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Electronic Arts Reports Q3 FY13 Financial Results

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 250 million registered players and operates in 75 countries. In fiscal year 2012, EA posted GAAP net revenue of $4.1 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.

EA SPORTS, Origin, Dead Space, The Sims and Need for Speed are trademarks of Electronic Arts Inc. Mass Effect is a trademark of EA International (Studio and Publishing) Ltd. Battlefield 3 and Battlefield are trademarks of EA Digital Illusions CE AB. Crysis is a trademark of GmbH. The Simpsons TM & © 2012 Twentieth Century Fox Film Corporation. All Rights Reserved . John Madden, NFL and FIFA are the property of their respective owners and used with permission. All other trademarks are the property of their respective owners.

 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)
 
 

Three Months Ended December 31,

 

Nine Months Ended December 31,

2012   2011 2012   2011
Net revenue
Product $ 703 $ 884 $ 1,886 $ 2,370
Service and other 219   177   702   405  
Total net revenue 922 1,061 2,588 2,775
Cost of revenue
Product 363 477 866 1,088
Service and other 66   75   213   136  
Total cost of revenue 429   552   1,079   1,224  
Gross profit 493 509 1,509 1,551
Operating expenses:
Marketing and sales 214 269 571 631
General and administrative 68 98 253 260
Research and development 286 325 890 928
Acquisition-related contingent consideration (45 ) (11 ) (65 ) 8
Amortization of intangibles 7 11 21 37
Restructuring and other 2     27   17  
Total operating expenses 532   692   1,697   1,881  
Operating loss (39 ) (183 ) (188 ) (330 )
Gain on strategic investments 14 14
Interest and other income (expense), net (8 ) (10 ) (17 ) (13 )
Loss before provision for (benefit from) income taxes (33 ) (193 ) (191 ) (343 )
Provision for (benefit from) income taxes 12   12   34   (19 )
Net loss $ (45 ) $ (205 ) $ (225 ) $ (324 )
Loss per share
Basic and Diluted $ (0.15 ) $ (0.62 ) $ (0.72 ) $ (0.98 )
Number of shares used in computation
Basic and Diluted 304 332 313 331
 

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,
2012   2011 2012   2011
Net loss $ (45 ) $ (205 ) $ (225 ) $ (324 )
Acquisition-related expenses (15 ) 14 8 70
Amortization of debt discount 5 5 15 9
Change in deferred net revenue (packaged goods and digital content) 260 590 165 434
Gain on strategic investments (14 ) (14 )
Restructuring and other 2 27 17
Stock-based compensation 39 48 122 129
Income tax adjustments (56 ) (118 ) (3 ) (107 )
Non-GAAP net income $ 176   $ 334   $ 95   $ 228  
Non-GAAP earnings per share
Basic $ 0.58 $ 1.01 $ 0.30 $ 0.69
Diluted $ 0.57 $ 0.99 $ 0.30 $ 0.67
Number of shares used in Non-GAAP computation
Basic 304 332 313 331
Diluted 308 338 315 338
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
   

December 31, 2012

March 31, 2012 (a)

ASSETS
Current assets:
Cash and cash equivalents $ 1,158 $ 1,293
Short-term investments 275 437
Marketable equity securities 59 119
Receivables, net of allowances of $284 and $252, respectively 382 366
Inventories 59 59
Deferred income taxes, net 67 67
Other current assets 229   268  
Total current assets 2,229 2,609
Property and equipment, net 550 568
Goodwill 1,724 1,718
Acquisition-related intangibles, net 304 369
Deferred income taxes, net 47 42
Other assets 185   185  
TOTAL ASSETS $ 5,039   $ 5,491  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 93 $ 215
Accrued and other current liabilities 840 857
Deferred net revenue (packaged goods and digital content) 1,213   1,048  
Total current liabilities 2,146 2,120
0.75% convertible senior notes due 2016, net 554 539
Income tax obligations 211 189
Deferred income taxes, net 2 8
Other liabilities 168   177  
Total liabilities 3,081 3,033
Common stock 3 3
Paid-in capital 2,138 2,359
Accumulated deficit (302 ) (77 )
Accumulated other comprehensive income 119   173  
Total stockholders’ equity 1,958   2,458  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 5,039   $ 5,491  

