REDWOOD CITY, Calif.–(BUSINESS WIRE)–Electronic Arts Inc. (NASDAQ: EA) today announced preliminary financial
results for its fourth fiscal quarter ended March 31, 2016.
“FY16 was a phenomenal year for Electronic Arts as we connected hundreds
of millions of players to great new games, and helped them connect with
each other through rich and dynamic live services,” said Chief Executive
Officer Andrew Wilson. “The year ahead is packed with excitement. Fans
are thrilled with the intense action and epic scale of Battlefield 1,
our EA SPORTS titles will take major leaps in innovation, and we’ll
bring new experiences from our most popular brands to more players on
more devices.”
“We grew non-GAAP net revenue, profitability and cash flow to record
highs,” said Chief Financial Officer Blake Jorgensen. “Leveraging our
great portfolio of brands and live services has enabled us to break
records across our key financial metrics. We expect to drive strong
revenue, earnings and cash flow growth into the future.”
News and ongoing updates regarding EA and our games are available on
EA’s blog at www.ea.com/news.
Selected Operating Highlights and Metrics:
EA was the #1 publisher on PlayStation®4 and Xbox One consoles in the
Western World for fiscal year 2016 based on available sources and EA
estimates.
EA was also the #1 most downloaded mobile game publisher in calendar
year 2015, according to App Annie.
More than 54 million unique players engaged with our EA SPORTS™
console titles during fiscal year 2016, up 65% from last year.
Star Wars™ Battlefront™ expanded our player base as more
than 15% of Star Wars™ Battlefront™ players were new to
the EA ecosystem.
In Q4, there were 9.4 million unique players across EA’s Battlefield™
titles.
The Sims™ 4 player base grew by nearly two-thirds throughout
the fiscal year, and The Sims FreePlay on mobile reached 200
million installs life-to-date.
Madden NFL Mobile monthly active players grew 30% in Q4 over
the same quarter last year.
Star Wars™ Battlefront™, a successful new franchise,
sold in more than 14 million units in fiscal year 2016.
Selected Financial Highlights:
For fiscal year 2016, GAAP net revenue was $4.396 billion of which 55%
or $2.409 billion was digital, gross margin was 69.2%, operating
margin was 20.4%, and GAAP diluted earnings per share was $3.50.
During fiscal 2016, EA recorded a $453 million credit related to the
reversal of a valuation allowance reserve on certain deferred tax
assets. This credit increased our diluted GAAP earnings per share for
fiscal 2016 by $1.37 per share to $3.50, but had no effect on non-GAAP
earnings or cash flow.
For fiscal year 2016, non-GAAP net revenue was $4.566 billion of which
55% or $2.531 billion was digital, non-GAAP gross margin was 71.4%,
non-GAAP operating margin was 28.5%, non-GAAP diluted earnings per
share was $3.14 and operating cash flow was $1.223 billion. All of
these are fiscal year records.
For the quarter, non-GAAP net revenue of $924 million was above
guidance of $875 million. Diluted non-GAAP earnings per share of $0.50
was above guidance of $0.40.
EA’s FIFA, Madden NFL and Hockey Ultimate Team™
live services continued to perform well in Q4 as measured by non-GAAP
net revenue, collectively up 26% year-over-year and up 33% on a
constant currency basis.
EA repurchased 15.7 million shares in FY16 for $1.0 billion which
includes 9.9 million shares in Q4 for $634 million.
(in millions of $, except per share amounts) |
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GAAP Digital Net Revenue | $715 | $614 | ||
GAAP Packaged Goods and Other Net Revenue | 593 | 571 | ||
GAAP Total Net Revenue | $1,308 | $1,185 | ||
Non-GAAP Digital Net Revenue | $712 | $602 | ||
Non-GAAP Packaged Goods and Other Net Revenue | 212 | 294 | ||
Non-GAAP Total Net Revenue | $924 | $896 | ||
GAAP Net Income | $899 | $395 | ||
Non-GAAP Net Income | 161 | 125 | ||
GAAP Diluted Earnings Per Share | $2.79 | 1.19 | ||
Non-GAAP Diluted Earnings Per Share | 0.50 | 0.39 | ||
Operating Cash Flow | $396 | $198 | ||
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Business Outlook as of May 10, 2016
The following forward-looking statements, as well as those made above,
reflect expectations as of May 10, 2016. 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 2017 Expectations – Ending March 31, 2017
GAAP net revenue is expected to be approximately $4.750 billion.
Non-GAAP net revenue is expected to be approximately $4.900 billion.
GAAP diluted earnings per share is expected to be approximately $2.53.
Non-GAAP diluted earnings per share is expected to be approximately
$3.50.
Operating cash flow is expected to be approximately $1.300 billion.
The Company estimates a share count of 320 million for purposes of
calculating fiscal year 2017 GAAP diluted earnings per share and 319
million for purposes of calculating fiscal year 2017 non-GAAP diluted
earnings per share. Non-GAAP shares used for computing diluted
earnings per share differs from GAAP due to the inclusion of the
anti-dilutive effect of the Convertible Bond Hedge.
