Ea Reports Fourth Quarter And Fiscal Year 2009 Results
Confirms Fiscal 2010 Non-GAAP Guidance / Ahead of Schedule on Cost-Reduction Initiatives / The Sims 3 to Ship on June 2
Fiscal Fourth Quarter Results (comparisons are to the quarter ended March 31, 2008)
GAAP net revenue for the fourth quarter was $860 million, down $267 million as compared with $1.13 billion for the prior year. During the quarter, EA had a net benefit of $251 million related to the recognition of deferred net revenue for certain online-enabled packaged goods games and digital content.
Non-GAAP net revenue was $609 million, as compared with $919 million for the prior year. Sales were driven by Skate 2, Rock Band® 2, The Lord of the Rings®: Conquest, Left 4 Dead and Need for Speed(TM) Undercover.
GAAP net loss for the quarter was $42 million, as compared with a net loss of $94 million for the prior year. Diluted loss per share was $0.13 as compared with diluted loss per share of $0.30 for the prior year.
Non-GAAP net loss was $120 million as compared with non-GAAP net income of $30 million a year ago. Non-GAAP diluted loss per share was $0.37 as compared with non-GAAP diluted earnings per share of $0.09 for the prior year.
"EA's strong cost actions in Q4 FY09 together with our investments in our digital service businesses will set us up for a stronger FY10," said John Riccitiello, Chief Executive Officer.
"EA is well positioned with the right strategies in a growing industry."
"We remain vigilant on managing costs," said Eric Brown, Chief Financial Officer. "We are confirming our FY10 non-GAAP guidance and expect to show strong profit growth in the year ahead."
Full Year Results
GAAP net revenue for the fiscal year ended March 31, 2009 was $4.212 billion, up 15 percent as compared with $3.665 billion for the prior year. The Company ended the year with $261 million in deferred net revenue from packaged goods and digital content - down $126M from a year ago.
Non-GAAP net revenue was $4.086 billion, up 2 percent as compared with $4.020 billion for the prior year.
GAAP net loss for the year was $1.088 billion as compared with a net loss of $454 million for the prior year. Diluted loss per share was $3.40 as compared with a diluted loss per share of $1.45 for the prior year. Fiscal 2009 GAAP results include a $368 million non-cash charge for goodwill impairment and a non-cash charge for tax valuation allowances consisting of $232 million related to deferred tax assets that existed as of the end of Fiscal 2008 plus an additional $134 million against deferred tax assets recorded during Fiscal 2009.
Non-GAAP net loss was $96 million as compared with net income of $339 million a year ago. Non-GAAP diluted loss per share was $0.30 as compared with diluted earnings per share of $1.06 for the prior year.
Trailing-twelve-month operating cash flow was $12 million as compared with $338 million a year ago. The Company ended the year with cash and short-term investments of $2.2 billion.
Fiscal 2009 Highlights
- EA had 31 titles that sold more than one million copies in the year - as compared with 27 titles in the prior year.
- FIFA 09, Madden NFL 09 and Need for Speed Undercover each sold over five million copies in the year.
- EA Partners posted its strongest year ever driven by Rock Band, Rock Band 2 and Left 4 Dead. Rock Band, in partnership with MTX/Harmonix, was EA's highest revenue producing title during the fiscal year.
- EA strengthened its portfolio by launching new games - SPORE(TM) , Warhammer® Online: Age of Reckoning®, Dead Space(TM) , Mirror's Edge(TM) , Boom Blox(TM) , Mercenaries(TM) 2 and a slate of Hasbro® games.
- SPORE sold over two million copies with users generating more than 100 million creatures.
- EA generated 14% of its total non-GAAP revenue on the Wii - as compared with 8% a year ago. EA to ship EA SPORTS Active in May and Harry Potter and the Half-Blood Prince(TM) in June. Also in June, Tiger Woods PGA TOUR® 10 and EA SPORTS Grand Slam® Tennis - both bundled with the Wii MotionPlus(TM) accessory (Tennis bundle available in Europe only).
- EA's non-GAAP digital services revenue, which includes online and wireless, was $429 million in fiscal 2009, up 27% year-over-year.
- Pogo(TM) achieved an all-time high of 1.8M paying subscribers for the fiscal year.
- EA recently launched the open beta of EA SPORTS(TM) FIFA Online 2 in China -- the Company's first online game in China.
- EA Mobile(TM) , the world's leading publisher of games for wireless, delivered non- GAAP revenue of $189 million for fiscal 2009 - up 24 percent year-over-year.
