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Electronic Arts Reports Q3 FY13 Financial Results

Electronic Arts Inc. (NASDAQ: EA) today announced preliminary financial results for its third fiscal quarter ended December 31, 2012.

“Despite a challenging quarter, we were able to deliver non-GAAP EPS at the high end of our guidance range,” said Chief Executive Officer John Riccitiello. “We are investing for the future wave of growth that we foresee in digital and console.”

“We delivered on non-GAAP EPS by driving high-margin digital revenue and through disciplined expense management,” said Chief Financial Officer Blake Jorgensen.

“EA had six of the top twenty titles in Western markets in 2012, compared to four in 2011,” said Chief Operating Officer Peter Moore. “EA was also the #1 publisher on iOS worldwide for the year.”

Selected Operating Highlights and Metrics:
*On a non-GAAP basis

  • FIFA 13 sold through over 12 million units through the third quarter, a 23% increase versus FIFA 12 in the prior year.
  • FIFA 13 digital net revenue topped $100 million* in the quarter, a 98% increase versus FIFA 12 in the prior year.
  • Total FIFA digital net revenue generated over $230 million* in the first three quarters of fiscal 13, including EA SPORTS FIFA Online 2 and FIFA World Class Soccer that together contributed over $60 million*.
  • Battlefield 3™ Premium generated over $108 million in sales through the third quarter, and has 2.9 million subscriptions to date.
  • EA had six of the top twenty titles in Western World retail markets in 2012, compared to four in 2011, and was the #1 global publisher in the iOS game market for 2012.
  • The Simpsons™: Tapped Out was a top grossing iOS game for the quarter, generating over $23 million* in digital net revenue.
  • EA’s games and services for mobile, including handhelds, have generated approximately $100 million* in the quarter, an 18%* year-over-year increase in digital net revenue.
  • EA’s Origin™ platform for downloading digital games and services has registered over 39 million users, including 17 million mobile users. EA has signed agreements with 86 independent developers for Origin.
  • Trailing twelve-month non-GAAP digital net revenue was up 37% to a record $1.5 billion*.
  • Trailing twelve-month operating cash flow was $378 million, a $135 million improvement versus the prior year.
  • EA repurchased 12.2 million shares at a cost of $157 million in the third fiscal quarter, pursuant to a $500 million Share Repurchase Program announced on July 31, 2012, bringing the total shares repurchased under the current program to 20.6 million shares at a total cost of $265 million.
  • Dead Space™ 3 pre-sells are outpacing Dead Space 2, and Crysis® 3 pre-orders are tracking 40% ahead of Crysis 2.

Q3 Financial Highlights:

For the quarter, non-GAAP net revenue of $1,182 million was below our guidance of $1,250 million to $1,350 million. Non-GAAP diluted earnings per share of $0.57 was above the midpoint of our guidance of $0.50 to $0.60.

 

 

(in millions of $, except per share amounts)

 

Quarter
Ended
12/31/12

 

Quarter
Ended
12/31/11

 
Digital Net Revenue $ 321 $ 274
Publishing Packaged Goods and Other Net Revenue 568 738
Distribution Packaged Goods Net Revenue   33       49  
GAAP Total Net Revenue $ 922     $ 1,061  
 
Non-GAAP Digital Net Revenue $ 407 $ 377
Non-GAAP Publishing Packaged Goods and Other Net Revenue 742 1,225
Non-GAAP Distribution Packaged Goods Net Revenue   33       49  
Non-GAAP Total Net Revenue $ 1,182     $ 1,651  
 
GAAP Net Loss $ (45 ) $ (205 )
Non-GAAP Net Income 176 334
GAAP Diluted Loss Per Share (0.15 ) (0.62 )
Non-GAAP Diluted Earnings Per Share 0.57 0.99
 
Cash Provided by Operations $ 363 $ 475
   

Trailing Twelve Month (TTM) Financial Highlights:

 

(in millions of $)

TTM
Ended
12/31/12

TTM
Ended
12/31/11

 
GAAP Net Revenue $ 3,956 $ 3,865
GAAP Net Income (Loss) 175 (173 )
 
