financial Highlights




 








Three Months Ended






December 31,






2018


 


2017


(in $ millions, except per share amounts)










Digital net revenue




908




780




Packaged goods and other net revenue




381




380


 


Total net revenue




1,289




1,160


 










 


Net income (loss)*




262




(186


)


Earnings (loss) per share*




0.86




(0.60


)










 


Operating cash flow




954




849












 


Value of shares repurchased




292




150




Number of shares repurchased




3.2




1.4




*During the three months ended December 31, 2017, EA recognized $176
million of incremental income tax expense, or approximately $0.57 per
share, due to the application of the Tax Cuts and Jobs Act.


The following GAAP-based financial data and tax rate of 18% was used
internally by company management to adjust its fiscal 2019 GAAP results
in order to assess EA’s operating results:




 




 




 








Three Months Ended December 31, 2018








 


GAAP-Based Financial Data


(in $ millions)




StatementofOperations




Acquisition-relatedexpenses


 


Change indeferrednet revenue(online-enabledgames)




Mobileplatformfees




Stock-basedcompensation


Total net revenue




1,289




–






368




(48


)




–




Cost of revenue




413




(1


)




–




(48


)




(1


)


Gross profit




876




1






368




–






1




Total operating expenses




634




(7


)




–




–


 




(74


)


Operating income




242




8






368




–






75




Interest and other income, net




23




–


 




–




–


 




–


 


Income before provision for income taxes




265




8






368




–






75




Number of shares used in computation:






















Diluted




304






































 


For more information about the nature of the GAAP-based financial data,
please refer to EA’s Form 10-Q for the fiscal quarter ended September
30, 2018.


TTM Financial Highlights




 


Twelve Months Ended






December 31,






2018


 


2017


(in $ millions)










Digital net revenue




3,747




3,282


Packaged goods and other net revenue




1,547




1,813


Total net revenue




5,294




5,095










 


Net income*




1,417




1,002










 


Operating cash flow




1,563




1,514










 


Value of shares repurchased




1,039




578


Number of shares repurchased




9.0




5.6


*Due to the application of the Tax Cuts and Jobs Act, EA recognized
incremental income tax expense of $59 million for the twelve months
ended December 31, 2018 and $176 million for the twelve months ended
December 31, 2017.


The following GAAP-based financial data and tax rate of 18% in fiscal
year 2019 and 21% in fiscal year 2018 was used internally by company
management to adjust its GAAP results in order to assess EA’s operating
results:




 




 




 




 




 








Twelve Months Ended December 31, 2018










GAAP-Based Financial Data


(in $ millions)




StatementofOperations




Acquisition-relatedexpenses




Change indeferred netrevenue(online-enabledgames)




Mobileplatformfees




Stock-basedcompensation


Total net revenue




5,294




–






(318


)




(141


)




–




Cost of revenue




1,279




(4


)




–


 




(141


)




(4


)


Gross profit




4,015




4






(318


)




–






4




Total operating expenses




2,462




(26


)




–


 




–


 




(276


)


Operating income




1,553




30






(318


)




–






280




Interest and other income, net




61




–


 




–


 




–


 




–


 


Income before provision for income taxes




1,614




30






(318


)




–






280
































 


For more information about the nature of the GAAP-based financial data,
please refer to EA’s Form 10-Q for the fiscal quarter ended September
30, 2018.


Operating Metric


The following is a calculation of our total net bookings for the periods
presented:




 




 




 




 








Three Months Ended




TTM Ended






December 31,




December 31,






2018




2017




2018




2017


(in $ millions)


















Total net revenue




1,289






1,160




5,294






5,095




Change in deferred net revenue (online-enabled games)




368






811




(318


)




(78


)


Mobile platform fees




(48


)




–




(141


)




–


 


Net bookings




1,609


 




1,971




4,835


 




5,017


 
























 


Business Outlook as of February 5, 2019


The following forward-looking statements reflect expectations as of
February 5, 2019. Electronic Arts assumes no obligation to update these
statements, except as required by law. Results may be materially
different and are affected by many factors detailed in this release and
in EA’s annual and quarterly SEC filings.


Fiscal Year 2019 Expectations – Ending March 31, 2019


Financial metrics:


Net revenue is expected to be approximately $4.875 billion.

Change in deferred net revenue (online-enabled games) is expected
to be approximately $65 million.


Mobile platform fees are expected to be approximately $(190)
million.


Net income is expected to be approximately $980 million.


Diluted earnings per share is expected to be approximately $3.20.


Operating cash flow is expected to be approximately $1.350 billion.


The Company estimates a share count of 306 million for purposes of
calculating fiscal year 2019 diluted earnings per share.


