Electronic Arts Inc. Q4 FY 2013 Results. May 7, 2013

Size: px

Start display at page:

Download "Electronic Arts Inc. Q4 FY 2013 Results. May 7, 2013"

Hubert Underwood
5 years ago
Views:

1 Electronic Arts Inc. Q4 FY 2013 May 7, 2013

2 Safe Harbor Statement Please review our risk factors on Form 10-K and Form 10-Q filed with the SEC. Some statements set forth in this document, including the information relating to EA s fiscal year 2014 guidance and title slate contain forward-looking statements that are subject to change. Statements including words such as "anticipate", "believe", estimate or "expect" and statements in the future tense are forward-looking statements. These forward-looking statements are preliminary estimates and expectations based on current information and are subject to business and economic risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth in the forward-looking statements. Some of the factors which could cause the Company s results to differ materially from its expectations include the following: sales of the Company s titles; the Company s ability to manage expenses; the competition in the interactive entertainment industry; the effectiveness of the Company s sales and marketing programs; timely development and release of Electronic Arts products; the Company s ability to realize the anticipated benefits of acquisitions; the consumer demand for, and the availability of an adequate supply of console hardware units; the Company s ability to predict consumer preferences among competing platforms; the Company s ability to service and support digital product offerings, including managing online security; general economic conditions; and other factors described in the Company s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, These forward-looking statements are valid as of May 7, 2013 only. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements. In addition, the preliminary financial results set forth in this document are estimates based on information currently available to Electronic Arts. While Electronic Arts believes these estimates are meaningful, they could differ from the actual amounts that Electronic Arts ultimately reports in its Annual Report on Form 10-K for the fiscal year ended March 31, Electronic Arts assumes no obligation and does not intend to update these estimates prior to filing its Form 10-K for the fiscal year ended March 31,

3 EA Growth Trends $4,159 3,589 $3,828 2,995 Net 1 ($ in Millions) $4,186 $3,793 2,959 2,130 $4,000 2,300 Packaged 55% Gross Profit 1 66% 63% 61% 66% ,227 1,663 1,700 Digital FY10 FY11 FY12 FY13 FY14E FY10 FY11 FY12 FY13 FY14E Operating Cash Flow ($ in Millions) Diluted EPS 1 $0.85 $0.84 $0.70 $ $0.44 FY10 FY11 FY12 FY13 FY14E FY10 FY11 FY12 FY13 FY14E 1 On a non- basis. FY14 non- tax rate is 25%. Through FY13, the non- tax rate was 28%. 3

4 Q4 FY13 Update 1 Digital : In Q4 grew 45% YoY, driving the fiscal year total to approximately $1.66B Frontline: SimCity sold through over 1.4M units in four weeks, with over half of sales from Origin direct downloads, helping offset packaged goods challenges Gross Margin: 74% for the quarter, up almost 10% over the prior year, driven by digital revenue offerings Op Expense: Came in at $540M, $15M higher than our guidance, due to severance costs Diluted EPS: $0.55, slightly below guidance, partly due to charges related to workforce reductions BF3 Premium: In Q4, $121M of the full year s Battlefield 3 Premium subscription was recognized Buyback: Purchased nearly one million shares, bringing the total to 22M shares 1 On a non- basis. 4

5 Q4 FY13 Guidance vs. Actuals Ending March 31, 2013 Guidance Actuals Guidance Actuals Net $1,115 - $1,215 $1,209 $1,025 - $1,125 $1,040 Gross Profit Margin ~75% 74.4% ~74% 74.3% Operating Expense < $575 $591 < $525 $540 Tax Expense ~$6 $7 $68 $85 $65 Net Income $281 $343 $323 $174 $219 $169 Diluted Earnings Per Share $0.92 $1.12 $1.05 $0.57 $0.72 $0.55 Diluted Shares (millions) All dollars in millions, except Diluted Earnings Per Share. 5

6 Q4 FY13 Financial Summary Q4FY12 Q4 FY13 Q4 FY12 Q4 FY13 Net ($, millions) 1,368 1, ,040 Gross Profit Margin 72.7% 74.4% 64.6% 74.3% Operating Expense ($, millions) Operating Income ($, millions) Operating Margin 26.7% 25.6% 7.9% 22.4% Diluted EPS $1.20 $1.05 $0.17 $0.55 Operating Cash Flow ($, millions) EBITDA ($, millions)