(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,
2012   2011 2012   2011
OPERATING ACTIVITIES
Net loss $ (45 ) $ (205 ) $ (225 ) $ (324 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Acquisition-related contingent consideration (45 ) (11 ) (65 ) 8
Depreciation, amortization and accretion, net 66 54 178 148
Net gains on investments and sale of property and equipment (12 ) (12 ) (12 )
Non-cash restructuring charges (3 ) 7 (3 )
Stock-based compensation 39 48 122 129
Change in assets and liabilities:
Receivables, net 256 39 (18 ) (176 )
Inventories 13 22 11
Other assets 14 (18 ) 14 (81 )
Accounts payable (124 ) (93 ) (115 ) (150 )
Accrued and other liabilities (56 ) 48 53 50
Deferred income taxes, net (3 ) 4 (13 ) (44 )
Deferred net revenue (packaged goods and digital content) 260   590   165   434  
Net cash provided by (used in) operating activities 363   475   91   (10 )
INVESTING ACTIVITIES
Capital expenditures (25 ) (44 ) (81 ) (128 )
Proceeds from sale of property and equipment 26
Proceeds from sale of marketable equity securities 25 25
Proceeds from maturities and sales of short-term investments 124 144 404 463
Purchase of short-term investments (47 ) (195 ) (244 ) (374 )
Acquisition-related restricted cash 25
Acquisition of subsidiaries, net of cash acquired   (19 ) (10 ) (676 )
Net cash provided by (used in) investing activities 77   (114 ) 119   (689 )
FINANCING ACTIVITIES
Payment of debt issuance costs (2 )
Proceeds from borrowings on convertible senior notes, net of issuance costs 617
Proceeds from issuance of warrants 65
Purchase of convertible note hedge (107 )
Proceeds from issuance of common stock 1 4 19 39
Excess tax benefit from stock-based compensation 1 4
Repurchase and retirement of common stock (157 ) (41 ) (336 ) (230 )
Acquisition-related contingent consideration payment (2 )   (28 )  
Net cash provided by (used in) financing activities (158 ) (36 ) (347 ) 388  
Effect of foreign exchange on cash and cash equivalents 5 (13 ) 2 (26 )
Increase (decrease) in cash and cash equivalents 287   312   (135 ) (337 )
Beginning cash and cash equivalents 871   930   1,293   1,579  
Ending cash and cash equivalents $ 1,158   $ 1,242   $ 1,158   $ 1,242  
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data and headcount)
 
  Q3   Q4   Q1   Q2   Q3   YOY %
FY12 FY12 FY13 FY13 FY13 Change
QUARTERLY RECONCILIATION OF RESULTS
Net Revenue
GAAP net revenue $ 1,061 $ 1,368 $ 955 $ 711 $ 922 (13 %)
Change in deferred net revenue (packaged goods and digital content) 590   (391 ) (464 ) 369   260  
Non-GAAP net revenue $ 1,651   $ 977   $ 491   $ 1,080   $ 1,182   (28 %)
Gross Profit
GAAP gross profit $ 509 $ 994 $ 750 $ 266 $ 493 (3 %)
Acquisition-related expenses 14 27 15 14 23
Change in deferred net revenue (packaged goods and digital content) 590 (391 ) (464 ) 369 260
Stock-based compensation   1   1      
Non-GAAP gross profit $ 1,113   $ 631   $ 302   $ 649   $ 776   (30 %)
GAAP gross profit % (as a % of GAAP net revenue) 48% 73% 79% 37% 53%
Non-GAAP gross profit % (as a % of non-GAAP net revenue) 67% 65% 62% 60% 66%
Operating Income (Loss)
GAAP operating income (loss) $ (183 ) $ 365 $ 215 $ (364 ) $ (39 ) 79 %
Acquisition-related expenses 14 36 2 21 (15 )
Certain non-recurring litigation expenses 27
Change in deferred net revenue (packaged goods and digital content) 590 (391 ) (464 ) 369 260
Restructuring and other (1 ) 27 (2 ) 2
Stock-based compensation 48   41   39   44   39  
Non-GAAP operating income (loss) $ 469   $ 77   $ (181 ) $ 68   $ 247   (47 %)
GAAP operating income (loss) % (as a % of GAAP net revenue) (17%) 27% 23% (51%) (4%)
Non-GAAP operating income (loss) % (as a % of non-GAAP net revenue) 28% 8% (37%) 6% 21%
Net Income (Loss)
GAAP net income (loss) $ (205 ) $ 400 $ 201 $ (381 ) $ (45 ) 78 %
Acquisition-related expenses 14 36 2 21 (15 )
Amortization of debt discount 5 5 5 5 5
Certain non-recurring litigation expenses 27
Change in deferred net revenue (packaged goods and digital content) 590 (391 ) (464 ) 369 260
Gain on strategic investments (14 )
Restructuring and other (1 ) 27 (2 ) 2
Stock-based compensation 48 41 39 44 39
Income tax adjustments (118 ) (61 ) 60   (7 ) (56 )
Non-GAAP net income (loss) $ 334   $ 56   $ (130 ) $ 49   $ 176   (47 %)
GAAP net income (loss) % (as a % of GAAP net revenue) (19%) 29% 21% (54%) (5%)
Non-GAAP net income (loss) % (as a % of non-GAAP net revenue) 20% 6% (26%) 5% 15%
Diluted Earnings (Loss) Per Share
GAAP earnings (loss) per share $ (0.62 ) $ 1.20 $ 0.63 $ (1.21 ) $ (0.15 ) 76 %
Non-GAAP earnings (loss) per share $ 0.99 $ 0.17 $ (0.41 ) $ 0.15 $ 0.57 (42 %)
 