Non-GAAP Net Revenue $ 3,730 $ 4,204
Non-GAAP Net Income 151 311
 
Cash Provided by Operations $ 378 $ 243
 
 

Q3 FY13 Digital Metrics:

 

(in millions)

Quarter
Ended
12/31/12

Quarter
Ended
12/31/11

 

GAAP Mobile Net Revenue

$

86

$

70

Non-GAAP Mobile Net Revenue

$

99

$

83

 

Business Outlook as of January 30, 2013

The following forward-looking statements, as well as those made above, reflect expectations as of January 30, 2013. Electronic Arts assumes no obligation to update these statements. Results may be materially different and are affected by many factors, including: product development delays; competition in the industry; the health of the economy in the U.S. and abroad and the related impact on discretionary consumer spending; changes in anticipated costs; the financial impact of acquisitions by EA; the popular appeal of EA’s products; EA’s effective tax rate; and other factors detailed in this release and in EA’s annual and quarterly SEC filings.

Fourth Quarter Fiscal Year 2013 Expectations – Ending March 31, 2013

  • GAAP net revenue is expected to be approximately $1.115 to $1.215 billion.
  • Non-GAAP net revenue is expected to be approximately $1.025 to $1.125 billion.
  • GAAP diluted earnings per share is expected to be approximately $0.92 to $1.12.
  • Non-GAAP diluted earnings per share is expected to be approximately $0.57 to $0.72.
  • For purposes of calculating fourth quarter fiscal year 2013 diluted earnings per share, the Company estimates a share count of 305 million.
  • Expected non-GAAP net income excludes the following from expected GAAP net income (loss):
    • Non-GAAP net revenue is expected to be approximately $90 million lower than GAAP net revenue due to the impact of the change in deferred net revenue (packaged goods and digital content);
    • Approximately $40 million of estimated stock-based compensation;
    • Approximately $25 million of gain on strategic investments;
    • Approximately $20 million of acquisition-related expenses;
    • Approximately $5 million of restructuring charges;
    • Approximately $5 million from the amortization of debt discount; and
    • Non-GAAP tax expense is expected to be $62 million to $79 million higher than GAAP tax expense.

Fiscal Year 2013 Expectations – Ending March 31, 2013

  • GAAP net revenue is expected to be approximately $3.703 to $3.803 billion.
  • Non-GAAP net revenue is expected to be approximately $3.778 to $3.878 billion.
  • GAAP diluted earnings per share is expected to be approximately $0.18 to $0.38.
  • Non-GAAP diluted earnings per share is expected to be approximately $0.86 to $1.00.
  • For purposes of calculating fiscal year 2013 diluted earnings per share, the Company estimates a share count of 313 million.
  • Expected non-GAAP net income excludes the following from expected GAAP net income (loss):
    • Non-GAAP net revenue is expected to be approximately $75 million higher than GAAP net revenue due to the impact of the change in deferred net revenue (packaged goods and digital content);
    • Approximately $162 million of estimated stock-based compensation;
    • Approximately $39 million of gain on strategic investments;
    • Approximately $28 million of acquisition-related expenses;
    • Approximately $32 million of restructuring charges;
    • Approximately $20 million from the amortization of debt discount; and
    • Non-GAAP tax expense is expected to be approximately $65 million to $82 million higher than GAAP tax expense.

Conference Call and Supporting Documents

Electronic Arts will host a conference call on January 30, 2013 at 2:00 pm PT (5:00 pm ET) to review its results for the third quarter ended December 31, 2012 and its outlook for the future. During the course of the call, Electronic Arts may disclose material developments affecting its business and/or financial performance. Listeners may access the conference call live through the following dial-in number: 773-799-3213 (domestic) or 888-677-1083 (international), using the password “EA” or via webcast at http://ir.ea.com.

EA will also post a slide presentation that accompanies the call at http://ir.ea.com.

A dial-in replay of the conference call will be provided until February 14, 2013 at the following number: 203-369-0099 (domestic) or 866-356-3373 (international). A webcast replay of the conference call will be available for one year at http://ir.ea.com.

