10-QPeriod: Q1 FY2010

ELECTRONIC ARTS INC. Quarterly Report for Q1 Ended Jun 30, 2009

Filed August 10, 2009For Securities:EA

Summary

Electronic Arts Inc. (EA) reported a net loss of $234 million for the three months ended June 30, 2009, a significant increase from the $95 million net loss in the same period last year. This deterioration was driven by a $160 million decrease in net revenue, partly due to accounting changes related to deferred net revenue for online-enabled games, and increased marketing and sales costs. Despite a reported revenue decline of 20% to $644 million, the company highlights that without the impact of deferred revenue, net revenue would have actually increased by approximately $207 million, driven by titles like EA SPORTS Active, FIFA 09, and Need for Speed Undercover. Operationally, the company is navigating a challenging economic environment, with cautious retailer orders impacting demand. EA is investing in online content and services and mobile platforms, which are seen as increasingly important growth areas. The company also announced the purchase of its Redwood City headquarters facilities for $247 million. Despite the increased net loss, EA believes its liquidity and capital resources are sufficient for at least the next twelve months.

Financial Highlights

48 data points
Beta

Revenue

$644.00M

50.2% Gross Margin

Net Income

-$234.00M

-36.3% Net Margin

EPS (Diluted)

$-0.72

Total Assets

$4.72B

Cash & Equivalents

$1.21B

Free Cash Flow

-$336.00M

Financial Statements
Beta
Revenue$644.00M
Cost of Revenue$321.00M
Gross Profit$323.00M
Operating Expenses$568.00M
Operating Income-$245.00M
Net Income-$234.00M
EPS (Basic)$-0.72
EPS (Diluted)$-0.72
Shares Outstanding (Basic)323.00M
Shares Outstanding (Diluted)323.00M

Key Highlights

  • 1Reported a net loss of $234 million for the quarter, an increase from $95 million in the prior year's quarter.
  • 2Total net revenue decreased by 20% to $644 million, impacted by a significant unfavorable change in deferred net revenue ($172 million decrease in reported revenue).
  • 3Excluding the impact of deferred revenue changes, net revenue would have increased by approximately $207 million.
  • 4Marketing and sales expenses increased by 28% to $164 million, primarily due to increased promotional spending.
  • 5Research and development expenses decreased by 12% to $312 million, driven by headcount and compensation reductions.
  • 6Purchased its Redwood City headquarters facilities for $247 million.
  • 7Believes cash, investments, and operating cash flow are sufficient to meet operating requirements for at least the next twelve months.

Frequently Asked Questions

The primary reason for the increased net loss is a significant decrease in net revenue by $160 million, partly due to an unfavorable change in how deferred revenue is recognized for online-enabled games. Additionally, marketing and sales costs increased by $36 million, and cost of goods sold increased by $25 million.

For the three months ended June 30, 2009, the company deferred $172 million in net revenue, which decreased reported net revenue. In contrast, for the same period in the prior year, $195 million of previously deferred revenue was recognized, increasing reported net revenue. This change in deferred revenue had a substantial impact on the year-over-year comparison of reported net revenue.

EA acknowledges a national and global economic downturn, leading to reduced consumer spending and more conservative ordering by retailers. The company remains cautious about future sales due to these economic conditions and their impact on retailers.

Electronic Arts is focusing on electronically delivered content and services, as well as mobile platforms. These areas are considered increasingly important to the company's business over time.

As of June 30, 2009, EA had $1.205 billion in cash and cash equivalents, plus $634 million in short-term investments and $440 million in marketable equity securities, totaling $2.279 billion in liquid assets. The company believes this is sufficient to meet its operating requirements for at least the next twelve months.