10-QPeriod: Q2 FY2021

ELECTRONIC ARTS INC. Quarterly Report for Q2 Ended Sep 30, 2020

Filed November 10, 2020For Securities:EA

Summary

Electronic Arts Inc. (EA) reported its results for the quarter and six months ended September 30, 2020. For the quarter, net revenue declined 15% year-over-year to $1.151 billion, while live services and other revenue increased 13% to $869 million. Diluted EPS decreased significantly by 78% to $0.63, primarily due to a one-time tax benefit recorded in the prior year's quarter. The company reported increased operating expenses and a decrease in operating income. For the six-month period, net revenue saw a modest increase of 2% to $2.610 billion, driven by growth in live services. Full game revenue experienced a decline. The company highlighted a strong increase in operating cash flow year-over-year. EA also noted the continued shift towards digital game delivery and the increasing importance of its live services segment, particularly extra content sales for its Ultimate Team modes. The company is actively managing its cash position and has authorized a significant new stock repurchase program and initiated a quarterly cash dividend.

Financial Highlights

49 data points
Beta

Revenue

$1.15B

75.2% Gross Margin

Net Income

$185.00M

16.1% Net Margin

EPS (Diluted)

$0.63

Total Assets

$11.47B

Cash & Equivalents

$4.06B

Free Cash Flow

$61.00M

Financial Statements
Beta
Revenue$1.15B
Cost of Revenue$286.00M
Gross Profit$865.00M
Operating Expenses$716.00M
Operating Income$149.00M
Interest Expense$11.00M
Net Income$185.00M
EPS (Basic)$0.64
EPS (Diluted)$0.63
Shares Outstanding (Basic)289.00M
Shares Outstanding (Diluted)293.00M

Key Highlights

  • 1Net revenue for the quarter ended September 30, 2020, was $1.151 billion, a 15% decrease year-over-year.
  • 2Live services and other net revenue increased by 13% to $869 million for the quarter, indicating continued strength in recurring revenue streams.
  • 3Diluted EPS for the quarter was $0.63, a 78% decrease compared to the prior year, largely due to a significant one-time tax benefit in the prior year's period.
  • 4Operating cash flow for the six months ended September 30, 2020, significantly increased to $439 million, up from $195 million in the prior year.
  • 5The company ended the period with a strong liquidity position, with $6.031 billion in cash, cash equivalents, and short-term investments.
  • 6EA announced a new $2.6 billion stock repurchase program and initiated a quarterly cash dividend of $0.17 per share in November 2020.
  • 7The company noted a continued shift towards digital game delivery and an increase in live services revenue, which generally expands gross margin.

Frequently Asked Questions

The significant decrease in net income and EPS for the quarter ended September 30, 2020, was primarily due to a large one-time net tax benefit of $630 million recognized in the same quarter of the prior year (2019). Without this prior year benefit, the year-over-year change in net income would be less dramatic.

Electronic Arts is experiencing a significant shift towards live services and other revenue, which includes extra content, subscriptions, and other services. This segment's revenue increased by 13% year-over-year for the quarter. Conversely, full game revenue, particularly from packaged goods, has decreased, reflecting a broader industry trend towards digital delivery and ongoing gameplay services.

The company ended the quarter with a strong liquidity position, holding $6.031 billion in cash, cash equivalents, and short-term investments. Management believes this, along with operating cash flow and available financing, is sufficient for at least the next 12 months. The company also announced a new $2.6 billion stock repurchase program and initiated a quarterly cash dividend, signaling confidence in its financial health and commitment to returning capital to shareholders.

The company adjusted its 'Estimated Offering Period' for revenue recognition related to future update rights and online hosting for games sold after June 30, 2020. This change lengthens the period over which revenue is recognized, shifting approximately $300 million in net revenue from fiscal year 2021 into fiscal year 2022. For the quarter ended September 30, 2020, this change resulted in an estimated decrease in net revenue of $26 million and net income of $20 million, impacting diluted EPS by $0.07.