Operational metric:


Net bookings is expected to be approximately $4.750 billion.


In addition, the following outlook for GAAP-based financial data and a
long-term tax rate of 18% are used internally by EA to adjust our GAAP
expectations to assess EA’s operating results and plan for future
periods:




 








Twelve Months Ending March 31, 2019








 


GAAP-Based Financial Data






GAAPGuidance




Acquisition-relatedexpenses


 


Change indeferred netrevenue(online-enabledgames)


 


Mobileplatform fees


 


Stock-basedcompensation


(in $ millions)






















Digital net revenue




3,615




–






50




(190


)




–




Packaged goods & other net revenue


 


1,260


 


–


 


 


15


 


–


 


 


–


 


Total net revenue


 


4,875


 


–


 


 


65


 


(190


)


 


–


 


Cost of revenue




1,311




(3


)




–




(190


)




(3


)


Operating expense




2,581




(27


)




–




–






(284


)


Income before provision for income taxes




1,055




30






65




–






287




Net income




980


















Number of shares used in computation:






















Diluted shares




306






































 


Fourth Quarter Fiscal Year 2019 Expectations – Ending March 31, 2019


Financial metrics:


Net revenue is expected to be approximately $1.163 billion.

Change in deferred net revenue (online-enabled games) is expected
to be approximately $56 million.


Mobile platform fees are expected to be approximately $(49)
million.


Net income is expected to be approximately $170 million.


Diluted earnings per share is expected to be approximately $0.56.


The Company estimates a share count of 303 million for purposes of
calculating fourth quarter fiscal year 2019 diluted earnings per share.


Operational metric:


Net bookings is expected to be approximately $1.170 billion.


In addition, the following outlook for GAAP-based financial data and a
long-term tax rate of 18% are used internally by EA to adjust our GAAP
expectations to assess EA’s operating results and plan for future
periods:




 




 




 




 




 








Three Months Ending March 31, 2019










GAAP-Based Financial Data






GAAPGuidance




Acquisition-relatedexpenses




Change indeferred netrevenue(online-enabledgames)




Mobileplatformfees




Stock-basedcompensation


(in $ millions)


 


 


 


 


 


 


 


 


 


 


Total net revenue


 


1,163


 


–


 


 


56


 


(49


)


 


–


 


Cost of revenue




265




–






–




(49


)




–




Operating expense




715




(6


)




–




–






(76


)


Income before provision for income taxes




195




6






56




–






76




Net income




170


















Number of shares used in computation:






















Diluted shares




303






































 


For more information about the nature of the GAAP-based financial data,
please refer to EA’s Form 10-Q for the fiscal quarter ended September
30, 2018.


Conference Call and Supporting Documents


Electronic Arts will host a conference call on Tuesday, February 5, 2019
at 2:00 pm PT (5:00 pm ET) to review its results for the fiscal third
quarter ended December 31, 2018 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 (866) 393-4306 (domestic) or (734) 385-2616
(international), using the Conference ID 7589409 or via webcast at EA’s
IR Website at


EA has posted a slide presentation, a financial model of EA’s historical
results and guidance, and an Investor Accounting FAQ on EA’s
IR Website. After the conference call, EA will also post the prepared
remarks and a transcript from the conference call on EA’s IR Website.


A dial-in replay of the conference call will be available until February
19, 2019 at (855) 859-2056 (domestic) or (404) 537-3406 (international)
using pin code 7589409. An audio webcast replay of the conference call
will be available for one year on EA’s
IR Website.


Forward-Looking Statements


Some statements set forth in this release, including the information
relating to EA’s fiscal 2019 expectations under the heading “Business
Outlook as of February 5, 2019,” and other information regarding EA’s
fiscal 2019 and fiscal 2020 expectations contain forward-looking
statements that are subject to change. Statements including words such
as “anticipate,” “believe,” “expect,” “intend,” “estimate”, “plan”,
“predict”, “seek”, “goal”, “will”, “may”, “likely”, “should”, “could”
(and the negative of any of these terms), “future” and similar
expressions also identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and
reflect management’s current expectations. Our actual results could
differ materially from those discussed 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 Company’s ability to develop and support digital
products and services, including managing online security and privacy;
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 the
Company’s products; the Company’s ability to realize the anticipated
benefits of acquisitions; the consumer demand for, and the availability
of an adequate supply of console hardware units; the Company’s ability
to predict consumer preferences among competing platforms; the Company’s
ability to develop and implement new technology; foreign currency
exchange rate fluctuations; general economic conditions; and other
factors described in Part II, Item 1A of Electronic Arts’ latest
Quarterly Report on Form 10-Q under the heading “Risk Factors”, as well
as in other documents we have filed with the Securities and Exchange
Commission, including our Annual Report on Form 10-K for the fiscal year
ended March 31, 2018.