Number of diluted shares used in computation
GAAP 332 332 320 316 304
Non-GAAP 338 332 317 318 308
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data and headcount)
 
  Q3   Q4   Q1   Q2   Q3   YOY %
FY12 FY12 FY13 FY13 FY13 Change
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
 
Geography Net Revenue
North America 500 653 450 329 409 (18 %)
Europe 505 627 435 332 464 (8 %)
Asia 56   88   70   50   49   (13 %)
Total GAAP Net Revenue 1,061   1,368   955   711   922   (13 %)
North America 310 (188 ) (265 ) 179 80
Europe 235 (187 ) (174 ) 171 166
Asia 45   (16 ) (25 ) 19   14  
Change In Deferred Net Revenue (Packaged Goods and Digital Content) 590   (391 ) (464 ) 369   260  
North America 810 465 185 508 489 (40 %)
Europe 740 440 261 503 630 (15 %)
Asia 101   72   45   69   63   (38 %)
Total Non-GAAP Net Revenue 1,651   977   491   1,080   1,182   (28 %)
North America 47% 48% 47% 46% 44%
Europe 48% 46% 46% 47% 51%
Asia 5% 6% 7% 7% 5%
Total GAAP Net Revenue % 100% 100% 100% 100% 100%
North America 49% 48% 38% 47% 42%
Europe 45% 45% 53% 47% 53%
Asia 6% 7% 9% 6% 5%
Total Non-GAAP Net Revenue % 100% 100% 100% 100% 100%
 
Net Revenue Composition
Publishing and Other 738 926 592 365 568 (23 %)
Wireless, Internet-derived, and Advertising (Digital) 274 419 342 324 321 17 %
Distribution 49   23   21   22   33   (33 %)
Total GAAP Net Revenue 1,061   1,368   955   711   922   (13 %)
Publishing and Other 487 (397 ) (446 ) 379 174
Wireless, Internet-derived, and Advertising (Digital) 103   6   (18 ) (10 ) 86  
Change In Deferred Net Revenue (Packaged Goods and Digital Content) 590   (391 ) (464 ) 369   260  
Publishing and Other 1,225 529 146 744 742 (39 %)
Wireless, Internet-derived, and Advertising (Digital) 377 425 324 314 407 8 %
Distribution 49   23   21   22   33   (33 %)
Total Non-GAAP Net Revenue 1,651   977   491   1,080   1,182   (28 %)
Publishing and Other 69% 68% 62% 51% 62%
Wireless, Internet-derived, and Advertising (Digital) 26% 30% 36% 46% 35%
Distribution 5% 2% 2% 3% 3%
Total GAAP Net Revenue % 100% 100% 100% 100% 100%
Publishing and Other 74% 54% 30% 69% 63%
Wireless, Internet-derived, and Advertising (Digital) 23% 44% 66% 29% 34%
Distribution 3% 2% 4% 2% 3%
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 and headcount)
 
