January 28, 2014

Electronic Arts Reports Q3 FY14 Financial Results

Q3 Non-GAAP Earnings Per Share Results Exceed Guidance

EA Was the #1 Publisher on Next Generation Consoles in December

Fiscal Year 2014 Non-GAAP EPS Guidance Raised to $1.30 Per Share

REDWOOD CITY, Calif.--(BUSINESS WIRE)-- Electronic Arts Inc. (NASDAQ: EA) today announced preliminary financial results for its third fiscal quarter ended December 31, 2013.

"EA's third quarter marked an exciting start to a new generation of games, and we are proud to have been the #1 publisher on next-generation consoles in December, with millions of gamers across the globe playing EA titles on the PlayStation 4 and Xbox One," said Chief Executive Officer Andrew Wilson. "In addition to consoles, our mobile games, digital downloads and live services are growing year-over-year as we continue to deliver exciting new experiences to gamers around the world."

"In a transitional quarter, EA delivered EPS results above our guidance driven by strong sales of our next-generation console titles, continued growth in our digital games and services, and financial discipline across the business," said Chief Financial Officer Blake Jorgensen. "For our full year outlook, we are lowering our non-GAAP net revenue guidance to $3.91 billion due to the weakness in current generation software, but we are increasing our non-GAAP EPS guidance to $1.30 due to the improvement in our operating profits."

This release, along with ongoing updates regarding EA's business, is available on EA's blog at http://ea.com/news.

Selected Operating Highlights and Metrics:

*On a non-GAAP basis

  • EA was the #1 publisher on the PlayStation 4 computer entertainment systems and Xbox One, the all-in-one games and entertainment system from Microsoft, in the Western World in December, led by Battlefield 4™, Madden NFL 25, FIFA 14 and Need for Speed™ Rivals.
  • For the month of December, FIFA 14 and Battlefield 4 were two of the top three best-selling titles across all platforms in the Western World, and FIFA 14 was the #1 title in Europe.
  • EA titles represented 35% of the Western World PlayStation 4 and Xbox One software sales in the third quarter.
  • Third quarter digital net revenue increased by 27% year-over-year to $517 million*, and trailing twelve month digital net revenue was a record $1.86 billion*.
  • On a year-to-date basis, FIFA Ultimate Team, Madden NFL Ultimate Team, and NHL® Hockey Ultimate Team collectively grew 60% year-over-year and drove digital net revenue* growth.
  • EA's mobile and handheld digital net revenue generated $125 million* in Q3 fiscal 14, a 26% year-over-year increase over Q3 fiscal 13.
  • The Simpsons™ Tapped Out generated over $130 million* in digital net revenue through Q3 fiscal 14.
  • Trailing twelve months operating cash flow was $664 million, the highest trailing twelve month operating cash flow for EA since 2005.

Q3 Financial Highlights:

For the quarter, non-GAAP net revenue of $1.57 billion was below our guidance of $1.65 billion. Non-GAAP diluted earnings per share of $1.26 was above our guidance of $1.22.

 

 

(in millions of $, except per share amounts)

 

Quarter
Ended
12/31/13

 

Quarter
Ended
12/31/12

 
GAAP Digital Net Revenue $410 $321
GAAP Publishing Packaged Goods and Other Net Revenue 370 568
GAAP Distribution Packaged Goods Net Revenue 28 33
GAAP Total Net Revenue $808 $922
 
Non-GAAP Digital Net Revenue $517 $407
Non-GAAP Publishing Packaged Goods and Other Net Revenue 1,027 742
Non-GAAP Distribution Packaged Goods Net Revenue 28 33
Non-GAAP Total Net Revenue $1,572 $1,182
 
GAAP Net Loss $(308) $(45)
Non-GAAP Net Income 398 176
GAAP Loss Per Share (1.00) (0.15)
Non-GAAP Diluted Earnings Per Share 1.26 0.57
 
Cash Provided by Operations $685 $363

 

Trailing Twelve Month (TTM) Financial Highlights:

