10-QPeriod: Q3 FY2018

ELECTRONIC ARTS INC. Quarterly Report for Q3 Ended Dec 31, 2017

Filed February 6, 2018For Securities:EA

Summary

Electronic Arts Inc. (EA) reported its third-quarter results for fiscal year 2018, ending December 31, 2017. Total net revenue saw a slight increase of 1% year-over-year to $1.16 billion, driven by strong performance in "Service and other" revenue, which grew 23% to $613 million. This growth was primarily fueled by live services, particularly the "Ultimate Team" modes in EA's sports titles, and mobile games. Digital net revenue increased by 14% to $780 million, reflecting a continued shift towards digital sales channels. Despite the revenue growth, EA reported a net loss of $186 million for the quarter, largely impacted by a provisional $176 million charge related to the recently enacted U.S. Tax Cuts and Jobs Act. Excluding this tax impact, the company would have reported a net income. The company also announced the acquisition of Respawn Entertainment for $273 million and continued its share repurchase program, highlighting ongoing investments in growth and return of capital to shareholders.

Financial Highlights

48 data points
Beta

Revenue

$1.16B

56.8% Gross Margin

Net Income

-$186.00M

-16.0% Net Margin

EPS (Diluted)

$-0.60

Total Assets

$8.64B

Cash & Equivalents

$2.57B

Free Cash Flow

$849.00M

Financial Statements
Beta
Revenue$1.16B
Cost of Revenue$501.00M
Gross Profit$659.00M
Operating Expenses$680.00M
Operating Income-$21.00M
Interest Expense-$10.00M
Net Income-$186.00M
EPS (Basic)$-0.60
EPS (Diluted)$-0.60
Shares Outstanding (Basic)308.00M
Shares Outstanding (Diluted)308.00M

Key Highlights

  • 1Total net revenue for the quarter was $1.16 billion, a 1% increase year-over-year, primarily driven by a 23% rise in 'Service and other' revenue to $613 million.
  • 2Digital net revenue grew by 14% to $780 million, indicating a successful transition towards digital sales and services.
  • 3The company reported a net loss of $186 million, significantly influenced by a provisional $176 million tax charge related to the U.S. Tax Cuts and Jobs Act.
  • 4Acquisition of Respawn Entertainment for $273 million was completed on December 1, 2017, strengthening EA's development capabilities.
  • 5The company continued its share repurchase program, buying back approximately 1.4 million shares for $150 million during the quarter.
  • 6Cash and cash equivalents, along with short-term investments, totaled $4.88 billion, indicating a strong liquidity position.
  • 7Net bookings decreased by 5% to $1.97 billion, primarily due to lower sales of 'Star Wars Battlefront II' compared to 'Battlefield 1' from the prior year's quarter.

Frequently Asked Questions

The primary driver of revenue growth was the 'Service and other' segment, which increased by 23% to $613 million. This was largely due to strong performance in live services, particularly the popular 'Ultimate Team' modes within EA's sports franchises like FIFA and Madden NFL, as well as growth in mobile games.

The net loss of $186 million was significantly impacted by a provisional tax charge of $176 million related to the newly enacted U.S. Tax Cuts and Jobs Act. Without this one-time tax impact, the company would have reported a net income.

The acquisition of Respawn Entertainment, a studio known for the 'Titanfall' franchise, for $273 million is expected to strengthen EA's game development portfolio and potentially lead to new successful titles. This acquisition is part of EA's strategy to invest in key development talent and franchises.

EA maintains a strong liquidity position with $4.88 billion in cash and short-term investments. The company expects its digital business and live services to continue growing. While the overall net revenue saw modest growth, the significant impact of the U.S. Tax Act on the current quarter's net income warrants attention. Management believes its current resources are sufficient for at least the next 12 months, including operating needs, capital expenditures, and potential strategic initiatives.