Non-GAAP Financial Measures

To supplement the Company’s unaudited condensed consolidated financial statements presented in accordance with GAAP, Electronic Arts uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP 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 GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP 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 GAAP. The non-GAAP financial measures used by Electronic Arts include: non-GAAP net revenue, non-GAAP gross profit, non-GAAP operating income (loss), non-GAAP net income (loss) and historical and estimated non-GAAP diluted earnings (loss) per share. These non-GAAP 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

Electronic Arts may consider whether other significant non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.

Electronic Arts believes that these non-GAAP financial measures, when taken together with the corresponding GAAP 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-GAAP 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-GAAP financial measures also facilitate comparisons of the Company’s performance to prior periods.

In addition to the reasons stated above, which are generally applicable to each of the items Electronic Arts excludes from its non-GAAP financial measures, the Company believes it is appropriate to exclude certain items for the following reasons:

Acquisition-Related Expenses. GAAP requires expenses to be recognized for various types of events associated with a business acquisition. These events include, expensing acquired intangible assets, including acquired in-process technology, post-closing adjustments associated with changes in the estimated amount of contingent consideration to be paid in an acquisition, and the impairment of accounting goodwill created as a result of an acquisition when future events indicated there has been a decline in its value. When analyzing the operating performance of an acquired entity, Electronic Arts’ management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity as compared to the purchase price paid including the final amounts paid for contingent consideration) without taking into consideration any allocations made for accounting purposes. Because the final purchase price paid for an acquisition necessarily reflects the accounting value assigned to both contingent consideration and to the intangible assets (including goodwill), when analyzing the operating performance of an acquisition in subsequent periods, the Company’s management excludes the GAAP impact of any adjustments to the fair value of these acquisition-related balances to its financial results.

Amortization of Debt Discount on the Convertible Senior Notes. Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, for GAAP purposes, we are required to amortize as a debt discount an amount equal to the fair value of the conversion option as interest expense on the Company’s $632.5 million of 0.75% convertible senior notes that were issued in a private placement in July 2011 over the term of the notes. Electronic Arts’ management will exclude the effect of this amortization when evaluating the Company’s operating performance and the performance of its management team during this period and will continue to do so, when it plans, forecasts and analyzes future periods.

Certain non-recurring litigation expenses. During the fourth quarter of fiscal 2012, Electronic Arts recognized a $27 million expense related to a settlement of a litigation matter. This significant non-recurring litigation expense is excluded from our non-GAAP financial measures in order to provide comparability between periods. Further, the Company excluded this expense when evaluating its operating performance and the performance of its management team during this period and will continue to do so when it plans, forecasts and analyzes future periods.

Change in Deferred Net Revenue (Packaged Goods and Digital Content). Electronic Arts is not able to objectively determine the fair value of the online service included in certain of its packaged goods and digital content. As a result, the Company recognizes the revenue from the sale of these games and content over the estimated online service period. In other transactions, at the date we sell the software product we have an obligation to provide incremental unspecified digital content in the future without an additional fee. In these cases, we account for the sale of the software product and the right to receive either an online service or incremental unspecified digital content in the future as a multiple element arrangement and recognize the revenue on a straight-line basis over the period we expect the consumer to play the game. Internally, Electronic Arts’ management excludes the impact of the change in deferred net revenue related to packaged goods games and digital content in its non-GAAP financial measures when evaluating the Company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. The Company believes that excluding the impact of the change in deferred net revenue from its operating results is important to (1) facilitate comparisons to prior periods during which the Company was able to objectively determine the fair value of the online service and not delay the recognition of significant amounts of net revenue related to online-enabled packaged goods and (2) understanding our operations because all related costs are expensed as incurred instead of deferred and recognized ratably.

Loss (gain) on Strategic Investments. From time to time, the Company makes strategic investments. Electronic Arts’ management excludes the impact of any losses and gains on such investments when evaluating the Company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. In addition, the Company believes that excluding the impact of such losses and gains on these investments from its operating results is important to facilitate comparisons to prior periods.

