Electronic Arts Q4 2010 Earnings Call Transcript

Electronic Arts Q4 2010 Earnings Call Transcript
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Electronic Arts (ERTS)

Q4 2010 Earnings Call

May 11, 2010 5:00 pm ET

Executives

John Riccitiello - Chief Executive Officer and Executive Director

John Schappert - Chief Operating Officer

Eric Brown - Chief Financial Officer and Executive Vice President

Peter Ausnit -

Analysts

Shawn Milne - Janney Montgomery Scott LLC

Benjamin Schachter - Broadpoint AmTech, Inc.

Arvind Bhatia - Sterne Agee & Leach Inc.

Jess Lubert - Wells Fargo Securities, LLC

Colin Sebastian - Lazard Capital Markets LLC

Edward Williams - BMO Capital Markets U.S.

Justin Post - BofA Merrill Lynch

Heath Terry - FBR Capital Markets & Co.

Presentation

Operator

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Good day, ladies and gentlemen. Welcome to the Electronics Arts Fourth Quarter and Fiscal Year 2010 Earnings Conference Call. For opening remarks and introductions, I'd like to turn the conference over to Mr. Peter Ausnit, Vice President of Investor Relations. Please go ahead, sir.

Peter Ausnit

Thank you, Sarah, and thank you, all for joining us this afternoon. Welcome to EA's Fiscal 2010 Fourth Quarter Earnings Call. Today on the call, we have John Riccitiello, our Chief Executive Officer; Eric Brown, our Chief Financial Officer; and John Schappert, our Chief Operating Officer.

Before we begin, I'd like to remind you that you may find copies of our SEC filings, our earnings release and a replay of this webcast on our website at investor.ea.com. Shortly after the call, we will post a copy of our prepared remarks on our website.

Throughout this call, we will present both GAAP and non-GAAP financial measures. Our earnings release provides a reconciliation of our GAAP to non-GAAP measures. These non-GAAP measures are not intended to be considered in isolation from, as a substitute for, or superior to our GAAP results. We encourage investors to consider all measures before making an investment decision. All comparisons made in the course of this call are against the same period in the prior year unless otherwise stated. Please see the supplemental information on our website for trailing 12-month segment shares, additional GAAP to non-GAAP reconciliations, a summary of our financial guidance and our title slate.

During the course of this call, we may make forward-looking statements regarding future events and the future financial performance of the company. We caution you that actual events and results may differ materially. We refer you to our most recent Form 10-Q for a discussion of risk factors that could cause our actual results to differ materially from those discussed today. We make these statements as of May 11, 2010, and disclaim any duty to update them. Now I'd like to turn the call over to John.

John Riccitiello

Thank you, Peter. Earlier today, EA announced results for both Q4 and fiscal 2010. We finished the fiscal year in the fourth quarter slightly ahead of the guidance we provided the Street on February 8. The quarter came in stronger than Street consensus. We are reaffirming our FY '11 financial guidance. Details on the quarter, our fiscal year financial performance and our guidance are in our press release and will be covered in more depth by Eric Brown. Key points I would highlight include these and note, these are non-GAAP numbers.

FY '10 was EA's highest revenue year in history. We had a strong financial rebound and FY '10 versus FY '09 increasing EPS by $0.74. We made significant progress on each of our four strategic objectives: Cost management, fewer but bigger games, improving game quality and driving digital revenue streams.

On cost. We successfully implemented a restructuring program, significantly reducing our cost base, packaged goods fewer but bigger gains. We were the number one publisher overall in Europe and North America combined. We're the number one publisher on PC, Xbox 360, PlayStation 3 and PlayStation 2. We achieved share growth in FY '10 versus FY '09 on 20% fewer titles.

Quality. Our investment in quality was a key reason for our segment share success. EA leads the industry in quality with 20 titles in fiscal '10 that received the Metacritic rating of 80 and above.

Digital. FY '10 revenue from our digital initiatives was up 33% over fiscal year '09. We saw a substantial growth in post-released downloadable content sales with big titles like Dragon Age, Mass Effect 2 and Battlefield: Bad Company 2.

We continue to lead on mobile, iPhone and now, iPad. In a tough market, our advertising sales were up and the acquisition of Playfish makes us a strong leader in social network gaming.

We enter FY '11 with strong momentum. The quality of our titles, both packaged goods and digital is something we feel passionate about at EA. We couldn't be more pleased with the people that make these games. This investment in quality is what allows us to extend our properties, connecting them to millions of consumers online.

With that, I'll turn the call over to Eric.

Eric Brown

Thank you, John. EA reported solid Q4 financial results today with non-GAAP revenue coming in at the high end of the guidance range of $800 million to $815 million that we provided on February 8. Non-GAAP EPS exceeded the high end of our guidance range of $0.02 to $0.06 per share. Non-GAAP net revenue was $815 million, up 40% year-over-year. On a GAAP basis, net revenue was $979 million.

At constant-currency rates, non-GAAP net revenue increased $210 million or 34% year-over-year. On a GAAP basis, net revenue increased $85 million or 10% year-over-year.

Non-GAAP gross profit margin was 65.2% compared to 49.6% a year ago. This was up from the prior year primarily due to product mix featuring more owned IP and less distribution product versus Q4 last year.

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