Electronic Arts : Reports Q3 FY22 Financial Results - Form 8-K

Electronic Arts Reports Q3 FY22 Financial Results

REDWOOD CITY, CA - February 1, 2022 - Electronic Arts Inc. (NASDAQ: EA) today announced preliminary financial results for its third fiscal quarter ended December 31, 2021.

"FY22 has been a year of outstanding growth for Electronic Arts, and we're proud that our franchises were among the most-downloaded, most-played, and most popular titles over the last year and the holiday quarter," said Andrew Wilson, CEO of Electronic Arts. "Our network of more than 540 million unique active accounts continues to expand, players are spending more time in our games, and with our amazing IP we are well-positioned for continued growth."

"Q3 was the largest quarter in the company's history for net bookings, underlying profitability and cash generation," said CFO Blake Jorgensen. "Our portfolio approach will enable us to deliver organic growth in the double digits this year, continue to deliver strong cash flow, and provides a strong foundation for growth as we look to the future."

Selected Operating Highlights and Metrics

•

Net bookings1 for the trailing twelve months was $7.254 billion, up 22% year-over-year.

•

Over the last year, the EA player network has grown to more than 540 million unique active accounts.

•

During FY22 to date, more than 180 million monthly active accounts on average engaged in our games across all platforms.

•

At quarter end, Apex LegendsTM monthly active players were up more than 30% year-over-year.

•

Players are spending nearly 20% more time in our games in FY22 compared to the previous year.

Selected Financial Highlights and Metrics

•

Net cash provided by operating activities was a record $1.534 billion for the quarter and $1.826 billion for the trailing twelve months.

•

EA repurchased 2.4 million shares for $325 million during the quarter, bringing the total for the last twelve months to 9.4 million shares for $1.300 billion.

•

EA paid a cash dividend of $0.17 per share during the quarter.

Dividend

EA has declared a quarterly cash dividend of $0.17 per share of the Company's common stock. The dividend is payable on March 23, 2022 to shareholders of record as of the close of business on March 9, 2022.

Quarterly Financial Highlights

		Three Months Ended December 31,
		2021			2020
(in $ millions, except per share amounts)
Full game			616				722
Live services and other			1,173				951
Total net revenue			1,789				1,673
Net income			66				211
Diluted earnings per share			0.23				0.72
Operating cash flow			1,534				1,124
Value of shares repurchased			325				326
Number of shares repurchased			2.4				2.5

The following GAAP-based financial data² and tax rate of 18% was used internally by company management to adjust its GAAP results in order to assess EA's operating results:

		Three Months Ended December 31, 2021
					GAAP-Based Financial Data
(in $ millions)		Statement of Operations			Acquisition- related expenses			Change in deferred net revenue (online- enabled games)			Stock-based compensation
Total net revenue			1,789				-				788				-
Cost of revenue			631				(44	)			-				(1	)
Gross profit			1,158				44				788				1
Total operating expenses			1,056				(61	)			-				(128	)
Operating income			102				105				788				129
Interest and other income (expense), net			(11	)			-				-				-
Income before provision for income taxes			91				105				788				129
Number of shares used in computation:
Diluted			285

Trailing Twelve Months Financial Highlights

		Twelve Months Ended December 31,
		2021			2020
(in $ millions)
Full game			1,805				1,719
Live services and other			4,707				3,951
Total net revenue			6,512				5,670
Net income			640				1,179
Operating cash flow			1,826				2,061
Value of shares repurchased			1,300				695
Number of shares repurchased			9.4				5.9

The following GAAP-based financial data² and tax rate of 18% was used internally by company management to adjust its GAAP results in order to assess EA's operating results:

		Twelve Months Ended December 31, 2021
					GAAP-Based Financial Data
(in $ millions)		Statement of Operations			Acquisition- related expenses			Change in deferred net revenue (online- enabled games)			Stock-based compensation
Total net revenue			6,512				-				742				-
Cost of revenue			1,759				(92	)			-				(5	)
Gross profit			4,753				92				742				5
Total operating expenses			3,814				(145	)			-				(507	)
Operating income			939				237				742				512
Interest and other income (expense), net			(49	)			-				-				-
Income before provision for income taxes			890				237				742				512

Operating Metric

The following is a calculation of our total net bookings¹ for the periods presented:

		Three Months Ended December 31,			Twelve Months Ended December 31,
		2021			2020			2021			2020
(in $ millions)
Total net revenue			1,789				1,673				6,512				5,670
Change in deferred net revenue (online-enabled games)			788				727				742				286
Net bookings			2,577				2,400				7,254				5,956

Business Outlook as of February 1, 2022

Our financial expectations for the quarter and fiscal year ending March 31, 2022 include estimates of the impact of our completed acquisitions on consolidated results and could be materially impacted as we integrate these acquisitions.