Restructuring Charges. Although Electronic Arts has engaged in various restructuring activities in the past, each has been a discrete, extraordinary event based on a unique set of business objectives. Each of these restructurings has been unlike its predecessors in terms of its operational implementation, business impact and scope. As such, the Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures.

Stock-Based Compensation. When evaluating the performance of its individual business units, the Company does not consider stock-based compensation charges. Likewise, the Company’s management teams exclude stock-based compensation expense from their short and long-term operating plans. In contrast, the Company’s management teams are held accountable for cash-based compensation and such amounts are included in their operating plans. Further, when considering the impact of equity award grants, Electronic Arts places a greater emphasis on overall shareholder dilution rather than the accounting charges associated with such grants.

Income Tax Adjustments. The Company uses 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-GAAP financial results.

In the financial tables below, Electronic Arts has provided a reconciliation of the most comparable GAAP financial measure to the historical non-GAAP financial measures used in this press release.

Forward-Looking Statements

Some statements set forth in this release, including the information relating to EA’s fiscal 2013 guidance information under the heading “Business Outlook”, 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, including the PopCap acquisition; 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 September 30, 2012.

These forward-looking statements are current as of January 30, 2013. 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 release 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 Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2012. Electronic Arts assumes no obligation and does not intend to update these estimates prior to filing its Form 10-Q for the fiscal quarter ended December 31, 2012.

About Electronic Arts

Electronic Arts (NASDAQ:EA) is a global leader in digital interactive entertainment. The Company’s game franchises are offered as both packaged goods products and online services delivered through Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 250 million registered players and operates in 75 countries. In fiscal year 2012, EA posted GAAP net revenue of $4.1 billion. Headquartered in Redwood City, California, EA is recognized for critically acclaimed, high-quality blockbuster franchises such as The Sims™, Madden NFL, FIFA Soccer, Need for Speed™, Battlefield™, and Mass Effect™. More information about EA is available at http://info.ea.com.

EA SPORTS, Origin, Dead Space, The Sims and Need for Speed are trademarks of Electronic Arts Inc. Mass Effect is a trademark of EA International (Studio and Publishing) Ltd. Battlefield 3 and Battlefield are trademarks of EA Digital Illusions CE AB. Crysis is a trademark of GmbH. The Simpsons TM & © 2012 Twentieth Century Fox Film Corporation. All Rights Reserved. John Madden, NFL and FIFA are the property of their respective owners and used with permission. All other trademarks are the property of their respective owners.

 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)
 
 

Three Months Ended
December 31,

 

Nine Months Ended
December 31,

2012   2011 2012   2011
Net revenue
Product $ 703 $ 884 $ 1,886 $ 2,370
Service and other 219   177   702   405  
Total net revenue 922 1,061 2,588 2,775
Cost of revenue
Product 363 477 866 1,088
Service and other 66   75   213   136  
Total cost of revenue 429   552   1,079   1,224  
Gross profit 493 509 1,509 1,551
Operating expenses:
Marketing and sales 214 269 571 631
General and administrative 68 98 253 260
Research and development 286 325 890 928
Acquisition-related contingent consideration (45 ) (11 ) (65 ) 8
Amortization of intangibles 7 11 21 37
Restructuring and other 2     27   17  
Total operating expenses 532   692   1,697   1,881  
Operating loss (39 ) (183 ) (188 ) (330 )
Gain on strategic investments 14 14
Interest and other income (expense), net (8 ) (10 ) (17 ) (13 )
Loss before provision for (benefit from) income taxes (33 ) (193 ) (191 ) (343 )
Provision for (benefit from) income taxes 12   12   34   (19 )
Net loss $ (45 ) $ (205 ) $ (225 ) $ (324 )
Loss per share
Basic and Diluted $ (0.15 ) $ (0.62 ) $ (0.72 ) $ (0.98 )
Number of shares used in computation
Basic and Diluted 304 332 313 331
 

Non-GAAP Results (in millions, except per share data)

The following tables reconcile the Company’s net loss and loss per share as presented in its Unaudited Condensed Consolidated Statements of Operations and prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) to its non-GAAP net income and non-GAAP earnings per share.
   