 

(in millions of $)

TTM
Ended
12/31/13

TTM
Ended
12/31/12

 

GAAP Net Revenue

$3,661

$3,956

GAAP Net Income (Loss)

(36)

175

Non-GAAP Net Revenue

4,147

3,730

Non-GAAP Net Income

551

151

 

Cash Provided by Operations

$664

$378

Business Outlook as of January 28, 2014

The following forward-looking statements, as well as those made above, reflect expectations as of January 28, 2014. Electronic Arts assumes no obligation to update these statements. 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 2014 Expectations - Ending March 31, 2014

  • GAAP net revenue is expected to be approximately $3.52 billion.
  • Non-GAAP net revenue is expected to be approximately $3.91 billion.
  • GAAP diluted loss per share is expected to be approximately $(0.42).
  • Non-GAAP diluted earnings per share is expected to be approximately $1.30.
  • The Company estimates a share count of 316 million for purposes of calculating fiscal year 2014 diluted earnings per share, and 308 million for diluted loss per share.
  • Expected non-GAAP net income excludes the following from expected GAAP net loss:
    • Non-GAAP net revenue is expected to be approximately $385 million higher than GAAP net revenue due to the impact of the change in deferred net revenue (online-enabled games);
    • Approximately $151 million of stock-based compensation;
    • Approximately $39 million of acquisition-related expenses;
    • Approximately ($2) million of restructuring charges;
    • Approximately $21 million from the amortization of debt discount;
    • Approximately $40 million of college football settlement expenses; and
    • Non-GAAP tax expense is expected to be approximately $93 million higher than GAAP tax expense.

Fourth Quarter Fiscal Year 2014 Expectations - Ending March 31, 2014

  • GAAP net revenue is expected to be approximately $1.07 billion.
  • Non-GAAP net revenue is expected to be approximately $800 million.
  • GAAP diluted earnings per share is expected to be approximately $0.72.
  • Non-GAAP diluted earnings per share is expected to be approximately $0.09.
  • The Company estimates a share count of 318 million for purposes of calculating fourth quarter fiscal year 2014 diluted earnings per share.
  • Expected non-GAAP net income excludes the following from expected GAAP net loss:
    • Non-GAAP net revenue is expected to be approximately $270 million lower than GAAP net revenue due to the impact of the change in deferred net revenue (online-enabled games);
    • Approximately $40 million of stock-based compensation;
    • Approximately $19 million of acquisition-related expenses;
    • Approximately $5 million from the amortization of debt discount; and
    • Non-GAAP tax expense is expected to be $5 million lower than GAAP tax expense.

Conference Call and Supporting Documents

Electronic Arts will host a conference call on January 28, 2014 at 2:00 pm PT (5:00 pm ET) to review its results for the fiscal quarter ended December 31, 2013 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: 773-799-3213 (domestic) or 888-677-1083 (international), using the password "EA" 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 11, 2014 at the following number: 203-369-0099 (domestic) or 866-356-3373 (international). A webcast replay 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
  • Amortization of debt discount
  • Certain non-recurring litigation expenses
  • Change in deferred net revenue (online-enabled games)
  • College football settlement expenses
  • Loss (gain) on strategic investments
  • 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 indicate 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 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.

Amortization of Debt Discount on the Convertible Senior Notes. Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Accordingly, for GAAP purposes, we are required to amortize as a debt discount an amount equal to the fair value of the conversion option as interest expense on the Company's $632.5 million of 0.75% convertible senior notes that were issued in a private placement in July 2011 over the term of the notes. Electronic Arts' management will exclude the effect of this amortization when evaluating the Company's 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.

Certain Non-recurring Litigation Expenses. During the fourth quarter of fiscal 2012, Electronic Arts recognized a $27 million expense related to a settlement of a litigation matter. This significant non-recurring litigation expense is excluded from our non-GAAP financial measures in order to provide comparability between periods. Further, the Company excluded this expense 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.