Fiscal Year 2022 Expectations - Ending March 31, 2022

Financial metrics:

•

Net revenue is expected to be approximately $6.925 billion.

•

Change in deferred net revenue (online-enabled games) is expected to be approximately $600 million.

•

Net income is expected to be approximately $694 million.

•

Diluted earnings per share is expected to be approximately $2.43.

•

Operating cash flow is expected to be approximately $1.900 billion.

•

The Company estimates a share count of 286 million for purposes of calculating fiscal year 2022 diluted earnings per share.

Operational metric:

•

Net bookings1 is expected to be approximately $7.525 billion.

In addition, the following outlook for GAAP-based financial data² and a long-term tax rate of 18% are used internally by EA to adjust our GAAP expectations to assess EA's operating results and plan for future periods:

		Twelve Months Ending March 31, 2022
					GAAP-Based Financial Data
		GAAP Guidance			Acquisition- related expenses			Change in deferred net revenue (online- enabled games)			Stock-based compensation
(in $ millions)
Total net revenue			6,925				-				600				-
Cost of revenue			1,844				(130	)			-				(5	)
Operating expense			4,048				(180	)			-				(525	)
Income before provision for income taxes			984				310				600				530
Net income			694
Number of shares used in computation:
Diluted shares			286

Fourth Quarter Fiscal Year 2022 Expectations - Ending March 31, 2022

Financial metrics:

•

Net revenue is expected to be approximately $1.759 billion.

•

Change in deferred net revenue (online-enabled games) is expected to be approximately $2 million.

•

Net income is expected to be approximately $130 million.

•

Diluted earnings per share is expected to be approximately $0.46.

•

The Company estimates a share count of 284 million for purposes of calculating fourth quarter fiscal 2022 diluted earnings per share.

Operational metric:

•

Net bookings1 is expected to be approximately $1.761 billion.

In addition, the following outlook for GAAP-based financial data² and a long-term tax rate of 18% are used internally by EA to adjust our GAAP expectations to assess EA's operating results and plan for future periods:

		Three Months Ending March 31, 2022
					GAAP-Based Financial Data
		GAAP Guidance			Acquisition- related expenses			Change in deferred net revenue (online- enabled games)			Stock-based compensation
(in $ millions)
Total net revenue			1,759				-				2				-
Cost of revenue			404				(42	)			-				(1	)
Operating expense			1,086				(49	)			-				(126	)
Income before provision for income taxes			259				91				2				127
Net income			130
Number of shares used in computation:
Diluted shares			284

Conference Call and Supporting Documents

Electronic Arts will host a conference call on February 1, 2022 at 2:00 pm PT (5:00 pm ET) to review its results for the fiscal quarter ended December 31, 2021 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 [phone] (domestic) or [phone] (international), using the conference code 4063695 or via webcast at EA's IR Website at http://ir.ea.com.

EA has posted a slide presentation with a financial model of EA's historical results and guidance on EA's IR Website. EA will also post the prepared remarks and a transcript from the conference call on EA's IR Website.

A dial-in replay of the conference call will be available until February 15, 2022 at 855-859-2056 (domestic) or 404-537-3406 (international) using pin code 4063695. An audio webcast replay of the conference call will be available for one year on EA's IR Website.