Three Months Ended
December 31,
Nine Months Ended
December 31,
2012   2011 2012   2011
Net loss $ (45 ) $ (205 ) $ (225 ) $ (324 )
Acquisition-related expenses (15 ) 14 8 70
Amortization of debt discount 5 5 15 9
Change in deferred net revenue (packaged goods and digital content) 260 590 165 434
Gain on strategic investments (14 ) (14 )
Restructuring and other 2 27 17
Stock-based compensation 39 48 122 129
Income tax adjustments (56 ) (118 ) (3 ) (107 )
Non-GAAP net income $ 176   $ 334   $ 95   $ 228  
Non-GAAP earnings per share
Basic $ 0.58 $ 1.01 $ 0.30 $ 0.69
Diluted $ 0.57 $ 0.99 $ 0.30 $ 0.67
Number of shares used in Non-GAAP computation
Basic 304 332 313 331
Diluted 308 338 315 338
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
   

December 31,
2012

March 31,
2012 (a)

ASSETS
Current assets:
Cash and cash equivalents $ 1,158 $ 1,293
Short-term investments 275 437
Marketable equity securities 59 119
Receivables, net of allowances of $284 and $252, respectively 382 366
Inventories 59 59
Deferred income taxes, net 67 67
Other current assets 229   268  
Total current assets 2,229 2,609
Property and equipment, net 550 568
Goodwill 1,724 1,718
Acquisition-related intangibles, net 304 369
Deferred income taxes, net 47 42
Other assets 185   185  
TOTAL ASSETS $ 5,039   $ 5,491  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 93 $ 215
Accrued and other current liabilities 840 857
Deferred net revenue (packaged goods and digital content) 1,213   1,048  
Total current liabilities 2,146 2,120
0.75% convertible senior notes due 2016, net 554 539
Income tax obligations 211 189
Deferred income taxes, net 2 8
Other liabilities 168   177  
Total liabilities 3,081 3,033
Common stock 3 3
Paid-in capital 2,138 2,359
Accumulated deficit (302 ) (77 )
Accumulated other comprehensive income 119   173  
Total stockholders’ equity 1,958   2,458  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 5,039   $ 5,491  

(a)

 

Derived from audited consolidated financial statements.

 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
 
  Three Months Ended
December 31,
  Nine Months Ended
December 31,
2012   2011 2012   2011
OPERATING ACTIVITIES
Net loss $ (45 ) $ (205 ) $ (225 ) $ (324 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Acquisition-related contingent consideration (45 ) (11 ) (65 ) 8
Depreciation, amortization and accretion, net 66 54 178 148
Net gains on investments and sale of property and equipment (12 ) (12 ) (12 )
Non-cash restructuring charges (3 ) 7 (3 )
Stock-based compensation 39 48 122 129
Change in assets and liabilities:
Receivables, net 256 39 (18 ) (176 )
Inventories 13 22 11
Other assets 14 (18 ) 14 (81 )
Accounts payable (124 ) (93 ) (115 ) (150 )
Accrued and other liabilities (56 ) 48 53 50
Deferred income taxes, net (3 ) 4 (13 ) (44 )
Deferred net revenue (packaged goods and digital content) 260   590   165   434  
Net cash provided by (used in) operating activities 363   475   91   (10 )
INVESTING ACTIVITIES
Capital expenditures (25 ) (44 ) (81 ) (128 )
Proceeds from sale of property and equipment 26
Proceeds from sale of marketable equity securities 25 25
Proceeds from maturities and sales of short-term investments 124 144 404 463
Purchase of short-term investments (47 ) (195 ) (244 ) (374 )
Acquisition-related restricted cash 25
Acquisition of subsidiaries, net of cash acquired   (19 ) (10 ) (676 )
Net cash provided by (used in) investing activities 77   (114 ) 119   (689 )
FINANCING ACTIVITIES
Payment of debt issuance costs (2 )
Proceeds from borrowings on convertible senior notes, net of issuance costs 617
Proceeds from issuance of warrants 65
Purchase of convertible note hedge (107 )
Proceeds from issuance of common stock 1 4 19 39
Excess tax benefit from stock-based compensation 1 4
Repurchase and retirement of common stock (157 ) (41 ) (336 ) (230 )
Acquisition-related contingent consideration payment (2 )   (28 )  
Net cash provided by (used in) financing activities (158 ) (36 ) (347 ) 388  
Effect of foreign exchange on cash and cash equivalents 5 (13 ) 2 (26 )
Increase (decrease) in cash and cash equivalents 287   312   (135 ) (337 )
Beginning cash and cash equivalents 871   930   1,293   1,579  
Ending cash and cash equivalents $ 1,158   $ 1,242   $ 1,158   $ 1,242  
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data and headcount)
 