Change in Deferred Net Revenue (Online-enabled Games). The majority of our software games can be connected to the Internet whereby a consumer may be able to download unspecified content or updates on a when-and-if-available basis ("unspecified updates") for use with the original game software. In addition, we may also offer an online matchmaking service that permits consumers to play against each other via the Internet. GAAP requires us to account for the consumer's right to receive unspecified updates or the matchmaking service for no additional fee as a "bundled" sale, or multiple-element arrangement. Electronic Arts is not able to objectively determine the fair value of these unspecified updates or online service included in certain of its online-enabled games. As a result, the Company recognizes the revenue from the sale of these online-enabled games on a straight-line basis over the estimated offering period. Internally, Electronic Arts' management excludes the impact of the change in deferred net revenue related to online-enabled games 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 between periods in understanding our underlying sales performance for the period, and (2) understanding our operations because all related costs of revenue are expensed as incurred instead of deferred and recognized ratably.

College Football Settlement Expenses. During the second quarter of fiscal 2014, Electronic Arts recognized a $40 million charge for expected litigation settlement and license expenses related to our college football business. This expense is excluded from our non-GAAP financial measures in order to provide comparability between periods. Further, the Company excluded this expense 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.

Loss (gain) 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.

Restructuring Charges. Although Electronic Arts has engaged in various restructuring activities in the past, each has been a discrete 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.

Income Tax Adjustments. The Company uses a fixed, long-term projected tax rate internally to evaluate its operating performance, to forecast, plan and analyze future periods, and to assess the performance of its management team. Prior to April 1, 2013, a 28 percent tax rate was applied to its non-GAAP financial results. Based on a re-evaluation of its fixed, long-term projected tax rate, beginning in fiscal year 2014, the Company has applied a tax rate of 25 percent to its non-GAAP financial results.

In the financial tables below, Electronic Arts has provided a reconciliation of the most comparable GAAP financial measures to non-GAAP financial measures used in this press release.

Forward-Looking Statements

Some statements set forth in this release, including the information relating to EA's fiscal 2014 guidance information under the heading "Business Outlook," 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 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 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 service and support digital product offerings, including managing online security; general economic conditions; and other factors described in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013.

These forward-looking statements are current as of January 28, 2014. 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, 2013. 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, 2013.

About Electronic Arts

Electronic Arts (NASDAQ:EA) is a global leader in digital interactive entertainment. The Company's game franchises are offered as both packaged goods products and online services delivered through Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players in over 200 countries. In fiscal year 2013, EA posted GAAP net revenue of $3.8 billion. Headquartered in Redwood City, California, EA is recognized for critically acclaimed, high-quality blockbuster franchises such as The Sims™, Madden NFL, FIFA Soccer, Need for Speed™, Battlefield™, and Mass Effect™. More information about EA is available at http://info.ea.com.

Battlefield 4, Battlefield, The Sims, Need for Speed, and Mass Effect are trademarks of Electronic Arts Inc. and its subsidiaries. The Simpsons TM & © 2012 Twentieth Century Fox Film Corporation. All Rights Reserved. John Madden, NFL, NHL and FIFA are the property of their respective owners and used with permission. "PlayStation" is a registered trademark of Sony Computer Entertainment Inc.

 

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)
       

Three Months Ended
December 31,

 

Nine Months Ended
December 31,

2013 2012 2013 2012
Net revenue
Product $ 485 $ 703 $ 1,378 $ 1,886
Service and other 323   219   1,074   702  
Total net revenue 808 922 2,452 2,588
Cost of revenue
Product 438 363 909 866
Service and other 79   66   215   213  
Total cost of revenue 517   429   1,124   1,079  
Gross profit 291 493 1,328 1,509
Operating expenses:
Marketing and sales 214 220 525 590
General and administrative 91 70 305 258
Research and development 275 278 836 866
Acquisition-related contingent consideration (45 ) (37 ) (65 )
Amortization of intangibles 4 7 12 21
Restructuring and other (1 ) 2   (2 ) 27  
Total operating expenses 583   532   1,639   1,697  
Operating loss (292 ) (39 ) (311 ) (188 )
Gain on strategic investments 14 14
Interest and other income (expense), net (6 ) (8 ) (19 ) (17 )
Loss before provision for income taxes (298 ) (33 ) (330 ) (191 )
Provision for income taxes 10   12   29   34  
Net loss $ (308 ) $ (45 ) $ (359 ) $ (225 )
Loss per share
Basic and diluted $ (1.00 ) $ (0.15 ) $ (1.17 ) $ (0.72 )
 