Expected non-GAAP net income excludes the impact of the following
items (estimate in millions) from expected GAAP net income:
Acquisition-related expenses | $ | 38 | ||||||||||||
Amortization of debt discount and loss on conversion | 2 | |||||||||||||
Change in deferred net revenue (online-enabled games) | 150 | |||||||||||||
Stock-based compensation | 200 | |||||||||||||
Income tax adjustments | (82 | ) | ||||||||||||
Expected Impact on Non-GAAP Net Income (net) | $ | 308 | ||||||||||||
First Quarter Fiscal Year 2017 Expectations – Ending June 30, 2016
GAAP net revenue is expected to be approximately $1.250 billion.
Non-GAAP net revenue is expected to be approximately $640 million.
GAAP diluted earnings per share is expected to be approximately $1.30.
Non-GAAP loss per share is expected to be approximately ($0.05).
The Company estimates a share count of 321 million for purposes of
calculating first quarter fiscal year 2017 GAAP diluted earnings per
share, and 303 million for non-GAAP loss per share. Non-GAAP shares
used for computing loss per share differs from GAAP earnings per share
due to the exclusion of potentially dilutive equity instruments in
loss per share computations.
Expected non-GAAP net loss excludes the impact of the following items
(estimate in millions) from expected GAAP net income:
Acquisition-related expenses | $ | 15 | ||||||||||||
Amortization of debt discount and loss on conversion | 2 | |||||||||||||
Change in deferred net revenue (online-enabled games) | (610 | ) | ||||||||||||
Stock-based compensation | 45 | |||||||||||||
Income tax adjustments | 115 | |||||||||||||
Expected Impact on Non-GAAP Net Loss (net) | $ | (433 | ) | |||||||||||
Conference Call and Supporting Documents
Electronic Arts will host a conference call on May 10, 2016 at 2:00 pm
PT (5:00 pm ET) to review its results for the fourth quarter ended March
31, 2016 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 844-215-4106
(domestic) or 918-534-8313 (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 available until May 24,
2016 at 855-859-2056 (domestic) or 404-537-3406 (international). An
audio 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, non-GAAP net income, non-GAAP
diluted earnings per share and non-GAAP diluted shares. These non-GAAP
financial measures are adjusted for the items referenced below, as
applicable in a given reporting period, from the Company’s unaudited
condensed consolidated statements of operations. The adjustments to the
non-GAAP financial measures exclude the following items (other than
shares from the Convertible Bond Hedge, which are included):
Acquisition-related expenses
Amortization of debt discount and loss on conversion of notes
Change in deferred net revenue (online-enabled games)
College football settlement expenses
Income tax adjustments
Loss on licensed intellectual property commitment (COGS)
Shares from Convertible Bond Hedge
Stock-based compensation
Electronic Arts may consider whether other significant non-recurring
items that arise in the future should also be adjusted 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 adjusting for 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. The Company’s management team is evaluated on the basis
of non-GAAP financial measures and these 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. 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 and Loss on Conversion of Notes. In
July 2011, EA issued $632.5 million of 0.75% convertible senior notes in
a private placement offering, which mature in July 2016 (the
“Convertible Notes”). As of March, 31, 2016, $163 million remained
outstanding. 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 amortize as a debt
discount an amount equal to the fair value of the conversion option on
the Convertible Notes over their term. The debt discount is classified
as interest expense. Upon settlement of our Convertible Notes, we
attribute the fair value of the consideration transferred to the
liability and equity components. The difference between the fair value
of the consideration attributed to the liability component and the
carrying value of the liability is recorded as a non-cash loss in the
statement of the operations. Electronic Arts’ management excludes the
effect of the amortization of debt discount and the non-cash loss on the
early conversion of debt in its non-GAAP financial measures.
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. Electronic Arts’ management excludes
the impact of the change in deferred net revenue related to
online-enabled games in its non-GAAP financial measures for the reasons
stated above and also to facilitate an understanding of our operations
because all related costs of revenue are expensed as incurred instead of
deferred and recognized ratably.
College Football Settlement Expenses. During fiscal 2014,
Electronic Arts recognized a $48 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.
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. Accordingly, the Company applies the same tax
rate to its non-GAAP financial results. During fiscal year 2017, the
Company will apply a tax rate of 21 percent to its non-GAAP financial
results. During fiscal year 2016, the Company applied a tax rate of 22
percent. For fiscal years 2014 and 2015, a 25 percent tax rate was
applied, and through fiscal year 2013, the Company applied a 28 percent
tax rate.
Loss on Licensed Intellectual Property Commitment (COGS). During
the first quarter of fiscal 2015, Electronic Arts terminated its right
to utilize certain intellectual property that the Company had previously
licensed and we incurred a loss of $122 million on the corresponding
license commitment. This expense is excluded from our non-GAAP financial
measures.
Shares from Convertible Bond Hedge. The Convertible Notes were
issued with an initial conversion price of approximately $31.74 per
share. When the quarterly average trading price of EA’s common stock is
above $31.74 per share, the potential conversion of the Convertible
Notes has a dilutive impact on the Company’s earnings per share. At the
time they were issued, the Company entered into convertible note hedge
transactions (the “Convertible Bond Hedge”) to offset the dilutive
effect of the Convertible Notes. The Company includes the anti-dilutive
effect of the Convertible Bond Hedge in determining its non-GAAP
dilutive shares.
