10-QPeriod: Q3 FY2012

ELECTRONIC ARTS INC. Quarterly Report for Q3 Ended Dec 31, 2011

Filed February 7, 2012For Securities:EA

Summary

Electronic Arts Inc. (EA) reported total net revenue of $1,061 million for the third quarter of fiscal year 2012 (ended December 30, 2011), a slight increase of $8 million compared to the prior year's quarter. This growth was primarily driven by digital products, including wireless, internet-derived, and advertising revenues, boosted by strong performance from titles like "Battlefield 3," "FIFA 12," and "Madden 12." However, the company reported a net loss of $205 million for the quarter, an improvement from a loss of $322 million in the same period last year. This reduction in loss was attributed to decreased restructuring activities and lower cost of goods sold, partially offset by an increase in operating expenses, particularly personnel costs associated with recent acquisitions. For the nine-month period ended December 31, 2011, EA generated net revenue of $2,775 million, an 11% increase year-over-year. The company highlighted significant growth in its digital distribution and services segment, reflecting a strategic shift towards online and mobile platforms. Key strategic developments during the period included the acquisition of PopCap Games, Inc. to bolster its casual gaming portfolio and digital offerings, and the issuance of convertible senior notes to strengthen its balance sheet. Despite revenue growth, cash flow from operations saw a decrease due to higher accounts payable settlements, and investing activities were significantly impacted by the PopCap acquisition.

Financial Highlights

48 data points
Beta

Revenue

$1.06B

48.0% Gross Margin

Net Income

-$205.00M

-19.3% Net Margin

EPS (Diluted)

$-0.62

Total Assets

$5.70B

Cash & Equivalents

$1.24B

Free Cash Flow

$475.00M

Financial Statements
Beta
Revenue$1.06B
Cost of Revenue$552.00M
Gross Profit$509.00M
Operating Expenses$692.00M
Operating Income-$183.00M
Interest Expense$7.00M
Net Income-$205.00M
EPS (Basic)$-0.62
EPS (Diluted)$-0.62
Shares Outstanding (Basic)332.00M

Key Highlights

  • 1Total net revenue for the three months ended December 31, 2011, was $1,061 million, a slight increase of $8 million compared to the prior year, driven by digital products and strong title performance (Battlefield 3, FIFA 12, Madden 12).
  • 2Net loss improved to $205 million for the quarter, from $322 million in the prior year, primarily due to reduced restructuring charges and lower cost of goods sold.
  • 3Digital content distribution and services revenue significantly increased, indicating a strategic focus on online and mobile platforms.
  • 4Acquisition of PopCap Games Inc. in August 2011 for approximately $732 million (cash and stock) to enhance casual gaming and digital business.
  • 5Issued $632.5 million in 0.75% Convertible Senior Notes due 2016 to strengthen financial position.
  • 6Stock repurchase program continued, with $288 million repurchased by December 31, 2011, out of an authorized $600 million.
  • 7International sales accounted for 52% of total net revenue for the nine months ended December 31, 2011, showing the company's global reach.

Frequently Asked Questions

The increase in net revenue to $1,061 million for the three months ended December 31, 2011, was primarily driven by higher revenue recognized from digital products, including wireless, internet-derived, and advertising services. Strong sales from key titles like 'Battlefield 3,' 'FIFA 12,' and 'Madden 12' also contributed significantly to this growth.

The net loss decreased to $205 million from $322 million in the prior year's quarter primarily due to a significant reduction in restructuring activities ($154 million decrease) and a decrease in the cost of goods sold ($34 million decrease), largely from lower royalty expenses due to a shift towards non-license-based products. These factors were partially offset by an increase in operating expenses, excluding restructuring, mainly due to personnel costs from recent acquisitions.

Key strategic initiatives include a strong focus on growing digital content distribution and services, responding to advances in mobile technology, and adapting to changing sales models like subscriptions and free-to-play. The acquisition of PopCap Games Inc. is a significant move to strengthen their position in casual gaming and the digital segment. The company is also strategically reducing the number of primary titles released annually to focus on higher-impact games.

EA has strengthened its balance sheet by issuing $632.5 million in convertible senior notes. They also continued their stock repurchase program, having bought back $288 million of stock by the end of the quarter. The company believes its current cash, investments, and operating cash flow are sufficient for the next 12 months but retains the option to raise additional capital for growth, acquisitions, or stock repurchases.