Number of shares used in computation
Basic and diluted 309 304 307 313
 

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 earnings per share.

 
  Three Months Ended
December 31,
 

Nine Months Ended
December 31,

2013   2012   2013   2012
Net loss $ (308 ) $ (45 ) $ (359 ) $ (225 )
Acquisition-related expenses 20 (15 ) 20 8
Amortization of debt discount 6 5 16 15
Change in deferred net revenue (online-enabled games) 764 260 655 165
College football settlement expenses 40
Gain on strategic investments (14 ) (14 )
Restructuring and other (1 ) 2 (2 ) 27
Stock-based compensation 40 39 111 122
Income tax adjustments (123 ) (56 ) (99 ) (3 )
Non-GAAP net income $ 398   $ 176   $ 382   $ 95  
Non-GAAP earnings per share
Basic $ 1.29 $ 0.58 $ 1.24 $ 0.30
Diluted $ 1.26 $ 0.57 $ 1.21 $ 0.30
Number of shares used in Non-GAAP computation
Basic 309 304 307 313
Diluted 317 308 315 315
 
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
   

December 31,
2013

March 31,
2013 (a)
ASSETS
Current assets:
Cash and cash equivalents $ 1,746 $ 1,292
Short-term investments 324 388
Receivables, net of allowances of $268 and $200, respectively 526 312
Inventories 55 42
Deferred income taxes, net 51 52
Other current assets 219   239
Total current assets 2,921 2,325
Property and equipment, net 518 548
Goodwill 1,725 1,721
Acquisition-related intangibles, net 196 253
Deferred income taxes, net 46 53
Other assets 167   170
TOTAL ASSETS $ 5,573   $ 5,070
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 137 $ 136
Accrued and other current liabilities 823 737
Deferred net revenue (online-enabled games) 1,699   1,044
Total current liabilities 2,659 1,917
0.75% convertible senior notes due 2016, net 575 559
Income tax obligations 210 205
Deferred income taxes, net 1 1
Other liabilities 124   121
Total liabilities 3,569 2,803
Common stock 3 3
Paid-in capital 2,287 2,174
Retained earnings (accumulated deficit) (338 ) 21
Accumulated other comprehensive income 52   69
Total stockholders' equity 2,004   2,267
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,573   $ 5,070

(a) Derived from audited consolidated financial statements.