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.
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 2017 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 Annual Report
on Form 10-K for the fiscal year ended March 31, 2015 and Quarterly
Report on Form 10-Q for the fiscal quarter ended December 31, 2015.
These forward-looking statements are current as of May 10, 2016.
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 Annual Report on Form 10-K for the fiscal year ended
March 31, 2016. Electronic Arts assumes no obligation and does not
intend to update these estimates prior to filing its Form 10-K for the
fiscal year ended March 31, 2016.
About Electronic Arts
Electronic Arts (NASDAQ: EA) is a global leader in digital interactive
entertainment. The Company delivers games, content and online services
for Internet-connected consoles, personal computers, mobile phones and
tablets. EA has more than 300 million registered players around the
world.
In fiscal year 2016, EA posted GAAP net revenue of $4.4 billion.
Headquartered in Redwood City, California, EA is recognized for a
portfolio of critically acclaimed, high-quality blockbuster brands such
as The Sims™, Madden NFL, EA SPORTS™ FIFA, Battlefield™, Dragon Age™ and
Plants vs. Zombies™. More information about EA is available at www.ea.com/news.
EA SPORTS, Battlefield, The Sims, Dragon Age, Ultimate Team and Plants
vs. Zombies are trademarks of Electronic Arts Inc. and its subsidiaries. STAR
WARS © & TM 2015 Lucasfilm Ltd. All rights reserved. John Madden,
NFL 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 Statement of Operations | ||||||||||||||||
(in millions, except share per data) | ||||||||||||||||
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2016 | 2015 | 2016 | 2015 | |||||||||||||
Net revenue | ||||||||||||||||
Product | $ | 695 | $ | 669 | $ | 2,497 | $ | 2,568 | ||||||||
Service and other | 613 | 516 | 1,899 | 1,947 | ||||||||||||
Total net revenue | 1,308 | 1,185 | 4,396 | 4,515 | ||||||||||||
Cost of revenue | ||||||||||||||||
Product | 70 | 129 | 938 | 1,028 | ||||||||||||
Service and other | 156 | 105 | 416 | 401 | ||||||||||||
Total cost of revenue | 226 | 234 | 1,354 | 1,429 | ||||||||||||
Gross profit | 1,082 | 951 | 3,042 | 3,086 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 282 | 285 | 1,109 | 1,094 | ||||||||||||
Marketing and sales | 153 | 165 | 622 | 647 | ||||||||||||
General and administrative | 110 | 99 | 406 | 386 | ||||||||||||
Acquisition-related contingent consideration | — | (1 | ) | — | (3 | ) | ||||||||||
Amortization of intangibles | 1 | 3 | 7 | 14 | ||||||||||||
Total operating expenses | 546 | 551 | 2,144 | 2,138 | ||||||||||||
Operating income | 536 | 400 | 898 | 948 | ||||||||||||
Interest and other income (expense), net | (10 | ) | (3 | ) | (21 | ) | (23 | ) | ||||||||
Income before provision for (benefit from) income taxes | 526 | 397 | 877 | 925 | ||||||||||||
Provision for (benefit from) income taxes | (373 | ) | 2 | (279 | ) | 50 | ||||||||||
Net income | $ | 899 | $ | 395 | $ | 1,156 | $ | 875 | ||||||||
Earnings per share | ||||||||||||||||
Basic | $ | 2.93 | $ | 1.27 | $ | 3.73 | $ | 2.81 | ||||||||
Diluted | $ | 2.79 | $ | 1.19 | $ | 3.50 | $ | 2.69 | ||||||||
Number of shares used in computation | ||||||||||||||||
Basic | 307 | 310 | 310 | 311 | ||||||||||||
Diluted | 322 | 332 | 330 | 325 | ||||||||||||
Non-GAAP Results (in millions, except per share data)
The following tables reconcile the Company’s net revenue, gross profit,
operating income, net income and number of diluted shares 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 revenue, non-GAAP gross profit, non-GAAP
operating income, non-GAAP net income, and number of non-GAAP diluted
shares.