  Q3   Q4   Q1   Q2   Q3   YOY %
FY12 FY12 FY13 FY13 FY13 Change
QUARTERLY RECONCILIATION OF RESULTS
Net Revenue
GAAP net revenue $ 1,061 $ 1,368 $ 955 $ 711 $ 922 (13 %)
Change in deferred net revenue (packaged goods and digital content) 590   (391 ) (464 ) 369   260  
Non-GAAP net revenue $ 1,651   $ 977   $ 491   $ 1,080   $ 1,182   (28 %)
Gross Profit
GAAP gross profit $ 509 $ 994 $ 750 $ 266 $ 493 (3 %)
Acquisition-related expenses 14 27 15 14 23
Change in deferred net revenue (packaged goods and digital content) 590 (391 ) (464 ) 369 260
Stock-based compensation   1   1      
Non-GAAP gross profit $ 1,113   $ 631   $ 302   $ 649   $ 776   (30 %)
GAAP gross profit % (as a % of GAAP net revenue) 48% 73% 79% 37% 53%
Non-GAAP gross profit % (as a % of non-GAAP net revenue) 67% 65% 62% 60% 66%
Operating Income (Loss)
GAAP operating income (loss) $ (183 ) $ 365 $ 215 $ (364 ) $ (39 ) 79 %
Acquisition-related expenses 14 36 2 21 (15 )
Certain non-recurring litigation expenses 27
Change in deferred net revenue (packaged goods and digital content) 590 (391 ) (464 ) 369 260
Restructuring and other (1 ) 27 (2 ) 2
Stock-based compensation 48   41   39   44   39  
Non-GAAP operating income (loss) $ 469   $ 77   $ (181 ) $ 68   $ 247   (47 %)
GAAP operating income (loss) % (as a % of GAAP net revenue) (17%) 27% 23% (51%) (4%)
Non-GAAP operating income (loss) % (as a % of non-GAAP net revenue) 28% 8% (37%) 6% 21%
Net Income (Loss)
GAAP net income (loss) $ (205 ) $ 400 $ 201 $ (381 ) $ (45 ) 78 %
Acquisition-related expenses 14 36 2 21 (15 )
Amortization of debt discount 5 5 5 5 5
Certain non-recurring litigation expenses 27
Change in deferred net revenue (packaged goods and digital content) 590 (391 ) (464 ) 369 260
Gain on strategic investments (14 )
Restructuring and other (1 ) 27 (2 ) 2
Stock-based compensation 48 41 39 44 39
Income tax adjustments (118 ) (61 ) 60   (7 ) (56 )
Non-GAAP net income (loss) $ 334   $ 56   $ (130 ) $ 49   $ 176   (47 %)
GAAP net income (loss) % (as a % of GAAP net revenue) (19%) 29% 21% (54%) (5%)
Non-GAAP net income (loss) % (as a % of non-GAAP net revenue) 20% 6% (26%) 5% 15%
Diluted Earnings (Loss) Per Share
GAAP earnings (loss) per share $ (0.62 ) $ 1.20 $ 0.63 $ (1.21 ) $ (0.15 ) 76 %
Non-GAAP earnings (loss) per share $ 0.99 $ 0.17 $ (0.41 ) $ 0.15 $ 0.57 (42 %)
 
Number of diluted shares used in computation
GAAP 332 332 320 316 304
Non-GAAP 338 332 317 318 308
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data and headcount)
 
  Q3   Q4   Q1   Q2   Q3   YOY %
FY12 FY12 FY13 FY13 FY13 Change
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
 