The following forward-looking statements, as well as those made above, reflect expectations as of May 5, 2009. Results may be materially different and are affected by many factors, including: development delays on EA's products; 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; expected savings and impact on EA's operations of the Company's cost reduction plan; consumer demand for console hardware and the ability of the console manufacturers to produce an adequate supply of consoles to meet that demand; changes in foreign exchange rates; the financial impact of potential future 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.
Deferred Revenue Recognition for Online-Enabled Games
The Company also announced today that, beginning in fiscal 2010, it will defer revenue on a GAAP-only basis for every online-enabled game. Historically, the Company was deferring revenue for a subset of console and PC games. As a result, the Company expects to defer an additional $500 million of revenue out of fiscal 2010 into fiscal 2011 on a GAAP basis. This change will impact the Company's previously provided GAAP guidance for fiscal 2010, but will have no impact on fiscal 2010 non-GAAP revenue, non-GAAP EPS or cash flows.
Fiscal Year Expectations - Ending March 31, 2010
The Company confirmed its fiscal year 2010 non-GAAP guidance and updated its fiscal 2010 GAAP guidance for the additional revenue deferral for online-enabled games.
- GAAP net revenue is expected to be between $3.7 and $3.85 billion.
- Non-GAAP net revenue is expected to be approximately $4.3 billion.
- GAAP diluted loss per share is expected to be between $0.85 and $1.45.
- Non-GAAP diluted earnings per share are expected to be approximately $1.00.
- For purposes of calculating fiscal year 2010 GAAP loss per share, the Company estimates a share count of 323 million and for non-GAAP EPS, the Company estimates a share count of 325 million.
- Expected non-GAAP net income excludes the following items from expected GAAP net income:
- $450 to $600 million for the impact of the change in deferred net revenue (packaged goods and digital content),
- $185 million of estimated stock-based compensation,
- $55 million of amortization of intangible assets,
- $25 to $35 million of restructuring charges, and
- ($82) to ($117) million in the difference between the Company's GAAP and non- GAAP tax expenses.
Electronic Arts will host a conference call today at 2:00 pm PT (5:00 pm ET) to review its results for the fourth quarter and fiscal year ended March 31, 2009 and its outlook for the future. During the course of the call, Electronic Arts may also disclose material developments affecting its business and/or financial performance. Listeners may access the conference call live through the following dial-in number: (888) 359-3632, access code 220497, or via webcast: http://investor.ea.com.
A dial-in replay of the conference call will be provided until May 12, 2009 at (719) 457-0820, access code 220497. A webcast archive of the conference call will be available for one year at http://investor.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:
- Acquired in-process technology
- Amortization of intangibles
- Certain abandoned acquisition-related costs
- Change in deferred net revenue (packaged goods and digital content)
- Goodwill impairment
- Loss on licensed intellectual property commitment
- Losses (gains) on strategic investments
- Restructuring charges
- Stock-based compensation
Through the end of fiscal 2008, Electronic Arts made certain income tax adjustments to its non- GAAP financial measures to reflect the income tax effects of each of the items it excluded from its pre-tax non-GAAP financial measures, as well as certain discrete one-time income tax adjustments. This approach was consistent with how the Company evaluated operating performance, planned, forecasted and analyzed future periods, and assessed the performance of its management team.
In fiscal 2009, the Company began using 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 fiscal 2009 non-GAAP 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-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:
Amortization of Intangibles. 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) without taking into consideration any allocations made for accounting purposes. Because the purchase price for an acquisition necessarily reflects the accounting value assigned to intangible assets (including acquired in-process technology and goodwill), when analyzing the operating performance of an acquisition in subsequent periods, the Company's management excludes the GAAP impact of acquired intangible assets to its financial results. Electronic Arts believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting expense associated with acquired intangible assets.
In addition, in accordance with GAAP, Electronic Arts generally recognizes expenses for internally-developed intangible assets as they are incurred, notwithstanding the potential future benefit such assets may provide. Unlike internally-developed intangible assets, however, and also in accordance with GAAP, the Company generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired (other than goodwill, which is not amortized, and acquired in-process technology, which is expensed immediately, as required under GAAP). As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internallydeveloped intangible assets and acquired intangible assets. Accordingly, Electronic Arts believes it is useful to provide, as a supplement to its GAAP operating results, a non-GAAP financial measure that excludes the amortization of acquired intangibles.