 
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
       

Three Months Ended
December 31,

  Nine Months Ended
December 31,
2013 2012 2013 2012
OPERATING ACTIVITIES
Net loss $ (308 ) $ (45 ) $ (359 ) $ (225 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Acquisition-related contingent consideration (45 ) (37 ) (65 )
Depreciation, amortization and accretion, net 58 66 170 178
Net (gains) losses on investments and disposal of property and equipment 1 (12 ) 1 (12 )
Non-cash restructuring charges 7
Stock-based compensation 40 39 111 122
Change in assets and liabilities:
Receivables, net 68 256 (210 ) (18 )
Inventories 3 13 (12 )
Other assets 9 14 17 14
Accounts payable (64 ) (124 ) 13 (115 )
Accrued and other liabilities 112 (56 ) 75 53
Deferred income taxes, net 2 (3 ) 7 (13 )
Deferred net revenue (online-enabled games) 764   260   655   165  
Net cash provided by operating activities 685   363   431   91  
INVESTING ACTIVITIES
Capital expenditures (28 ) (25 ) (81 ) (81 )
Proceeds from sale of marketable equity securities 25 25
Proceeds from maturities and sales of short-term investments 81 124 331 404
Purchase of short-term investments (79 ) (47 ) (270 ) (244 )
Acquisition-related restricted cash 25
Acquisition of subsidiaries, net of cash acquired     (5 ) (10 )
Net cash provided by (used in) investing activities (26 ) 77   (25 ) 119  
FINANCING ACTIVITIES
Payment of debt issuance costs (2 )
Proceeds from issuance of common stock 1 1 51 19
Repurchase and retirement of common stock (157 ) (336 )
Acquisition-related contingent consideration payment   (2 ) (1 ) (28 )
Net cash provided by (used in) financing activities 1   (158 ) 50   (347 )
Effect of foreign exchange on cash and cash equivalents (4 ) 5   (2 ) 2  
Increase (decrease) in cash and cash equivalents 656 287 454 (135 )
Beginning cash and cash equivalents 1,090   871   1,292   1,293  
Ending cash and cash equivalents $ 1,746   $ 1,158   $ 1,746   $ 1,158  
 
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data)
           
Q3 Q4 Q1 Q2 Q3 YOY %
FY13 FY13 FY14 FY14 FY14 Change
QUARTERLY RECONCILIATION OF RESULTS
Net revenue
GAAP net revenue $ 922 $ 1,209 $ 949 $ 695 $ 808 (12 %)

Change in deferred net revenue (online-enabled games)

260   (169 ) (454 ) 345   764  
Non-GAAP net revenue $ 1,182   $ 1,040   $ 495   $ 1,040   $ 1,572   33 %
Gross profit
GAAP gross profit $ 493 $ 900 $ 755 $ 282 $ 291 (41 %)
Acquisition-related expenses 23 41 15 14 16
Change in deferred net revenue (online-enabled games) 260 (169 ) (454 ) 345 764
Stock-based compensation   1     1    
Non-GAAP gross profit $ 776   $ 773   $ 316   $ 642   $ 1,071   38 %
GAAP gross profit % (as a % of GAAP net revenue) 53 % 74 % 80 % 41 % 36 %
Non-GAAP gross profit % (as a % of non-GAAP net revenue) 66 % 74 % 64 % 62 % 68 %
Operating income (loss)
GAAP operating income (loss) $ (39 ) $ 309 $ 233 $ (252 ) $ (292 ) (649 %)
Acquisition-related expenses (15 ) 51 26 (26 ) 20
Change in deferred net revenue (online-enabled games) 260 (169 ) (454 ) 345 764
College football settlement expenses 40
Restructuring and other 2 1 (2 ) (1 )
Stock-based compensation 39   42   33   38   40  
Non-GAAP operating income (loss) $ 247   $ 233   $ (161 ) $ 143   $ 531   115 %
GAAP operating income (loss) % (as a % of GAAP net revenue) (4 %) 26 % 25 % (36 %) (36 %)
Non-GAAP operating income (loss) % (as a % of non-GAAP net revenue) 21 % 22 % (33 %) 14 % 34 %
Net income (loss)
GAAP net income (loss) $ (45 ) $ 323 $ 222 $ (273 ) $ (308 ) (584 %)
Acquisition-related expenses (15 ) 51 26 (26 ) 20
Amortization of debt discount 5 5 5 5 6
Change in deferred net revenue (online-enabled games) 260 (169 ) (454 ) 345 764
College football settlement expenses 40
Gain on strategic investments (14 ) (25 )
Restructuring and other 2 1 (2 ) (1 )
Stock-based compensation 39 42 33 38 40
Income tax adjustments (56 ) (58 ) 46   (22 ) (123 )
Non-GAAP net income (loss) $ 176   $ 169   $ (121 ) $ 105   $ 398   126 %

GAAP net income (loss) % (as a % of GAAP net revenue)

(5 %) 27 % 23 % (39 %) (38

%)