  Q3   Q4   Q1   Q2   Q3   YOY %
FY12 FY12 FY13 FY13 FY13 Change
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
Platform Net Revenue
Xbox 360 331 454 292 204 277 (16 %)
PLAYSTATION 3 314 432 267 150 289 (8 %)
Wii 49 20 8 17 20 (59 %)
PlayStation 2 7   3   2   6   3   (57 %)
Total Consoles 701 909 569 377 589 (16 %)
Mobile 70 87 69 75 86 23 %
PlayStation Handhelds 14 6 10 14 15 7 %
Nintendo Handhelds 15   5   9   8   9   (40 %)
Total Mobile and Handhelds 99 98 88 97 110 11 %
PC 214 334 276 214 186 (13 %)
Other 47   27   22   23   37   (21 %)
Total GAAP Net Revenue 1,061   1,368   955   711   922   (13 %)
Xbox 360 174 (128 ) (186 ) 144 72
PLAYSTATION 3 179 (210 ) (183 ) 222 95
Wii 3 (7 ) (5 )
PlayStation 2 (1 ) 1
Mobile 13 (3 ) 9 13 13
PlayStation Handhelds (2 ) 10 (4 ) 7 11
Nintendo Handhelds 9 (5 ) (4 ) (2 ) 13
PC 214   (48 ) (90 ) (16 ) 56  
Change in Deferred Net Revenue (Packaged Goods and Digital Content) 590   (391 ) (464 ) 369   260  
Xbox 360 505 326 106 348 349 (31 %)
PLAYSTATION 3 493 222 84 372 384 (22 %)
Wii 52 13 3 17 20 (62 %)
PlayStation 2 7   3   1   7   3   (57 %)
Total Consoles 1,057 564 194 744 756 (28 %)
Mobile 83 84 78 88 99 19 %
PlayStation Handhelds 12 16 6 21 26 117 %
Nintendo Handhelds 24     5   6   22   (8 %)
Total Mobile and Handhelds 119 100 89 115 147 24 %
PC 428 286 186 198 242 (43 %)
Other 47   27   22   23   37   (21 %)
Total Non-GAAP Net Revenue 1,651   977   491   1,080   1,182   (28 %)
Xbox 360 31% 33% 31% 29% 30%
PLAYSTATION 3 29% 32% 28% 21% 32%
Wii 5% 1% 1% 2% 2%
PlayStation 2 1%     1%  
Total Consoles 66% 66% 60% 53% 64%
Mobile 7% 6% 7% 11% 9%
PlayStation Handhelds 1% 1% 1% 2% 2%
Nintendo Handhelds 1%   1% 1% 1%
Total Mobile and Handhelds 9% 7% 9% 14% 12%
PC 20% 25% 29% 30% 20%
Other 5% 2% 2% 3% 4%
Total GAAP Net Revenue % 100% 100% 100% 100% 100%
Xbox 360 31% 34% 22% 32% 30%
PLAYSTATION 3 30% 23% 17% 34% 32%
Wii 3% 1% 1% 2% 2%
PlayStation 2       1%  
Total Consoles 64% 58% 40% 69% 64%
Mobile 5% 8% 16% 8% 8%
PlayStation Handhelds 1% 2% 1% 2% 2%
Nintendo Handhelds 1%   1% 1% 2%
Total Mobile and Handhelds 7% 10% 18% 11% 12%
PC 26% 29% 38% 18% 21%
Other 3% 3% 4% 2% 3%
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 and headcount)
 
  Q3   Q4   Q1   Q2   Q3   YOY %
FY12 FY12 FY13 FY13 FY13 Change
CASH FLOW DATA
Operating cash flow 475 287 (244 ) (28 ) 363 (24 %)
Operating cash flow - TTM 243 277 307 490 378 56 %
Capital expenditures 44 44 31 25 25 (43 %)
Capital expenditures - TTM 149 172 171 144 125 (16 %)
BALANCE SHEET DATA
Cash and cash equivalents 1,242 1,293 919 871 1,158 (7 %)
Short-term investments 406 437 444 351 275 (32 %)
Marketable equity securities 143 119 76 93 59 (59 %)
Receivables, net 526 366 111 643 382 (27 %)
Inventories 69 59 60 71 59 (14 %)
Deferred net revenue (packaged goods and digital content)
End of the quarter 1,439 1,048 584 953 1,213
Less: Beginning of the quarter 849   1,439   1,048   584   953  
Change in deferred net revenue (packaged goods and digital content) 590   (391 ) (464 ) 369   260  
STOCK-BASED COMPENSATION
Cost of goods sold 1 1
Marketing and sales 7 8 7 8 7
General and administrative 11 7 9 9 7
Research and development 30   25   22   27   25  
Total Stock-Based Compensation 48   41   39   44   39  
EMPLOYEES 9,043 9,158 9,225 9,224 9,370 4 %




Stock quotes in this article: EA 

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