Forward-Looking Statements

Some statements set forth in this release, including the information relating to EA's expectations under the heading "Business Outlook as of February 1, 2022" and other information regarding EA's fiscal 2022 and other future expectations contain forward-looking statements that are subject to change. Statements including words such as "anticipate," "believe," "expect," "intend," "estimate," "plan," "predict," "seek," "goal," "will," "may," "likely," "should," "could" (and the negative of any of these terms), "future" and similar expressions also identify forward-looking statements. These forward-looking statements are not guarantees of future performance and reflect management's current expectations. Our actual results could differ materially from those discussed 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: the impact of the COVID-19 pandemic, sales of the Company's products and services; the Company's ability to develop and support digital products and services, including managing online security and privacy; outages of our products, services and technological infrastructure; the Company's ability to manage expenses; the competition in the interactive entertainment industry; governmental regulations; the effectiveness of the Company's sales and marketing programs; timely development and release of the Company's products and services; the Company's ability to realize the anticipated benefits of, and integrate, 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 develop and implement new technology; foreign currency exchange rate fluctuations; general economic conditions; changes in our tax rates or tax laws; and other factors described in Part II, Item 1A of Electronic Arts' latest Quarterly Report on Form 10-Q under the heading "Risk Factors", as well as in other documents we have filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

These forward-looking statements are current as of February 1, 2022. Electronic Arts assumes no obligation to revise or update any forward-looking statement for any reason, except as required by law. 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, 2021. 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, 2021.

About Electronic Arts

Electronic Arts (NASDAQ: EA) is a global leader in digital interactive entertainment. The Company develops and delivers games, content and online services for Internet-connected consoles, mobile devices and personal computers.

In fiscal year 2021, EA posted GAAP net revenue of $5.6 billion. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality brands such as EA SPORTS^™ FIFA, Battlefield^™, Apex Legends^™, The Sims^™, Madden NFL, Need for Speed^™, Titanfall^™, Plants vs. Zombies^™ and F1^®. More information about EA is available at www.ea.com/news.

EA SPORTS, Battlefield, Need for Speed, Apex Legends, The Sims, Titanfall and Plants vs. Zombies are trademarks of Electronic Arts Inc. STAR WARS ^© & TM 2015 Lucasfilm Ltd. All rights reserved. John Madden, NFL, FIFA and F1 are the property of their respective owners and used with permission.

For additional information, please contact:

Chris Evenden		John Reseburg
Vice President, Investor Relations		Vice President, Global Communications
650-628-0255		650-628-3601
[e-mail]		[e-mail]

1	Net bookings is defined as the net amount of products and services sold digitally or sold-in physically in the period. Net bookings is calculated by adding total net revenue to the change in deferred net revenue for online-enabled games.

2	For more information about the nature of the GAAP-based financial data, please refer to EA's Form 10-K for the fiscal year ended March 31, 2021.

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,
		2021			2020			2021			2020
Net revenue			1,789				1,673				5,166				4,283
Cost of revenue			631				601				1,440				1,175
Gross profit			1,158				1,072				3,726				3,108
Operating expenses:
Research and development			539				451				1,607				1,310
Marketing and sales			293				216				716				493
General and administrative			163				149				508				418
Amortization of intangibles			61				5				131				16
Total operating expenses			1,056				821				2,962				2,237
Operating income			102				251				764				871
Interest and other income (expense), net			(11	)			(6	)			(39	)			(19	)
Income before provision for income taxes			91				245				725				852
Provision for income taxes			25				34				161				91
Net income			66				211				564				761
Earnings per share
Basic			0.23				0.73				1.99				2.63
Diluted			0.23				0.72				1.97				2.61
Number of shares used in computation
Basic			283				290				284				289
Diluted			285				292				287				292

Results (in $ millions, except per share data)

The following table reports the variance of the actuals versus our guidance provided on November 3, 2021 for the three months ended December 31, 2021 plus a comparison to the actuals for the three months ended December 31, 2020.

		Three Months Ended December 31,
		2021						2021			2020
		Guidance			Variance			Actuals			Actuals
Net revenue
Net revenue			1,750				39				1,789				1,673
GAAP-based financial data
Change in deferred net revenue (online-enabled games)1			875				(87	)			788				727
Cost of revenue
Cost of revenue			625				6				631				601
GAAP-based financial data
Acquisition-related expenses			(50	)			6				(44	)			-
Stock-based compensation			-				(1	)			(1	)			(1	)
Operating expenses
Operating expenses			1,100				(44	)			1,056				821
GAAP-based financial data
Acquisition-related expenses			(35	)			(26	)			(61	)			(5	)
Stock-based compensation			(135	)			7				(128	)			(110	)
Income before tax
Income before tax			8				83				91				245
GAAP-based financial data
Acquisition-related expenses			85				20				105				5
Change in deferred net revenue (online-enabled games)1			875				(87	)			788				727
Stock-based compensation			135				(6	)			129				111
Tax rate used for management reporting			18	%				18	%			18	%
Earnings per share
Basic			0.02				0.21				0.23				0.73
Diluted			0.02				0.21				0.23				0.72
Number of shares
Basic			284				(1	)			283				290
Diluted			287				(2	)			285				292