Non-GAAP net income (loss) % (as a % of non-GAAP net revenue) 15 % 16 % (24 %) 10 % 25 %
Diluted earnings (loss) per share
GAAP earnings (loss) per share $ (0.15 ) $ 1.05 $ 0.71 $ (0.89 ) $ (1.00 ) (567 %)
Non-GAAP earnings (loss) per share $ 0.57 $ 0.55 $ (0.40 ) $ 0.33 $ 1.26 121 %
 
Number of diluted shares used in computation
GAAP 304 307 312 308 309
Non-GAAP 308 307 304 316 317
 
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data)
           
Q3 Q4 Q1 Q2 Q3 YOY %
FY13 FY13 FY14 FY14 FY14 Change
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
Geography net revenue
North America 409 513 395 303 338 (17 %)
International 513   696   554   392   470   (8 %)
Total GAAP net revenue 922   1,209   949   695   808   (12 %)
North America 80 (76 ) (190 ) 136 352
International 180   (93 ) (264 ) 209   412  
Change in deferred net revenue (online-enabled games) 260   (169 ) (454 ) 345   764  
North America 489 437 205 439 690 41 %
International 693   603   290   601   882   27 %
Total Non-GAAP net revenue 1,182   1,040   495   1,040   1,572   33 %
North America 44 % 42 % 42 % 44 % 42 %
International 56 % 58 % 58 % 56 % 58 %
Total GAAP net revenue % 100 % 100 % 100 % 100 % 100 %
North America 41 % 42 % 41 % 42 % 44 %
International 59 % 58 % 59 % 58 % 56 %
Total Non-GAAP net revenue % 100 % 100 % 100 % 100 % 100 %
 
Net revenue composition
Publishing and other 568 730 452 223 370 (35 %)
Wireless, internet-derived, and advertising (digital) 321 453 482 450 410 28 %
Distribution 33   26   15   22   28   (15 %)
Total GAAP net revenue 922   1,209   949   695   808   (12 %)
Publishing and other 174 (334 ) (350 ) 447 657
Wireless, internet-derived, and advertising (digital) 86   165   (104 ) (102

)

 

107  
Change in deferred net revenue (online-enabled games) 260   (169 ) (454 ) 345   764  
Publishing and other 742 396 102 670 1,027 38 %
Wireless, internet-derived, and advertising (digital) 407 618 378 348 517 27 %
Distribution 33   26   15   22   28   (15 %)
Total Non-GAAP net revenue 1,182   1,040   495   1,040   1,572   33 %
Publishing and other 62 % 60 % 48 % 32 % 46 %
Wireless, internet-derived, and advertising (digital) 35 % 38 % 51 % 65 % 51 %
Distribution 3 % 2 % 1 % 3 % 3 %
Total GAAP net revenue % 100 % 100 % 100 % 100 % 100 %
Publishing and other 63 % 38 % 21 % 64 % 65 %
Wireless, internet-derived, and advertising (digital) 34 % 59 % 76 % 34 % 33 %
Distribution 3 % 3 % 3 % 2 % 2 %
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)
           