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2016 | 2015 | 2016 | 2015 | |||||||||||||
Net revenue | ||||||||||||||||
GAAP net revenue | $ | 1,308 | $ | 1,185 | $ | 4,396 | $ | 4,515 | ||||||||
Change in deferred net revenue (online-enabled games) | (384 | ) | (289 | ) | 170 | (196 | ) | |||||||||
Non-GAAP net revenue | $ | 924 | $ | 896 | $ | 4,566 | $ | 4,319 | ||||||||
Gross profit | ||||||||||||||||
GAAP gross profit | $ | 1,082 | $ | 951 | $ | 3,042 | $ | 3,086 | ||||||||
Acquisition-related expenses | 12 | 14 | 47 | 52 | ||||||||||||
Change in deferred net revenue (online-enabled games) | (384 | ) | (289 | ) | 170 | (196 | ) | |||||||||
Loss on licensed intellectual property commitment (COGS) | — | — | — | 122 | ||||||||||||
Stock-based compensation | 1 | — | 2 | 2 | ||||||||||||
Non-GAAP gross profit | $ | 711 | $ | 676 | $ | 3,261 | $ | 3,066 | ||||||||
Operating income | ||||||||||||||||
GAAP operating income | $ | 536 | $ | 400 | $ | 898 | $ | 948 | ||||||||
Acquisition-related expenses | 13 | 16 | 54 | 63 | ||||||||||||
Change in deferred net revenue (online-enabled games) | (384 | ) | (289 | ) | 170 | (196 | ) | |||||||||
Loss on licensed intellectual property commitment (COGS) | — | — | — | 122 | ||||||||||||
College football settlement expenses | — | — | — | (5 | ) | |||||||||||
Stock-based compensation | 47 | 36 | 178 | 144 | ||||||||||||
Non-GAAP operating income | $ | 212 | $ | 163 | $ | 1,300 | $ | 1,076 | ||||||||
Net Income | ||||||||||||||||
GAAP net income | $ | 899 | $ | 395 | $ | 1,156 | $ | 875 | ||||||||
Acquisition-related expenses | 13 | 16 | 54 | 63 | ||||||||||||
Amortization of debt discount and loss on conversion of notes | 5 | 6 | 27 | 22 | ||||||||||||
Change in deferred net revenue (online-enabled games) | (384 | ) | (289 | ) | 170 | (196 | ) | |||||||||
Loss on licensed intellectual property commitment (COGS) | — | — | — | 122 | ||||||||||||
College football settlement expenses | — | — | — | (5 | ) | |||||||||||
Stock-based compensation | 47 | 36 | 178 | 144 | ||||||||||||
Income tax adjustments | (419 | ) | (39 | ) | (567 | ) | (219 | ) | ||||||||
Non-GAAP net income | $ | 161 | $ | 125 | $ | 1,018 | $ | 806 | ||||||||
Non-GAAP earnings per share | ||||||||||||||||
Basic | $ | 0.52 | $ | 0.40 | $ | 3.28 | $ | 2.59 | ||||||||
Diluted | $ | 0.50 | $ | 0.39 | $ | 3.14 | $ | 2.51 | ||||||||
Number of shares | ||||||||||||||||
GAAP & Non-GAAP Basic | 307 | 310 | 310 | 311 | ||||||||||||
GAAP Diluted | 322 | 332 | 330 | 325 | ||||||||||||
Shares from convertible bond hedge | (3 | ) | (8 | ) | (6 | ) | (4 | ) | ||||||||
Non-GAAP Diluted | 319 | 324 | 324 | 321 | ||||||||||||
ELECTRONIC ARTS INC. AND SUBSIDIARIES | |||||||
Unaudited Condensed Consolidated Balance Sheets | |||||||
(in millions) | |||||||
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ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 2,493 | $ | 2,068 | |||
Short-term investments | 1,341 | 953 | |||||
Receivables, net of allowances of $159 and $140, respectively | 233 | 362 | |||||
Inventories | 33 | 36 | |||||
Deferred income taxes, net | — | 54 | |||||
Other current assets | 254 | 247 | |||||
Total current assets | 4,354 | 3,720 | |||||
Property and equipment, net | 439 | 459 | |||||
Goodwill | 1,710 | 1,713 | |||||
Acquisition-related intangibles, net | 57 | 111 | |||||
Deferred income taxes, net | 387 | 13 | |||||
Other assets | 103 | 131 | |||||
TOTAL ASSETS | $ | 7,050 | $ | 6,147 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 89 | $ | 68 | |||
Accrued and other current liabilities | 710 | 794 | |||||
0.75% convertible senior notes due 2016, net | 161 | 602 | |||||
Deferred net revenue (online-enabled games) | 1,458 | 1,283 | |||||
Total current liabilities | 2,418 | 2,747 | |||||
Senior notes, net | 989 | — | |||||
Income tax obligations | 80 | 70 | |||||
Deferred income taxes, net | 2 | 80 | |||||
Other liabilities | 163 | 183 | |||||
Total liabilities | 3,652 | 3,080 | |||||
0.75% convertible senior notes due 2016 | 2 | 31 | |||||