1

The change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of cash flows does not necessarily equal the change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of operations primarily due to the impact of unrecognized gains/losses on cash flow hedges.

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(in $ millions)

		December 31, 2021			March 31, 20212
ASSETS
Current assets:
Cash and cash equivalents			2,670				5,260
Short-term investments			346				1,106
Receivables, net			965				521
Other current assets			377				326
Total current assets			4,358				7,213
Property and equipment, net			522				491
Goodwill			5,389				2,868
Acquisition-related intangibles, net			1,052				309
Deferred income taxes, net			2,130				2,045
Other assets			479				362
TOTAL ASSETS			13,930				13,288
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable			86				96
Accrued and other current liabilities			1,443				1,341
Deferred net revenue (online-enabled games)			2,101				1,527
Total current liabilities			3,630				2,964
Senior notes, net			1,878				1,876
Income tax obligations			326				315
Deferred income taxes, net			75				43
Other liabilities			404				250
Total liabilities			6,313				5,448
Stockholders' equity:
Common stock			3				3
Retained earnings			7,608				7,887
Accumulated other comprehensive income (loss)			6				(50	)
Total stockholders' equity			7,617				7,840
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY			13,930				13,288

2	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,
		2021			2020			2021			2020
OPERATING ACTIVITIES
Net income			66				211				564				761
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion			146				46				345				123
Stock-based compensation			129				111				403				326
Change in assets and liabilities
Receivables, net			56				(348	)			(390	)			(309	)
Other assets			(24	)			85				(75	)			(28	)
Accounts payable			(51	)			(77	)			(9	)			29
Accrued and other liabilities			433				341				183				245
Deferred income taxes, net			-				14				(140	)			(18	)
Deferred net revenue (online-enabled games)			779				741				574				434
Net cash provided by operating activities			1,534				1,124				1,455				1,563
INVESTING ACTIVITIES
Capital expenditures			(48	)			(30	)			(135	)			(93	)
Proceeds from maturities and sales of short-term investments			65				670				1,193				2,088
Purchase of short-term investments			(69	)			(640	)			(438	)			(2,056	)
Acquisitions, net of cash acquired			3				-				(3,391	)			-
Net cash used in investing activities			(49	)			-				(2,771	)			(61	)
FINANCING ACTIVITIES
Proceeds from issuance of common stock			3				13				44				56
Cash dividends paid			(48	)			(49	)			(145	)			(49	)
Cash paid to taxing authorities for shares withheld from employees			(72	)			(67	)			(193	)			(144	)
Repurchase and retirement of common stock			(325	)			(326	)			(975	)			(404	)
Net cash used in financing activities			(442	)			(429	)			(1,269	)			(541	)
Effect of foreign exchange on cash and cash equivalents			(3	)			18				(5	)			43
Change in cash and cash equivalents			1,040				713				(2,590	)			1,004
Beginning cash and cash equivalents			1,630				4,059				5,260				3,768
Ending cash and cash equivalents			2,670				4,772				2,670				4,772

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

(in $ millions, except per share data)