Q3 Q4 Q1 Q2 Q3 YOY %
FY13 FY13 FY14 FY14 FY14 Change
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
Platform net revenue
Xbox One, PLAYSTATION 4 24 100 %
Xbox 360, PLAYSTATION 3 566 783 494 298 425 (25 %)
Wii 20 5 3 9 9 (55 %)
PlayStation 2 3   2   1   2   1   (67 %)
Total consoles 589 790 498 309 459 (22 %)
Mobile 86 109 113 75 97 13 %
PlayStation handhelds 15 20 12 7 8 (47 %)
Nintendo handhelds 9   9   9   5   4   (56 %)
Total mobile and handhelds 110 138 134 87 109 (1 %)
PC 186 252 298 274 210 13 %
Other 37   29   19   25   30   (19 %)
Total GAAP net revenue 922   1,209   949   695   808   (12 %)
Xbox One, PLAYSTATION 4 368
Xbox 360, PLAYSTATION 3 167 (275 ) (307 ) 389 282
Wii (1 ) (1 )
PlayStation 2
Mobile 13 (4 ) (9 ) 28 27
PlayStation handhelds 11 (13 ) (8 ) 5 1
Nintendo handhelds 13 (3 ) (7 )
PC 56   127   (123 ) (76 ) 86  
Change in deferred net revenue (online-enabled games) 260   (169 ) (454 ) 345   764  
Xbox One, PLAYSTATION 4 392 100 %
Xbox 360, PLAYSTATION 3 733 508 187 687 707 (4 %)
Wii 20 4 3 8 9 (55 %)
PlayStation 2 3   2   1   2   1   (67 %)
Total consoles 756 514 191 697 1,109 47 %
Mobile 99 105 104 103 124 25 %
PlayStation handhelds 26 7 4 12 9 (65 %)
Nintendo handhelds 22   6   2   5   4   (82 %)
Total mobile and handhelds 147 118 110 120 137 (7 %)
PC 242 379 175 198 296 22 %
Other 37   29   19   25   30   (19 %)
Total Non-GAAP net revenue 1,182   1,040   495   1,040   1,572   33 %
Xbox One, PLAYSTATION 4 2%
Xbox 360, PLAYSTATION 3 62% 65% 52% 43% 53%
Wii 2% 1 % 1 %
PlayStation 2          
Total consoles 64% 65% 52% 44% 56%
Mobile 9% 9% 12% 11% 12%
PlayStation handhelds 2% 2% 1% 1% 1%
Nintendo handhelds 1% 1% 1% 1% 1%
Total mobile and handhelds 12% 12% 14% 13% 14%
PC 20% 21% 32% 39% 26%
Other 4% 2% 2% 4% 4%
Total GAAP net revenue % 100% 100% 100% 100% 100%
Xbox One, PLAYSTATION 4 25%
Xbox 360, PLAYSTATION 3 62% 49% 38% 66% 45%
Wii 2% 1% 1 % 1%
PlayStation 2          
Total consoles 64% 49% 39% 67% 71%
Mobile 8% 10% 21% 10% 8%
PlayStation handhelds 2% 1% 1% 1% 1%
Nintendo handhelds 2% 1%   1%  
Total mobile and handhelds 12% 12% 22% 12% 9%
PC 21% 36% 35% 19% 19%
Other 3% 3% 4% 2% 1%
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)
           
Q3 Q4 Q1 Q2 Q3 YOY %
FY13 FY13 FY14 FY14 FY14 Change
CASH FLOW DATA
Operating cash flow 363 233 (248 ) (6 ) 685 89 %
Operating cash flow - TTM 378 324 320 342 664 76 %
Capital expenditures 25 25 29 24 28 12 %
Capital expenditures - TTM 125 106 104 103 106 (15 %)
BALANCE SHEET DATA
Cash and cash equivalents 1,158 1,292 1,056 1,090 1,746 51 %
Short-term investments 275 388 355 328 324 18 %
Marketable equity securities 59 (100 %)
Receivables, net 382 312 120 594 526 38 %
Inventories 59 42 41 58 55 (7 %)
Deferred net revenue (online-enabled games)
End of the quarter 1,213 1,044 590 935 1,699 40 %
Less: Beginning of the quarter 953   1,213   1,044   590   935  
Change in deferred net revenue (online-enabled games) 260   (169 ) (454 ) 345   764  
STOCK-BASED COMPENSATION
Cost of goods sold 1 1
Marketing and sales 7 7 7 6 7
General and administrative 7 12 6 8 8
Research and development 25   22   20   23   25  
Total stock-based compensation 39   42   33   38   40  
 

Electronic Arts Inc.
Rob Sison, 650-628-7787
Vice President, Investor Relations
rsison@ea.com
John Reseburg, 650-628-3601
Senior Director, Corporate Communications
jreseburg@ea.com

Source: Electronic Arts Inc.

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