10-QPeriod: Q1 FY2004

ELECTRONIC ARTS INC. Quarterly Report for Q1 Ended Jun 30, 2003

Filed August 11, 2003For Securities:EA

Summary

Electronic Arts Inc. (EA) reported a strong first quarter for fiscal year 2004, with net revenue increasing by 6.5% to $353.4 million compared to the same period in the prior year. This growth was primarily driven by robust performance in co-publishing and distribution, along with increased sales on the Xbox and Nintendo GameCube platforms. The company also saw significant growth in subscription services. Operationally, EA demonstrated improved profitability, with operating income rising significantly due to strong revenue growth and a decrease in marketing and sales expenses. The company effectively managed its cost of goods sold, and while R&D expenses saw a slight increase to support future growth, overall efficiency appears to be improving. EA ended the quarter with a healthy liquidity position, boasting over $1.6 billion in cash, cash equivalents, and short-term investments, indicating a strong ability to fund ongoing operations and future development.

Key Highlights

  • 1Net revenue increased 6.5% year-over-year to $353.4 million.
  • 2Operating income saw a substantial increase, indicating improved profitability.
  • 3Co-publishing and distribution revenue surged by 52.5%, driven by key titles.
  • 4Revenue from Xbox and Nintendo GameCube platforms showed significant year-over-year growth (56.8% and 41.4% respectively).
  • 5Subscription services revenue grew by 59.6%, fueled by new game launches.
  • 6Marketing and sales expenses decreased by 9.6%, partly due to the termination of the AOL carriage fee agreement.
  • 7The company maintained a strong liquidity position with over $1.6 billion in cash, cash equivalents, and short-term investments.

Frequently Asked Questions

The primary drivers of Electronic Arts' revenue growth were a significant increase in co-publishing and distribution revenue, strong sales performance on the Xbox and Nintendo GameCube platforms, and substantial growth in subscription services revenue. The strengthening of foreign exchange rates also contributed to the reported revenue increase.

EA showed improved expense management, with a notable decrease in marketing and sales expenses, partly due to the termination of a carriage fee agreement with AOL. While research and development expenses increased slightly to support future growth, cost of goods sold as a percentage of revenue decreased. Overall operating expenses were managed effectively relative to revenue growth, leading to a significant increase in operating income.

Electronic Arts ended the quarter with a strong liquidity position, holding approximately $1.6 billion in cash, cash equivalents, and short-term investments. This robust cash balance, combined with cash generated from operations, is believed to be sufficient to meet the company's cash requirements for at least the next 12 months.

In March 2003, Electronic Arts consolidated the operations of its EA.com business segment into its core operations. This integration aims to increase efficiency and better align online activities with the core console and PC business. Consequently, the company has eliminated separate reporting for its online products and services as well as for its Class B common stock starting from this reporting period.