7 FY13 Financial Summary FY12 FY13 FY12 FY13 Net ($, millions) 4,143 3,797 4,186 3,793 Gross Profit Margin 61.4% 63.4% 63.1% 65.9% Operating Expense ($, millions) 2,510 2,288 2,245 2,133 Operating Income ($, millions) Operating Margin 0.8% 3.2% 9.5% 9.7% Diluted EPS $0.23 $0.31 $0.85 $0.84 Operating Cash Flow ($, millions) EBITDA ($, millions)

8 EA Digital 1 by Platform PC Console Smart Phones / Tablets Feature Phones / Other YOY Quarterly Growth ($ in Millions) ($ in Millions) % 4% 27% % 62 Fiscal Year % , , YOY Growth 36% (8%) 55% 52% 27% 2 2 Q4 FY11 Q4 FY12 Q4 FY13 FY11 FY12 FY13 1 In millions, on a non- basis. PC includes browser. 2 Q4 FY11 includes approximately $27 million of digital revenue that the Company does not anticipate in future quarters. 8

9 EA Digital 1 by Type Full Game Downloads Extra Content Subs / Ads / Other Mobile/HH YOY Quarterly Growth ($ in Millions) ($ in Millions) Q4 FY11 Q4 FY12 Q4 FY13 45% 21% 54% % % % Fiscal Year , , FY11 FY12 FY13 YOY Growth 36% 30% 47% (3%) 1 In millions, on a non- basis. 2 Q4 FY11 includes approximately $27 million of digital revenue that the Company does not anticipate in future quarters. 9

10 FY 14 Titles and Services HD Subscription PC Client/Browser Mobile/Tablet Social FY14 Releases To be announced Others to be announced Existing Live Services Others to be announced 10

11 Guidance Q1 FY14 Ending June 30, 2013 Net $875 $450 Gross Profit Margin 79% 62% Operating Expense $572 $530 Tax Expense (Benefit) $10 ($63) Net Income (Loss) $102 ($188) Earnings (Loss) Per Share $0.33 ($0.62) Diluted Shares In millions, except per share data. Tax Rate: 25%. These forward-looking statements are valid as of May 7, 2013 only. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements. 11

12 Guidance Full Year FY14 Ending March 31, 2014 Publishing and Other $1,900 $2,200 Digital $1,500 $1,700 Distribution $100 $100 Total $3,500 $4,000 Gross Profit Margin 60% 66% Operating Expense $2,323 $2,150 Tax Expense ( Rate: 25%) $50 $126 Net Income (Loss) ($299) $378 Earnings (Loss) Per Share ($0.97) $1.20 Diluted Shares Operating Cash Flow $400 In millions, except per share data. These forward-looking statements are valid as of May 7, 2013 only. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements. 12

13 Guidance - Phasing FY 14 Quarterly 1 Net Q1E Q2E Q3E Q4E 11% 24% 45% 20% 25% 18% 23% 34% 1 These forward-looking statements are valid as of May 7, 2013 only. Electronic Arts assumes no obligation and does not intend to update these forwardlooking statements. The difference in and non- quarterly phasing is due to the change in deferred revenue (packaged goods and digital content). 13

14 FY14 Announced Titles Q1 Games Fuse (1) Console Q2 Sports FIFA 14 Console Handheld/Mobile PC Madden NFL 25 NCAA Football 14 NHL 14 Games Command & Conquer: Generals Console Console Console Q3 Sports FIFA Manager 14 PC NBA Live 14 Console Games Battlefield 4 Console PC Need for Speed Console PC Q4 Maxis Sims 4 PC PC/F2P (1) Co-Published Title 14

15 Supplemental Financial Information

16 Guidance 1 Currency Assumptions Exchange rates remain volatile Current guidance FX assumptions: $1.29 USD/Euro and EPS decreases if the Euro weakens v. USD $0.98 USD/Canadian Dollar R&D costs increase if the Canadian Dollar strengthens v. USD $1.53 USD/British Pound Sterling and EPS decreases if the British Pound Sterling weakens v. USD Using spot exchange rates as of May 6, 2013: Negligible impact to FY14 non- EPS Approximately $20 million benefit to FY14 non- Net 1 These forward-looking statements are valid as of May 07, 2013 only. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements. 16