Common stock | 3 | 3 | |||||
Additional paid-in capital | 1,349 | 2,127 | |||||
Retained earnings | 2,060 | 904 | |||||
Accumulated other comprehensive income (loss) | (16 | ) | 2 | ||||
Total stockholders’ equity | 3,396 | 3,036 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 7,050 | $ | 6,147 | |||
ELECTRONIC ARTS INC. AND SUBSIDIARIES | ||||||||||||||||
Unaudited Condensed Consolidated Statements of Cash Flows | ||||||||||||||||
(in millions) | ||||||||||||||||
Three Months Ended March 31, | Twelve Months Ended March 31, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net income | $ | 899 | $ | 395 | $ | 1,156 | $ | 875 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation, amortization and accretion | 48 | 55 | 197 | 220 | ||||||||||||
Loss on conversion of convertible notes | 2 | — | 10 | — | ||||||||||||
Stock-based compensation | 47 | 36 | 178 | 144 | ||||||||||||
Acquisition-related contingent consideration | — | (1 | ) | — | (3 | ) | ||||||||||
Change in assets and liabilities: | ||||||||||||||||
Receivables, net | 395 | 122 | 127 | (54 | ) | |||||||||||
Inventories | 9 | 3 | 3 | 19 | ||||||||||||
Other assets | (23 | ) | (50 | ) | 19 | 87 | ||||||||||
Accounts payable | (57 | ) | (17 | ) | 13 | (46 | ) | |||||||||
Accrued and other liabilities | (128 | ) | (37 | ) | (252 | ) | 31 | |||||||||
Deferred income taxes, net | (409 | ) | (8 | ) | (403 | ) | 1 | |||||||||
Deferred net revenue (online-enabled games) | (387 | ) | (300 | ) | 175 | (207 | ) | |||||||||
Net cash provided by operating activities | 396 | 198 | 1,223 | 1,067 | ||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Capital expenditures | (30 | ) | (32 | ) | (93 | ) | (95 | ) | ||||||||
Proceeds from maturities and sales of short-term investments | 234 | 207 | 941 | 727 | ||||||||||||
Purchase of short-term investments | (605 | ) | (385 | ) | (1,332 | ) | (1,102 | ) | ||||||||
Net cash (used in) investing activities | (401 | ) | (210 | ) | (484 | ) | (470 | ) | ||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Proceeds from issuance of senior notes, net of issuance costs | 989 | — | 989 | — | ||||||||||||
Payment of convertible notes | (177 | ) | — | (470 | ) | — | ||||||||||
Proceeds from issuance of common stock | 21 | 29 | 107 | 60 | ||||||||||||
Excess tax benefit from stock-based compensation | 13 | 6 | 86 | 22 | ||||||||||||
Repurchase and retirement of common stock | (634 | ) | (95 | ) | (1,018 | ) | (337 | ) | ||||||||
Net cash provided by (used in) financing activities | 212 | (60 | ) | (306 | ) | (255 | ) | |||||||||
Effect of foreign exchange on cash and cash equivalents | 23 | (26 | ) | (8 | ) | (56 | ) | |||||||||
Increase (decrease) in cash and cash equivalents | 230 | (98 | ) | 425 | 286 | |||||||||||
Beginning cash and cash equivalents | 2,263 | 2,166 | 2,068 | 1,782 | ||||||||||||
Ending cash and cash equivalents | $ | 2,493 | $ | 2,068 | $ | 2,493 | $ | 2,068 | ||||||||
ELECTRONIC ARTS INC. AND SUBSIDIARIES | ||||||||||||||||||
Unaudited Supplemental Financial Information and Business Metrics | ||||||||||||||||||
(in millions, except per share data) | ||||||||||||||||||
Q4 | Q1 | Q2 | Q3 | Q4 | YOY % | |||||||||||||
FY15 | FY16 | FY16 | FY16 | FY16 | Change | |||||||||||||
QUARTERLY RECONCILIATION OF RESULTS | ||||||||||||||||||
Net revenue | ||||||||||||||||||
GAAP net revenue | 1,185 | 1,203 | 815 | 1,070 | 1,308 | 10 | % | |||||||||||
Change in deferred net revenue (online-enabled games) | (289 | ) | (510 | ) | 331 | 733 | (384 | ) | ||||||||||
Non-GAAP net revenue | 896 | 693 | 1,146 | 1,803 | 924 | 3 | % | |||||||||||
Gross profit | ||||||||||||||||||
GAAP gross profit | 951 | 1,030 | 406 | 524 | 1,082 | 14 | % | |||||||||||
Acquisition-related expenses | 14 | 12 | 11 | 12 | 12 | |||||||||||||
Change in deferred net revenue (online-enabled games) | (289 | ) | (510 | ) | 331 | 733 | (384 | ) | ||||||||||
Stock-based compensation | — | — | 1 | — | 1 | |||||||||||||
Non-GAAP gross profit | 676 | 532 | 749 | 1,269 | 711 | 5 | % | |||||||||||
