10-QPeriod: Q1 FY2017

ELECTRONIC ARTS INC. Quarterly Report for Q1 Ended Jun 30, 2016

Filed August 9, 2016For Securities:EA

Summary

Electronic Arts Inc. (EA) reported solid financial results for the quarter ended June 29, 2016. Total net revenue increased by 6% year-over-year to $1.271 billion, driven by a significant 28% increase in service and other revenue, which was partially offset by a 8% decrease in product revenue. Digital revenue showed strong growth, up 11% year-over-year to $689 million, indicating the company's successful transition towards digital distribution. Net income for the quarter was $440 million, resulting in diluted earnings per share of $1.40. The company maintained a strong balance sheet with total cash, cash equivalents, and short-term investments of $3.427 billion. EA also continued its commitment to returning capital to shareholders, repurchasing approximately $129 million of common stock during the quarter under its existing share repurchase program.

Financial Highlights

48 data points
Beta

Revenue

$1.27B

85.9% Gross Margin

Net Income

$440.00M

34.6% Net Margin

EPS (Diluted)

$1.40

Total Assets

$6.61B

Cash & Equivalents

$2.04B

Free Cash Flow

-$118.00M

Financial Statements
Beta
Revenue$1.27B
Cost of Revenue$179.00M
Gross Profit$1.09B
Operating Expenses$532.00M
Operating Income$560.00M
Interest Expense-$13.00M
Net Income$440.00M
EPS (Basic)$1.46
EPS (Diluted)$1.40
Shares Outstanding (Basic)301.00M
Shares Outstanding (Diluted)315.00M

Key Highlights

  • 1Total net revenue grew 6% year-over-year to $1.271 billion.
  • 2Service and other revenue saw a substantial increase of 28% year-over-year, reaching $587 million.
  • 3Digital revenue increased by 11% year-over-year to $689 million, reflecting the company's digital strategy.
  • 4Net income was $440 million, translating to diluted earnings per share of $1.40.
  • 5The company maintained a healthy liquidity position with $3.427 billion in cash, cash equivalents, and short-term investments.
  • 6Electronic Arts actively repurchased $129 million of its common stock during the quarter.
  • 7The company successfully repaid its 0.75% convertible senior notes due 2016 in July 2016.

Frequently Asked Questions

The primary driver for the 6% increase in net revenue to $1.271 billion was a significant 28% jump in service and other revenue, which reached $587 million. This was partially offset by an 8% decrease in product revenue.

Electronic Arts is actively transforming its business model towards digital distribution. This is evidenced by an 11% year-over-year increase in digital revenue to $689 million, driven by growth in full game downloads, extra content, subscriptions, and mobile sales. The company is investing in its technology foundation to strengthen player relationships and leverage digital platforms.

EA maintains a strong financial position with $3.427 billion in cash, cash equivalents, and short-term investments as of June 30, 2016. The company is also actively returning capital to shareholders through share repurchases, having bought back $129 million of its common stock in the quarter. The successful repayment of the 0.75% convertible senior notes in July 2016 further strengthens its financial structure.

The strengthening of the U.S. dollar had a negative impact on reported international net revenue but a positive impact on reported international operating expenses. While the company uses hedging contracts to mitigate some of this risk, they are limited in their effectiveness. The company estimates that foreign currency exchange rates had a negative impact of $266 million on reported net revenue in the prior fiscal year.