10-QPeriod: Q3 FY2013

ELECTRONIC ARTS INC. Quarterly Report for Q3 Ended Dec 31, 2012

Filed February 5, 2013For Securities:EA

Summary

Electronic Arts Inc. (EA) reported its third-quarter fiscal year 2013 results for the period ending December 30, 2012. The company experienced a net revenue of $922 million, a decrease of 13% compared to the same period in the prior year. This decline was primarily attributed to lower sales from major franchises like Battlefield and The Sims, with fewer new title releases compared to the prior year's strong performance. Despite the revenue decrease, EA managed to reduce its net loss to $45 million from $205 million in the prior year's quarter, primarily due to a significant reduction in operating expenses and a gain from the sale of strategic investments. The company continues to emphasize its shift towards digital content and services, with growth in 'Service and Other' revenue, driven by titles like Star Wars: The Old Republic and FIFA Ultimate Team. While packaged goods revenue declined, the digital segment showed resilience. EA also continued its share repurchase program, demonstrating a commitment to returning capital to shareholders. Overall, the quarter reflects EA's ongoing transition in a dynamic gaming market, with challenges in traditional sales offset by progress in digital offerings.

Financial Highlights

48 data points
Beta

Revenue

$922.00M

53.5% Gross Margin

Net Income

-$45.00M

-4.9% Net Margin

EPS (Diluted)

$-0.15

Total Assets

$5.04B

Cash & Equivalents

$1.16B

Free Cash Flow

$363.00M

Financial Statements
Beta
Revenue$922.00M
Cost of Revenue$429.00M
Gross Profit$493.00M
Operating Expenses$532.00M
Operating Income-$39.00M
Interest Expense$7.00M
Net Income-$45.00M
EPS (Basic)$-0.15
EPS (Diluted)$-0.15
Shares Outstanding (Basic)304.00M

Key Highlights

  • 1Net revenue for the quarter was $922 million, a decrease of 13% year-over-year, impacted by fewer major title releases.
  • 2Net loss improved significantly to $45 million from $205 million in the prior year's quarter, driven by reduced operating expenses.
  • 3Service and Other revenue increased by 24% year-over-year, indicating a successful shift towards digital content and services.
  • 4Digital revenue (Wireless, Internet-derived, and Advertising) increased by 8% year-over-year, highlighting the growing importance of online sales channels.
  • 5The company continued its active stock repurchase program, buying back approximately 12.2 million shares for $157 million during the quarter.
  • 6EA generated positive cash flow from operations of $91 million for the nine-month period, an improvement from $10 million used in the prior year.
  • 7Acquisition-related contingent consideration decreased significantly, reflecting adjustments primarily related to the PopCap acquisition.

Frequently Asked Questions

For the third quarter of fiscal year 2013 (ending December 30, 2012), EA reported a net revenue of $922 million, a decrease of 13% compared to the prior year. However, the company significantly reduced its net loss to $45 million from $205 million in the same period last year, mainly due to decreased operating expenses and a gain on strategic investments.

EA is actively transitioning towards digital content and services. While traditional 'Product Revenue' declined, 'Service and Other Revenue' grew by 24% year-over-year, driven by digital offerings like online subscriptions and micro-transactions from games such as Star Wars: The Old Republic and FIFA Ultimate Team. Digital revenue overall increased by 8%.

As of December 31, 2012, EA had $1.158 billion in cash and cash equivalents. The company generated $91 million in cash from operating activities for the first nine months of the fiscal year, a significant improvement from the prior year. EA also continued to actively repurchase its stock, investing $157 million in the quarter under its new $500 million repurchase program.

EA has an antitrust class action lawsuit related to its Madden NFL games, for which a settlement in principle was reached and was pending final court approval in February 2013. Additionally, the company may be required to pay up to $566 million in additional cash consideration for prior acquisitions, with $42 million accrued as of December 31, 2012, based on performance milestones.