GAAP gross profit % (as a % of GAAP net revenue) | 80 | % | 86 | % | 50 | % | 49 | % | 83 | % | ||||||||
Non-GAAP gross profit % (as a % of non-GAAP net revenue) | 75 | % | 77 | % | 65 | % | 70 | % | 77 | % | ||||||||
Operating income | ||||||||||||||||||
GAAP operating income (loss) | 400 | 512 | (119 | ) | (31 | ) | 536 | 34 | % | |||||||||
Acquisition-related expenses | 16 | 13 | 14 | 14 | 13 | |||||||||||||
Change in deferred net revenue (online-enabled games) | (289 | ) | (510 | ) | 331 | 733 | (384 | ) | ||||||||||
Stock-based compensation | 36 | 45 | 44 | 42 | 47 | |||||||||||||
Non-GAAP operating income | 163 | 60 | 270 | 758 | 212 | 30 | % | |||||||||||
GAAP operating income (loss) % (as a % of GAAP net revenue) | 34 | % | 43 | % | (15 | %) | (3 | %) | 41 | % | ||||||||
Non-GAAP operating income % (as a % of non-GAAP net revenue) | 18 | % | 9 | % | 24 | % | 42 | % | 23 | % | ||||||||
Net income | ||||||||||||||||||
GAAP net income (loss) | 395 | 442 | (140 | ) | (45 | ) | 899 | 128 | % | |||||||||
Acquisition-related expenses | 16 | 13 | 14 | 14 | 13 | |||||||||||||
Amortization of debt discount and loss on conversion of notes | 6 | 6 | 11 | 5 | 5 | |||||||||||||
Change in deferred net revenue (online-enabled games) | (289 | ) | (510 | ) | 331 | 733 | (384 | ) | ||||||||||
Stock-based compensation | 36 | 45 | 44 | 42 | 47 | |||||||||||||
Income tax adjustments | (39 | ) | 53 | (48 | ) | (153 | ) | (419 | ) | |||||||||
Non-GAAP net income | 125 | 49 | 212 | 596 | 161 | 29 | % | |||||||||||
GAAP net income (loss) % (as a % of GAAP net revenue) | 33 | % | 37 | % | (17 | %) | (4 | %) | 69 | % | ||||||||
Non-GAAP net income % (as a % of non-GAAP net revenue) | 14 | % | 7 | % | 18 | % | 33 | % | 17 | % | ||||||||
Diluted earnings (loss) per share | ||||||||||||||||||
GAAP earnings (loss) per share | 1.19 | 1.32 | (0.45 | ) | (0.14 | ) | 2.79 | 134 | % | |||||||||
Non-GAAP earnings per share | 0.39 | 0.15 | 0.65 | 1.83 | 0.50 | 28 | % | |||||||||||
Number of diluted shares used in computation | ||||||||||||||||||
GAAP & Non-GAAP Basic | 310 | 311 | 312 | 311 | 307 | |||||||||||||
GAAP Diluted | 332 | 335 | 312 | 311 | 322 | |||||||||||||
Anti-dilutive shares excluded for GAAP loss position2 | — | — | 21 | 20 | — | |||||||||||||
Shares from convertible bond hedge | (8 | ) | (10 | ) | (7 | ) | (6 | ) | (3 | ) | ||||||||
Non-GAAP Diluted | 324 | 325 | 326 | 325 | 319 | |||||||||||||
2 Diluted earnings per share reflects the potential dilution
from common shares (calculated using the treasury stock method),
issuable through stock-based compensation plans. When the company incurs
a loss, shares issuable through stock-based compensation plans are
excluded from the diluted loss per share calculation as inclusion would
be anti-dilutive.
ELECTRONIC ARTS INC. AND SUBSIDIARIES | ||||||||||||||||||
Unaudited Supplemental Financial Information and Business Metrics | ||||||||||||||||||
(in millions, except per share data) | ||||||||||||||||||
Q4 | Q1 | Q2 | Q3 | Q4 | YOY % | |||||||||||||
FY15 | FY16 | FY16 | FY16 | FY16 | Change | |||||||||||||
QUARTERLY NET REVENUE PRESENTATIONS – GAAP AND NON-GAAP | ||||||||||||||||||
Geography net revenue | ||||||||||||||||||
North America | 528 | 506 | 381 | 448 | 572 | 8 | % | |||||||||||
International | 657 | 697 | 434 | 622 | 736 | 12 | % | |||||||||||
Total GAAP net revenue | 1,185 | 1,203 | 815 | 1,070 | 1,308 | 10 | % | |||||||||||
North America | (125 | ) | (215 | ) | 91 | 403 | (147 | ) | ||||||||||
International | (164 | ) | (295 | ) | 240 | 330 | (237 | ) | ||||||||||
Change in deferred net revenue (online-enabled games) | (289 | ) | (510 | ) | 331 | 733 | (384 | ) | ||||||||||
North America | 403 | 291 | 472 | 851 | 425 | 5 | % | |||||||||||
International | 493 | 402 | 674 | 952 | 499 | 1 | % | |||||||||||
Total Non-GAAP net revenue | 896 | 693 | 1,146 | 1,803 | 924 | 3 | % | |||||||||||
North America | 45 | % | 42 | % | 47 | % | 42 | % | 44 | % | ||||||||
International | 55 | % | 58 | % | 53 | % | 58 | % | 56 | % | ||||||||