Geography Net Revenue
North America 500 653 450 329 409 (18 %)
Europe 505 627 435 332 464 (8 %)
Asia 56   88   70   50   49   (13 %)
Total GAAP Net Revenue 1,061   1,368   955   711   922   (13 %)
North America 310 (188 ) (265 ) 179 80
Europe 235 (187 ) (174 ) 171 166
Asia 45   (16 ) (25 ) 19   14  
Change In Deferred Net Revenue (Packaged Goods and Digital Content) 590   (391 ) (464 ) 369   260  
North America 810 465 185 508 489 (40 %)
Europe 740 440 261 503 630 (15 %)
Asia 101   72   45   69   63   (38 %)
Total Non-GAAP Net Revenue 1,651   977   491   1,080   1,182   (28 %)
North America 47% 48% 47% 46% 44%
Europe 48% 46% 46% 47% 51%
Asia 5% 6% 7% 7% 5%
Total GAAP Net Revenue % 100% 100% 100% 100% 100%
North America 49% 48% 38% 47% 42%
Europe 45% 45% 53% 47% 53%
Asia 6% 7% 9% 6% 5%
Total Non-GAAP Net Revenue % 100% 100% 100% 100% 100%
 
Net Revenue Composition
Publishing and Other 738 926 592 365 568 (23 %)
Wireless, Internet-derived, and Advertising (Digital) 274 419 342 324 321 17 %
Distribution 49   23   21   22   33   (33 %)
Total GAAP Net Revenue 1,061   1,368   955   711   922   (13 %)
Publishing and Other 487 (397 ) (446 ) 379 174
Wireless, Internet-derived, and Advertising (Digital) 103   6   (18 ) (10 ) 86  
Change In Deferred Net Revenue (Packaged Goods and Digital Content) 590   (391 ) (464 ) 369   260  
Publishing and Other 1,225 529 146 744 742 (39 %)
Wireless, Internet-derived, and Advertising (Digital) 377 425 324 314 407 8 %
Distribution 49   23   21   22   33   (33 %)
Total Non-GAAP Net Revenue 1,651   977   491   1,080   1,182   (28 %)
Publishing and Other 69% 68% 62% 51% 62%
Wireless, Internet-derived, and Advertising (Digital) 26% 30% 36% 46% 35%
Distribution 5% 2% 2% 3% 3%
Total GAAP Net Revenue % 100% 100% 100% 100% 100%
Publishing and Other 74% 54% 30% 69% 63%
Wireless, Internet-derived, and Advertising (Digital) 23% 44% 66% 29% 34%
Distribution 3% 2% 4% 2% 3%
Total Non-GAAP Net Revenue % 100% 100% 100% 100% 100%
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data and headcount)
 