These forward-looking statements are current as of February 5, 2019.
Electronic Arts assumes no obligation to revise or update any
forward-looking statement for any reason, except as required by law. 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, 2018. 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, 2018.


About Electronic Arts


Electronic Arts (NASDAQ: EA) is a global leader in digital interactive
entertainment. The Company develops and delivers games, content and
online services for Internet-connected consoles, mobile devices and
personal computers. EA has more than 300 million registered players
around the world.


In fiscal year 2018, EA posted GAAP net revenue of $5.15 billion.
Headquartered in Redwood City, California, EA is recognized for a
portfolio of critically acclaimed, high-quality brands such as The
Sims, Madden NFL, EA SPORTS FIFA, Battlefield, Need for Speed,
Dragon Age and Plants vs. Zombies. More information about EA is
available at www.ea.com/news.


EA SPORTS, Battlefield, The Sims, Need for Speed, Dragon Age, Apex
Legends, Respawn, Command & Conquer, Ultimate Team and Plants vs.
Zombies are trademarks of Electronic Arts Inc. John Madden, NFL and FIFA
are the property of their respective owners and used with permission.


 


ELECTRONIC ARTS INC. AND SUBSIDIARIES


Unaudited Condensed Consolidated Statements of Operations


(in $ millions, except per share data)




 




 




 




 








Three Months EndedDecember 31,




Nine Months EndedDecember 31,






2018 1



2017




2018 1



2017


Net revenue


















Product




552






547






1,377






1,829


Service and other




737


 




613


 




2,335


 




1,739


Total net revenue




1,289






1,160






3,712






3,568


Cost of revenue


















Product




175






352






465






716


Service and other




238


 




149


 




581


 




328


Total cost of revenue




413


 




501


 




1,046


 




1,044


Gross profit




876






659






2,666






2,524


Operating expenses:


















Research and development




334






329






1,035






985


Marketing and sales




187






230






473






511


General and administrative




106






120






337






343


Acquisition-related contingent consideration




1






—






3






—


Amortization of intangibles




6


 




1


 




18


 




4


Total operating expenses




634


 




680


 




1,866


 




1,843


Operating income (loss)




242






(21


)




800






681


Interest and other income (expense), net




23


 




5


 




60


 




14


Income (loss) before provision for income taxes




265






(16


)




860






695


Provision for income taxes




3


 




170


 




50


 




259


Net income (loss)




262


 




(186


)




810


 




436


Earnings (loss) per share


















Basic




0.87






(0.60


)




2.66






1.41


Diluted




0.86






(0.60


)




2.64






1.40


Number of shares used in computation


















Basic




302






308






304






309


Diluted




304






308






307






312


1At the beginning of fiscal year 2019, April 1, 2018, EA
adopted FASB ASU 2014-09 (Topic 606), Revenue from Contracts with
Customers. Topic 606 significantly changes how EA recognizes and reports
revenue and diluted earnings per share. For more information about the
adoption of Topic 606, including information with respect to mobile
platform fees, please refer to the Investor Accounting FAQ on our IR
website. Financial data for periods prior to April 1, 2018 has not been
restated.


Results (in $ millions, except per share data)


The following table reports the variance of the actuals versus our
guidance provided on October 30, 2018 for the three months ended
December 31, 2018 plus a comparison to the actuals for the three months
ended December 31, 2017.


 




 


Three Months Ended December 31,






2018 1

 




 


2018 1

 


2017






Guidance




Variance




Actuals




Actuals


Net revenue


















Net revenue




1,375






(86


)




1,289






1,160




GAAP-based financial data


















Change in deferred net revenue (online-enabled games)




405






(37


)




368






811




Mobile platform fees




(55


)




7






(48


)




—




Cost of revenue


















Cost of revenue




446






(33


)




413






501




GAAP-based financial data


















Acquisition-related expenses




(1


)




—






(1


)




(1


)


Stock-based compensation




—






(1


)




(1


)




—




Mobile platform fees




(55


)




7






(48


)




—




Operating expenses


















Operating expenses




730






(96


)




634






680




GAAP-based financial data


















Acquisition-related expenses




(10


)




3






(7


)




(1


)


Stock-based compensation




(80


)




6






(74


)




(63


)


Income (loss) before tax


















Income (loss) before tax




212






53






265






(16


)


GAAP-based financial data


















Acquisition-related expenses




11






(3


)




8






2




Change in deferred net revenue (online-enabled games)




405






(37


)




368






811




Mobile platform fees




—






—






—






—




Stock-based compensation