17 Financial Measures To supplement the Company s unaudited condensed consolidated financial statements presented in accordance with, Electronic Arts uses certain non- measures of financial performance. The presentation of these non- financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with, and may be different from non- financial measures used by other companies. In addition, these non- measures have limitations in that they do not reflect all of the amounts associated with the Company s results of operations as determined in accordance with. The non- financial measures used by Electronic Arts include: non- net revenue, non- gross profit, non- operating income (loss), non- net income (loss) and historical and estimated non- diluted earnings (loss) per share. These non- financial measures exclude the following items, as applicable in a given reporting period, from the Company s unaudited condensed consolidated statements of operations: Acquisition-related expenses Amortization of debt discount Certain non-recurring litigation expenses Change in deferred net revenue (packaged goods and digital content) Loss (gain) on strategic investments Restructuring charges Stock-based compensation Income tax adjustments Through fiscal year 2013, the Company has used a fixed, long-term projected tax rate of 28 percent internally to evaluate its operating performance, to forecast, plan and analyze future periods, and to assess the performance of its management team. Accordingly, the Company has applied the same 28 percent tax rate to its non- financial results. Beginning in fiscal year 2014, the Company expects to apply a 25 percent tax rate to its non- financial results. Electronic Arts may consider whether other significant non-recurring items that arise in the future should also be excluded in calculating the non- financial measures it uses. Electronic Arts believes that these non- financial measures, when taken together with the corresponding financial measures, provide meaningful supplemental information regarding the Company s performance by excluding certain items that may not be indicative of the Company s core business, operating results or future outlook. Electronic Arts management uses, and believes that investors benefit from referring to, these non- financial measures in assessing the Company s operating results both as a consolidated entity and at the business unit level, as well as when planning, forecasting and analyzing future periods. These non- financial measures also facilitate comparisons of the Company s performance to prior periods. In its earnings press release dated May 7, 2013, Electronic Arts has provided a reconciliation of the most comparable financial measures to non- financial measures. The Unaudited Condensed Consolidated Statements of Operations for all periods included herein reflect the reclassification of certain operating expenses. For further information, please see EA s earnings release dated May 7,

18 Q4 FY13 Reconciliation to Unaudited Condensed Consolidated Statement of Operations Three Months Ended March 31, 2013 % of Acquisitionrelated expenses Amortization of debt discount Change in Deferred Net (Packaged Goods and Digital Content) Gain on strategic investments Stock-based compensation Income tax adjustments % of Net revenue $ 1,209 $ - $ - $ (169) $ - $ - $ - $ 1,040 Cost of revenue % (41) (1) % Gross profit % 41 - (169) % Operating expenses: Marketing and sales % (7) % General and administrative % (12) % Research and development % (22) % Acquisition-related contingent consideration 1 0.1% (1) Amortization of intangibles 9 0.7% (9) Total operating expenses % (10) (41) % Operating income % 51 - (169) % Gain on strategic investments % (25) Interest and other income (expense), net (4) -0.4% % Income before provision for income taxes % 51 5 (169) (25) % Provision for income taxes 7 0.6% % Net income $ % $ 51 $ 5 $ (169) $ (25) $ 42 $ (58) $ % Earnings per share Earnings per share Basic $ 1.07 Basic $ 0.56 Diluted $ 1.05 Diluted $ 0.55 Number of shares used in computation Number of shares used in computation Basic 301 Basic 301 Diluted 307 Diluted 307 In millions, except per share data. 18

19 Q4 FY12 Reconciliation to Unaudited Condensed Consolidated Statement of Operations Three Months Ended March 31, 2012 Change in Deferred Net % of Acquisitionrelated expenses Amortization of debt discount Certain nonrecurring litigation expenses (Packaged Goods and Digital Content) Restructuring charges Stock-Based Compensation Income Tax Adjustments % of Net revenue $ 1,368 $ - $ - $ - $ (391) $ - $ - $ - $ 977 Cost of goods sold % (27) (1) % Gross profit % (391) % Operating expenses: Marketing and sales % (8) % General and administrative % - - (27) - - (8) % Research and development % (24) % Acquisition-related contingent consideration 3 0.2% (3) Amortization of intangibles 6 0.4% (6) Restructuring charges (1) Total operating expenses % (9) - (27) - 1 (40) % Operating income % (391) (1) % Interest and other income (expense), net (4) -0.3% % Income before provision for (benefit from) income taxes % (391) (1) % Provision for (benefit from) income taxes (39) -2.8% % Net income $ % $ 36 $ 5 $ 27 $ (391) $ (1) $ 41 $ (61) $ % Earnings per share Earnings per share Basic $ 1.22 Basic $ 0.17 Diluted $ 1.20 Diluted $ 0.17 Number of shares used in computation Number of shares used in computation Basic 329 Basic 329 Diluted 332 Diluted 332 In millions, except per share data. 19