		Q3			Q4			Q1			Q2			Q3			YOY%
		FY21			FY21			FY22			FY22			FY22			Change
Net revenue
Net revenue			1,673				1,346				1,551				1,826				1,789				7	%
GAAP-based financial data
Change in deferred net revenue (online-enabled games)1			727				144				(215	)			25				788
Gross profit
Gross profit			1,072				1,027				1,236				1,332				1,158				8	%
Gross profit (as a % of net revenue)			64	%			76	%			80	%			73	%			65	%
GAAP-based financial data
Acquisition-related expenses			-				4				22				22				44
Change in deferred net revenue (online-enabled games)1			727				144				(215	)			25				788
Stock-based compensation			1				1				1				2				1
Operating income
Operating income			251				175				322				340				102				(59	%)
Operating income (as a % of net revenue)			15	%			13	%			21	%			19	%			6	%
GAAP-based financial data
Acquisition-related expenses			5				18				62				52				105
Change in deferred net revenue (online-enabled games)1			727				144				(215	)			25				788
Stock-based compensation			111				109				125				149				129
Net income
Net income			211				76				204				294				66				(69	%)
Net income (as a % of net revenue)			13	%			6	%			13	%			16	%			4	%
GAAP-based financial data
Acquisition-related expenses			5				18				62				52				105
Change in deferred net revenue (online-enabled games)1			727				144				(215	)			25				788
Stock-based compensation			111				109				125				149				129
Tax rate used for management reporting			18	%			18	%			18	%			18	%			18	%
Diluted earnings per share			0.72				0.26				0.71				1.02				0.23				(68	%)
Number of diluted shares used in computation
Basic			290				288				286				285				283
Diluted			292				290				289				287				285

1

The change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of cash flows does not necessarily equal the change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of operations primarily due to the impact of unrecognized gains/losses on cash flow hedges.

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

(in $ millions)

		Q3			Q4			Q1			Q2			Q3			YOY %
		FY21			FY21			FY22			FY22			FY22			Change
QUARTERLY NET REVENUE PRESENTATIONS
Net revenue by composition
Full game downloads			347				185				233				337				400				15	%
Packaged goods			375				65				89				280				216				(42	%)
Full game			722				250				322				617				616				(15	%)
Live services and other			951				1,096				1,229				1,209				1,173				23	%
Total net revenue			1,673				1,346				1,551				1,826				1,789				7	%
Full game			43	%			19	%			21	%			34	%			34	%
Live services and other			57	%			81	%			79	%			66	%			66	%
Total net revenue %			100	%			100	%			100	%			100	%			100	%
GAAP-based financial data
Full game downloads			53				(19	)			(5	)			35				179
Packaged goods			83				(44	)			(35	)			44				105
Full game			136				(63	)			(40	)			79				284
Live services and other			591				207				(175	)			(54	)			504
Total change in deferred net revenue (online-enabled games) by composition			727				144				(215	)			25				788
Net revenue by platform
Console			1,191				879				972				1,198				1,138				(4	%)
PC & Other			326				295				361				377				374				15	%
Mobile			156				172				218				251				277				78	%
Total net revenue			1,673				1,346				1,551				1,826				1,789				7	%
GAAP-based financial data
Console			619				71				(278	)			(29	)			608
PC & Other			73				51				9				26				137
Mobile			35				22				54				28				43
Total change in deferred net revenue (online-enabled games) by platform1			727				144				(215	)			25				788

1

The change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of cash flows does not necessarily equal the change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of operations primarily due to the impact of unrecognized gains/losses on cash flow hedges.

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

(in $ millions)

		Q3 FY21			Q4 FY21			Q1 FY22			Q2 FY22			Q3 FY22			YOY % Change
CASH FLOW DATA
Operating cash flow			1,124				371				(143	)			64				1,534				36	%
Operating cash flow-TTM			2,061				1,934				1,413				1,416				1,826				(11	%)
Capital expenditures			30				31				44				43				48				60	%
Capital expenditures-TTM			133				124				130				148				166				25	%
Repurchase and retirement of common stock			326				325				325				325				325				-	%
Cash dividends paid			49				49				49				48				48				(2	%)
DEPRECIATION
Depreciation expense			37				38				40				39				41				11	%
BALANCE SHEET DATA
Cash and cash equivalents			4,772				5,260				2,838				1,630				2,670
Short-term investments			1,938				1,106				881				342				346
Cash and cash equivalents, and short-term investments			6,710				6,366				3,719				1,972				3,016				(55	%)
Receivables, net			778				521				557				1,031				965				24	%
STOCK-BASED COMPENSATION
Cost of revenue			1				1				1				2				1
Research and development			74				71				85				101				86
Marketing and sales			11				12				12				15				14
General and administrative			25				25				27				31				28
Total stock-based compensation			111				109				125				149				129