Total GAAP net revenue % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
North America | 45 | % | 42 | % | 41 | % | 47 | % | 46 | % | ||||||||
International | 55 | % | 58 | % | 59 | % | 53 | % | 54 | % | ||||||||
Total Non-GAAP net revenue % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Net revenue composition | ||||||||||||||||||
Packaged goods and other | 571 | 580 | 313 | 501 | 593 | 4 | % | |||||||||||
Full game downloads | 122 | 119 | 82 | 112 | 152 | 25 | % | |||||||||||
Extra content | 265 | 291 | 213 | 241 | 317 | 20 | % | |||||||||||
Subscriptions, advertising and other | 92 | 71 | 84 | 89 | 94 | 2 | % | |||||||||||
Mobile | 135 | 142 | 123 | 127 | 152 | 13 | % | |||||||||||
Total Digital | 614 | 623 | 502 | 569 | 715 | 16 | % | |||||||||||
Total GAAP net revenue | 1,185 | 1,203 | 815 | 1,070 | 1,308 | 10 | % | |||||||||||
Packaged goods and other | (277 | ) | (419 | ) | 353 | 495 | (381 | ) | ||||||||||
Full game downloads | (8 | ) | (35 | ) | 7 | 83 | (18 | ) | ||||||||||
Extra content | (18 | ) | (36 | ) | (18 | ) | 119 | (7 | ) | |||||||||
Subscriptions, advertising and other | (1 | ) | — | (1 | ) | 1 | 1 | |||||||||||
Mobile | 15 | (20 | ) | (10 | ) | 35 | 21 | |||||||||||
Total Digital | (12 | ) | (91 | ) | (22 | ) | 238 | (3 | ) | |||||||||
Change in deferred net revenue (online-enabled games) | (289 | ) | (510 | ) | 331 | 733 | (384 | ) | ||||||||||
Packaged goods and other | 294 | 161 | 666 | 996 | 212 | (28 | %) | |||||||||||
Full game downloads | 114 | 84 | 89 | 195 | 134 | 18 | % | |||||||||||
Extra content | 247 | 255 | 195 | 360 | 310 | 26 | % | |||||||||||
Subscriptions, advertising and other | 91 | 71 | 83 | 90 | 95 | 4 | % | |||||||||||
Mobile | 150 | 122 | 113 | 162 | 173 | 15 | % | |||||||||||
Total Digital | 602 | 532 | 480 | 807 | 712 | 18 | % | |||||||||||
Total Non-GAAP net revenue | 896 | 693 | 1,146 | 1,803 | 924 | 3 | % | |||||||||||
Packaged goods and other | 48 | % | 48 | % | 38 | % | 47 | % | 45 | % | ||||||||
Full game downloads | 10 | % | 10 | % | 10 | % | 10 | % | 12 | % | ||||||||
Extra content | 22 | % | 24 | % | 26 | % | 23 | % | 24 | % | ||||||||
Subscriptions, advertising and other | 8 | % | 6 | % | 11 | % | 8 | % | 7 | % | ||||||||
Mobile | 12 | % | 12 | % | 15 | % | 12 | % | 12 | % | ||||||||
Total Digital | 52 | % | 52 | % | 62 | % | 53 | % | 55 | % | ||||||||
Total GAAP net revenue % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Packaged goods and other | 33 | % | 23 | % | 58 | % | 55 | % | 23 | % | ||||||||
Full game downloads | 13 | % | 12 | % | 8 | % | 11 | % | 14 | % | ||||||||
Extra content | 27 | % | 37 | % | 17 | % | 20 | % | 34 | % | ||||||||
Subscriptions, advertising and other | 10 | % | 10 | % | 7 | % | 5 | % | 10 | % | ||||||||
Mobile | 17 | % | 18 | % | 10 | % | 9 | % | 19 | % | ||||||||
Total Digital | 67 | % | 77 | % | 42 | % | 45 | % | 77 | % | ||||||||
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) | ||||||||||||||||||
Q4 | Q1 | Q2 | Q3 | Q4 | YOY % | |||||||||||||
FY15 | FY16 | FY16 | FY16 | FY16 | Change | |||||||||||||
QUARTERLY NET REVENUE PRESENTATIONS – GAAP AND NON-GAAP | ||||||||||||||||||
Platform net revenue | ||||||||||||||||||
Xbox One, PLAYSTATION 4 | 468 | 487 | 332 | 571 | 793 | 69 | % | |||||||||||
Xbox 360, PLAYSTATION 3 | 328 | 293 | 155 | 157 | 147 | (55 | %) | |||||||||||
Other consoles | 3 | 2 | 1 | 3 | 1 | (67 | %) | |||||||||||
Total consoles | 799 | 782 | 488 | 731 | 941 | 18 | % | |||||||||||
PC / Browser | 221 | 253 | 184 | 182 | 195 | (12 | %) | |||||||||||
Mobile | 136 | 145 | 124 | 128 | 151 | 11 | % | |||||||||||
Other | 29 | 23 | 19 | 29 | 21 | (28 | %) | |||||||||||
Total GAAP net revenue | 1,185 | 1,203 | 815 | 1,070 | 1,308 | 10 | % | |||||||||||
Xbox One, PLAYSTATION 4 | (92 | ) | (253 | ) | 310 | 626 | (287 | ) | ||||||||||
Xbox 360, PLAYSTATION 3 | (164 | ) | (204 | ) | 55 | 16 | (93 | ) | ||||||||||
Other consoles | (1 | ) | — | 1 | (1 | ) | (1 | ) | ||||||||||