20 TTM Q4 FY13 Reconciliation to Unaudited Condensed Consolidated Statement of Operations Trailing Twelve Months Ended March 31, 2013 % of Acquisitionrelated expenses Amortization of debt discount Change in Deferred Net (Packaged Goods and Digital Content) Gain on strategic investments Restructuring and other Stock-based compensation Income tax adjustments % of Net revenue $ 3,797 $ - $ - $ (4) $ - $ - $ - $ - $ 3,793 Cost of revenue 1, % (93) (2) - 1, % Gross profit 2, % 93 - (4) , % Operating expenses: Marketing and sales % (30) % General and administrative % (38) % Research and development 1, % (94) - 1, % Acquisition-related contingent consideration (64) -1.7% Amortization of intangibles % (30) Restructuring and other % (27) Total operating expenses 2, % (27) (162) - 2, % Operating income % 59 - (4) % Gain on strategic investments % (39) Interest and other income (expense), net (21) -0.5% (1) - Income before provision for income taxes % (4) (39) % Provision for income taxes % % Net income $ % $ 59 $ 20 $ (4) $ (39) $ 27 $ 164 $ (61) $ % In millions. 20

21 TTM Q4 FY12 Reconciliation to Unaudited Condensed Consolidated Statement of Operations Trailing Twelve Months Ended March 31, 2012 Change in Deferred Net % of Acquisitionrelated expenses Amortization of debt discount Certain nonrecurring litigation expenses (Packaged Goods and Digital Content) Restructuring and other Stock-based compensation Income tax adjustments % of Net revenue $ 4,143 $ - $ - $ - $ 43 $ - $ - $ - $ 4,186 Cost of goods sold 1, % (52) (2) - 1, % Gross profit 2, % , % Operating expenses: Marketing and sales % (27) % General and administrative % - - (27) - - (38) % Research and development 1, % (103) - 1, % Acquisition-related contingent consideration % (11) Amortization of intangibles % (43) Restructuring charges % (16) Total operating expenses 2, % (54) - (27) - (16) (168) - 2, % Operating income % % Interest and other expense, net (17) -0.4% (3) -0.1% Income before provision for (benefit from) income taxes % % Provision for (benefit from) income taxes (58) -1.4% % Net income $ % $ 106 $ 14 $ 27 $ 43 $ 16 $ 170 $ (168) $ % In millions. 21

22 Q4 FY13 EBITDA Reconciliation The following table provides a reconciliation of the non- financial measures regarding Electronic Arts Earnings Before Interest, Taxes, Depreciation, Amortization and Stock-based Compensation ("EBITDA") to the nearest comparable financial measures. Three Months Ended March 31, 2013 Change in Deferred Net (Packaged Acquisitionrelated expenses Goods and Digital Content) Stock-Based compensation Operating income $ 309 $ 51 $ (169) $ 42 $ 233 Adjustments: Stock-based compensation (42) - Depreciation Amortization of acquisition-related intangibles 1 50 (50) Total adjustments 123 (50) - (42) 31 EBITDA $ 432 $ 1 $ (169) $ - $ Includes $31 million impairment of acquisition-related intangible assets. In millions. 22

23 Q4 FY12 EBITDA Reconciliation The following table provides a reconciliation of the non- financial measures regarding Electronic Arts EBITDA to the nearest comparable financial measures. Three Months Ended March 31, 2012 Change in Deferred Net Acquisitionrelated expenses Certain nonrecurring litigation expenses (Packaged Goods and Digital Content) Restructuring and other Stock-based compensation Operating income $ 365 $ 36 $ 27 $ (391) $ (1) $ 41 $ 77 Adjustments: Stock-based compensation (41) - Depreciation Amortization of acquisition-related intangibles 1 33 (33) Total adjustments 102 (33) (41) 28 EBITDA $ 467 $ 3 $ 27 $ (391) $ (1) $ - $ Includes $12 million impairment of acquisition-related intangible assets. 1 Includes $12 million impairment of acquisition-related intangible assets. In millions. 23