  Q3   Q4   Q1   Q2   Q3   YOY %
FY12 FY12 FY13 FY13 FY13 Change
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
Platform Net Revenue
Xbox 360 331 454 292 204 277 (16 %)
PLAYSTATION 3 314 432 267 150 289 (8 %)
Wii 49 20 8 17 20 (59 %)
PlayStation 2 7   3   2   6   3   (57 %)
Total Consoles 701 909 569 377 589 (16 %)
Mobile 70 87 69 75 86 23 %
PlayStation Handhelds 14 6 10 14 15 7 %
Nintendo Handhelds 15   5   9   8   9   (40 %)
Total Mobile and Handhelds 99 98 88 97 110 11 %
PC 214 334 276 214 186 (13 %)
Other 47   27   22   23   37   (21 %)
Total GAAP Net Revenue 1,061   1,368   955   711   922   (13 %)
Xbox 360 174 (128 ) (186 ) 144 72
PLAYSTATION 3 179 (210 ) (183 ) 222 95
Wii 3 (7 ) (5 )
PlayStation 2 (1 ) 1
Mobile 13 (3 ) 9 13 13
PlayStation Handhelds (2 ) 10 (4 ) 7 11
Nintendo Handhelds 9 (5 ) (4 ) (2 ) 13
PC 214   (48 ) (90 ) (16 ) 56  
Change in Deferred Net Revenue (Packaged Goods and Digital Content) 590   (391 ) (464 ) 369   260  
Xbox 360 505 326 106 348 349 (31 %)
PLAYSTATION 3 493 222 84 372 384 (22 %)
Wii 52 13 3 17 20 (62 %)
PlayStation 2 7   3   1   7   3   (57 %)
Total Consoles 1,057 564 194 744 756 (28 %)
Mobile 83 84 78 88 99 19 %
PlayStation Handhelds 12 16 6 21 26 117 %
Nintendo Handhelds 24     5   6   22   (8 %)
Total Mobile and Handhelds 119 100 89 115 147 24 %
PC 428 286 186 198 242 (43 %)
Other 47   27   22   23   37   (21 %)
Total Non-GAAP Net Revenue 1,651   977   491   1,080   1,182   (28 %)
Xbox 360 31% 33% 31% 29% 30%
PLAYSTATION 3 29% 32% 28% 21% 32%
Wii 5% 1% 1% 2% 2%
PlayStation 2 1%     1%  
Total Consoles 66% 66% 60% 53% 64%
Mobile 7% 6% 7% 11% 9%
PlayStation Handhelds 1% 1% 1% 2% 2%
Nintendo Handhelds 1%   1% 1% 1%
Total Mobile and Handhelds 9% 7% 9% 14% 12%
PC 20% 25% 29% 30% 20%
Other 5% 2% 2% 3% 4%
Total GAAP Net Revenue % 100% 100% 100% 100% 100%
Xbox 360 31% 34% 22% 32% 30%
PLAYSTATION 3 30% 23% 17% 34% 32%
Wii 3% 1% 1% 2% 2%
PlayStation 2       1%  
Total Consoles 64% 58% 40% 69% 64%
Mobile 5% 8% 16% 8% 8%
PlayStation Handhelds 1% 2% 1% 2% 2%
Nintendo Handhelds 1%   1% 1% 2%
Total Mobile and Handhelds 7% 10% 18% 11% 12%
PC 26% 29% 38% 18% 21%
Other 3% 3% 4% 2% 3%
Total Non-GAAP Net Revenue % 100% 100% 100% 100% 100%
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data and headcount)
 
  Q3   Q4   Q1   Q2   Q3   YOY %
FY12 FY12 FY13 FY13 FY13 Change
CASH FLOW DATA
Operating cash flow 475 287 (244 ) (28 ) 363 (24 %)
Operating cash flow - TTM 243 277 307 490 378 56 %
Capital expenditures 44 44 31 25 25 (43 %)
Capital expenditures - TTM 149 172 171 144 125 (16 %)
BALANCE SHEET DATA
Cash and cash equivalents 1,242 1,293 919 871 1,158 (7 %)
Short-term investments 406 437 444 351 275 (32 %)
Marketable equity securities 143 119 76 93 59 (59 %)
Receivables, net 526 366 111 643 382 (27 %)
Inventories 69 59 60 71 59 (14 %)
Deferred net revenue (packaged goods and digital content)
End of the quarter 1,439 1,048 584 953 1,213
Less: Beginning of the quarter 849   1,439   1,048   584   953  
Change in deferred net revenue (packaged goods and digital content) 590   (391 ) (464 ) 369   260  
STOCK-BASED COMPENSATION
Cost of goods sold 1 1
Marketing and sales 7 8 7 8 7
General and administrative 11 7 9 9 7
Research and development 30   25   22   27   25  
Total Stock-Based Compensation 48   41   39   44   39  
EMPLOYEES 9,043 9,158 9,225 9,224 9,370 4 %

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@ThingsExpo Stories
SYS-CON Media announced that Cisco, a worldwide leader in IT that helps companies seize the opportunities of tomorrow, has launched a new ad campaign in Cloud Computing Journal. The ad campaign, a webcast titled 'Is Your Data Center Ready for the Application Economy?', focuses on the latest data center networking technologies, including SDN or ACI, and how customers are using SDN and ACI in their organizations to achieve business agility. The Cisco webcast is available on-demand.
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