Total consoles | (257 | ) | (457 | ) | 366 | 641 | (381 | ) | ||||||||||
PC / Browser | (49 | ) | (33 | ) | (19 | ) | 55 | (27 | ) | |||||||||
Mobile | 16 | (19 | ) | (12 | ) | 35 | 23 | |||||||||||
Other | 1 | (1 | ) | (4 | ) | 2 | 1 | |||||||||||
Change in deferred net revenue (online-enabled games) | (289 | ) | (510 | ) | 331 | 733 | (384 | ) | ||||||||||
Xbox One, PLAYSTATION 4 | 376 | 234 | 642 | 1,197 | 506 | 35 | % | |||||||||||
Xbox 360, PLAYSTATION 3 | 164 | 89 | 210 | 173 | 54 | (67 | %) | |||||||||||
Other consoles | 2 | 2 | 2 | 2 | — | (100 | %) | |||||||||||
Total consoles | 542 | 325 | 854 | 1,372 | 560 | 3 | % | |||||||||||
PC / Browser | 172 | 220 | 165 | 237 | 168 | (2 | %) | |||||||||||
Mobile | 152 | 126 | 112 | 163 | 174 | 14 | % | |||||||||||
Other | 30 | 22 | 15 | 31 | 22 | (27 | %) | |||||||||||
Total Non-GAAP net revenue | 896 | 693 | 1,146 | 1,803 | 924 | 3 | % | |||||||||||
Xbox One, PLAYSTATION 4 | 39 | % | 41 | % | 41 | % | 53 | % | 61 | % | ||||||||
Xbox 360, PLAYSTATION 3 | 28 | % | 24 | % | 19 | % | 15 | % | 11 | % | ||||||||
Other consoles | — | — | — | — | — | |||||||||||||
Total consoles | 67 | % | 65 | % | 60 | % | 68 | % | 72 | % | ||||||||
PC / Browser | 19 | % | 21 | % | 23 | % | 17 | % | 15 | % | ||||||||
Mobile | 12 | % | 12 | % | 15 | % | 12 | % | 11 | % | ||||||||
Other | 2 | % | 2 | % | 2 | % | 3 | % | 2 | % | ||||||||
Total GAAP net revenue % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Xbox One, PLAYSTATION 4 | 42 | % | 34 | % | 56 | % | 66 | % | 55 | % | ||||||||
Xbox 360, PLAYSTATION 3 | 18 | % | 13 | % | 19 | % | 10 | % | 6 | % | ||||||||
Other consoles | — | — | — | — | — | |||||||||||||
Total consoles | 60 | % | 47 | % | 75 | % | 76 | % | 61 | % | ||||||||
PC / Browser | 19 | % | 32 | % | 14 | % | 13 | % | 18 | % | ||||||||
Mobile | 17 | % | 18 | % | 10 | % | 9 | % | 19 | % | ||||||||
Other | 4 | % | 3 | % | 1 | % | 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) | ||||||||||||||||
Q4 | Q1 | Q2 | Q3 | Q4 | YOY % | |||||||||||
FY15 | FY16 | FY16 | FY16 | FY16 | Change | |||||||||||
CASH FLOW DATA | ||||||||||||||||
Operating cash flow | 198 | (71 | ) | 9 | 889 | 396 | 100 | % | ||||||||
Operating cash flow – TTM | 1,067 | 992 | 818 | 1,025 | 1,223 | 15 | % | |||||||||
Capital expenditures | 32 | 24 | 18 | 21 | 30 | (6 | %) | |||||||||
Capital expenditures – TTM | 95 | 92 | 89 | 95 | 93 | (2 | %) | |||||||||
Repurchase and retirement of common stock | 95 | 132 | 126 | 126 | 634 | 567 | % | |||||||||
BALANCE SHEET DATA | ||||||||||||||||
Cash and cash equivalents | 2,068 | 1,810 | 1,598 | 2,263 | 2,493 | 21 | % | |||||||||
Short-term investments | 953 | 1,069 | 990 | 966 | 1,341 | 41 | % | |||||||||
Cash and cash equivalents, and short-term investments | 3,021 | 2,879 | 2,588 | 3,229 | 3,834 | 27 | % | |||||||||
Receivables, net | 362 | 144 | 737 | 621 | 233 | (36 | %) | |||||||||
Deferred net revenue (online-enabled games) | ||||||||||||||||
End of the quarter | 1,283 | 775 | 1,113 | 1,844 | 1,458 | 14 | % | |||||||||
Less: Beginning of the quarter | 1,583 | 1,283 | 775 | 1,113 | 1,844 | |||||||||||
Change in deferred net revenue (online-enabled games)3 | (300 | ) | (508 | ) | 338 | 731 | (386 | ) | ||||||||
STOCK-BASED COMPENSATION | ||||||||||||||||
Cost of revenue | — | — | 1 | — | 1 | |||||||||||
Research and development | 21 | 26 | 25 | 26 | 26 | |||||||||||
Marketing and sales | 5 | 5 | 7 | 5 | 7 | |||||||||||
General and administrative | 10 | 14 | 11 | 11 | 13 | |||||||||||
Total stock-based compensation | 36 | 45 | 44 | 42 | 47 | |||||||||||
3The difference between the balances of deferred net revenue
(online-enabled games) does not always equal the change in deferred net
revenue (online-enabled games) in the GAAP to Non-GAAP consolidated
statement of operations reconciliation due to the impact of unrecognized
gains/losses on cash flow hedges.
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Electronic Arts Reports Q4 FY16 and Full Year FY16 Financial Results
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