24 FY13 EBITDA Reconciliation The following table provides a reconciliation of the non- financial measures regarding Electronic Arts EBITDA to the nearest comparable financial measures. Twelve Months Ended March 31, 2013 Change in Deferred Net (Packaged Acquisitionrelated expenses Goods and Digital Content) Restructuring and other Stock-Based compensation Operating income $ 121 $ 59 $ (4) $ 27 $ 164 $ 367 Adjustments: Stock-based compensation (164) - Depreciation Amortization of acquisition-related intangibles (123) Total adjustments 405 (123) - - (164) 118 EBITDA $ 526 $ (64) $ (4) $ 27 $ - $ Includes $39 million impairment of acquisition-related intangible assets. In millions. 24

25 FY12 EBITDA Reconciliation The following table provides a reconciliation of the non- financial measures regarding Electronic Arts EBITDA to the nearest comparable financial measures. Twelve Months Ended March 31, 2012 Change in Deferred Net Acquisitionrelated expenses Certain nonrecurring litigation expenses (Packaged Goods and Digital Content) Restructuring and other Stock-Based compensation Operating income $ 35 $ 106 $ 27 $ 43 $ 16 $ 170 $ 397 Adjustments: Stock-based compensation (170) - Depreciation Amortization of acquisition-related intangibles 1 95 (95) Total adjustments 367 (95) (170) 102 EBITDA $ 402 $ 11 $ 27 $ 43 $ 16 $ - $ Includes $12 million impairment of acquisition-related intangible assets. 1 Includes $12 million impairment of acquisition-related intangible assets. In millions. 25

26 Q1 FY14 Guidance Reconciliation The following table provides a reconciliation of the non- financial measures regarding Electronic Arts Q1 FY14 guidance to the nearest comparable financial measures. These are preliminary estimates and expectations based on current information as of May 7, 2013 and are subject to business and economic risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth herein. The reconciliation provided below reflects rounding and other approximations. Change in Deferred Net Acquisitionrelated expenses Amortization of (Packaged Goods and Stock-Based Tax 1 Guidance and Amortization Debt Discount Digital Content) Restructuring Compensation Adjustments Guidance Approximate Net 875 (425) 450 Approximate Gross Margin % 79% 1% (18%) 62% Approximate Operating Expense 572 (5) (2) (35) 530 Approximate Tax Expense (Benefit) 10 (73) (63) Net Income (Loss) (425) (188) Earnings (Loss) Per Share $ 0.33 $ (0.62) Diluted shares (Basic for Loss) FY14 tax rate is 25%. In millions, except per share data. These forward-looking statements are valid as of May 7, 2013 only. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements. 26

27 FY14 Guidance Reconciliation The following table provides a reconciliation of the non- financial measures regarding Electronic Arts FY14 guidance to the nearest comparable financial measures. These are preliminary estimates and expectations based on current information as of May 7, 2013 and are subject to business and economic risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth herein. The reconciliation provided below reflects rounding and other approximations. Change in Deferred Net Acquisition- related expenses and Amortization of (Packaged Goods and Stock-Based Tax 1 Guidance Amortization Debt Discount Digital Content) Restructuring Compensation Adjustments Guidance Approximate Net 3, ,000 Approximate Gross Margin % 60% 1% 5% 66% Approximate Operating Expense 2,323 (15) (8) (150) 2,150 Approximate Tax Expense (Benefit) Net Income (Loss) (299) (76) 378 Earnings (Loss) Per Share $ (0.97) $ 1.20 Diluted shares (Basic for Loss) FY14 tax rate is 25%. In millions, except per share data. These forward-looking statements are valid as of May 7, 2013 only. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements. 27

28 OpEx Reclassifications - Quarter In millions. 28

29 OpEx Reclassifications Full Year In millions. 29

Electronic Arts Inc. Q1 FY 2014 Results. July 23, 2013

Electronic Arts Inc. Q1 FY 2014 Results July 23, 2013 Safe Harbor Statement Please review our risk factors on Form 10-K filed with the SEC. Some statements set forth in this document, including the information