Certain Abandoned Acquisition-Related Costs. Electronic Arts incurred significant legal, banking and other consulting fees related to the Company's proposed acquisition and related cash tender offer for all of the outstanding shares of Take-Two Interactive Software, Inc. On August 18, 2008, the Company allowed the tender offer to expire without purchasing any shares of Take-Two and, on September 14, 2008, the Company announced that it had terminated discussions with Take-Two. The costs incurred in connection with the abandoned proposal and tender offer were outside the ordinary course of business and will be excluded by the Company when assessing the performance of its management team. As such, the Company believes it is appropriate to exclude such expenses from its non-GAAP financial measures.
Change in Deferred Net Revenue (Packaged Goods and Digital Content). Beginning in fiscal 2008, Electronic Arts was no longer able to objectively determine the fair value of the online service included in certain of its packaged goods games and online content. As a result, the Company began recognizing the revenue from the sale of these games and content over the estimated online service period. Although Electronic Arts defers the recognition of a significant portion of its net revenue as a result of this change, there has been no adverse impact to its operating cash flow. 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 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.
Goodwill Impairment. Adverse economic conditions, including the decline in the Company's market capitalization and expected financial performance, indicated that a potential impairment of goodwill existed during the three months ended December 31, 2008. As a result, the Company performed goodwill impairment tests for its reporting units in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" and determined that goodwill related to its mobile reporting unit was impaired. As the Company excludes the GAAP impact of acquired intangible assets (such as goodwill) from its financial results when analyzing the operating performance of an acquisition in subsequent periods, Electronic Arts believes it is appropriate to exclude goodwill impairment charges from its non-GAAP financial measures.
Loss on Licensed Intellectual Property Commitment. During the fourth quarter of fiscal 2009, Electronic Arts amended an agreement with a content licensor. This amendment resulted in the termination of our rights to use the licensor's intellectual property in certain products and we incurred a related loss of $38 million. This significant non-recurring loss is excluded from our Non-GAAP financial measures in order to provide comparability between periods. Further, the Company will exclude this loss when evaluating its operating performance and the performance of its management team during this period and when it plans, forecasts and analyzes future 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. The Company does not engage in restructuring activities on a regular basis or in the ordinary course of business. As such, the Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures.
Stock-Based Compensation. Electronic Arts adopted SFAS 123(R), "Share-Based Payment" beginning in its fiscal year 2007. 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.
Video game platforms have historically had a life cycle of four to six years, which causes the video game software market to be cyclical. The Company's management analyzes its business and operating performance in the context of these business cycles, comparing Electronic Arts' performance at similar stages of different cycles. For comparability purposes, Electronic Arts believes it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of its core business.
EA, EA SPORTS, EA SPORTS Freestyle, EA Mobile, POGO, Need for Speed, Dead Space, Spore, Boom Blox and Mercenaries are trademarks or registered trademarks of Electronic Arts Inc. in the U.S. and/or other countries. Mirror's Edge is a trademark or registered trademark of EA Digital Illusions CE AB. Rock Band is a trademark of Harmonix Music Systems, Inc., a division of MTV Networks. "The Lord of the Rings" is a trademark of SZC under license to Electronic Arts Inc. Warhammer, Warhammer Online and Age of Reckoning are either ®, (TM) and/or © Games Workshop Ltd 2000-2008. HASBRO is a trademark of Hasbro and used with permission. Grand Slam is a registered Trademark jointly owned by Australian Open, US Open, French Open and Wimbledon. HARRY POTTER characters, names and related indicia are trademarks of and © Warner Bros. Entertainment Inc. Harry Potter Publishing Rights © JKR. (s09) John Madden, NFL and FIFA, are trademarks or registered trademarks of their respective owners and used with permission. Xbox and Xbox 360 are trademarks of the Microsoft group of companies and are used under license from Microsoft. "PlayStation" and "PLAYSTATION" are registered trademarks of Sony Computer Entertainment Inc. Wii, Wii MotionPlus and Nintendo DS are trademarks of Nintendo. All other trademarks are the property of their respective owners.
Electronic Arts GmbH
Electronic Arts Inc. (EA), headquartered in Redwood City, California, a leading global interactive entertainment software company. Founded in 1982, the Company develops, publishes, and distributes interactive software worldwide for video game systems, personal computers, wireless devices and the Internet. Electronic Arts markets its products under four brand names: EA SPORTSTM, EATM, EA SPORTS Freestyle TM and POGOTM. In fiscal 2009, EA posted GAAP net revenue of $4.2 billion and had 31 titles that sold more than one million copies. EA's homepage and online game site is www.ea.com. More information about EA's products and full text of press releases can be found on the Internet at http://info.ea.com.