Electronic Arts (NASDAQ:ERTS) today announced preliminary financial
results for its fiscal fourth quarter and fiscal year ended March 31,
2008.
Full Year Results
Net revenue for the fiscal year ended March 31, 2008 was $3.665 billion,
up 19 percent as compared with $3.091 billion for the prior year.
Beginning in fiscal 2008, EA no longer charges for its service related
to certain online-enabled packaged goods games. As a result, the Company
recognizes revenue from the sale of these games over the estimated
service period. The Company ended the year with $387 million in deferred
net revenue related to its service for certain online-enabled packaged
goods games, which will be recognized in future periods.
Non-GAAP net revenue1 was $4.020 billion, up
30 percent as compared with $3.091 billion for the prior year.
EA had 27 titles that sold more than one million copies in the year as
compared with 24 titles in the prior year.
Net loss for the year was $454 million as compared with net income of
$76 million for the prior year. Diluted loss per share was $1.45 as
compared with diluted earnings per share of $0.24 for the prior year.
Non-GAAP net income1 was $339 million as
compared with $247 million a year ago, up 37 percent year-over-year.
Non-GAAP diluted earnings per share were $1.06 as compared with $0.78
for the prior year.
Trailing-twelve-month operating cash flow was $338 million as compared
with $397 million a year ago. The Company ended the year with cash and
short-term investments of $2.287 billion.
Fiscal Fourth Quarter Results (comparisons are to the quarter
ended March 31, 2007)
Net revenue for the fourth quarter was $1.127 billion, up 84 percent as
compared with $613 million for the prior year. During the quarter, EA
had a net benefit of $208 million related to the recognition of deferred
net revenue for certain online enabled packaged goods games.
Non-GAAP net revenue1 was $919 million, up 50
percent as compared with $613 million for the prior year. Sales were
driven by the launches of ARMY OF TWO™ and
Burnout™ Paradise as well as the
continued strength of Rock Band™.
Net loss for the quarter was $94 million as compared with a net loss of
$25 million for the prior year. Diluted loss per share was $0.30 as
compared with diluted loss per share of $0.08 for the prior year.
Non-GAAP net income1 was $30 million as
compared with $19 million a year ago. Non-GAAP diluted earnings per
share were $0.09 as compared with $0.06 for the prior year.
“A year ago, we committed to an aggressive
change agenda at EA. Our employees stepped up to the challenge and we
finished fiscal year 2008 with non-GAAP revenue up 30% to $4 billion –
a record for any third-party publisher. Our operating margins were flat
to our prior year. On balance, we’re very
pleased with our revenue growth, but not yet happy with our profit
margins,” said John Riccitiello, Chief
Executive Officer. “In fiscal 2009, we
expect to deliver another $1 billion in revenue growth and to double our
operating profit on the strength of our slate of titles.”
Highlights for the Year (comparisons are to the fiscal year ended
March 31, 2007)
-
In fiscal 2008, EA was the number one publisher across all
platforms in North America with 19 percent share and in Europe with 20
percent share.
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On the Wii™, EA was the number one
third-party publisher in Europe in fiscal 2008 with 15 percent share –
up eight points from a year ago; in North America, EA had 11 percent
share – up one point from a year ago.
-
EA Partners posted its strongest year ever driven by Rock
Band and Half Life® 2: Orange Box.
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EA had 15 double platinum (sold over 2 million copies) titles in
the year – up from ten a year ago.
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The Sims™ franchise sold
over 100 million copies life to date.
-
EA strengthened its wholly-owned portfolio –
by launching six new games – MySims™,
ARMY OF TWO, SKATE, Boogie™, EA Playground™
and Smarty Pants™.
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Burnout Paradise, ARMY OF TWO and the recently
launched Boom Blox™ debuted
with strong quality ratings from critics.
-
Pogo™ has surpassed the $100 million
mark in revenue – growing 41 percent
year-over-year.
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EA signed an agreement with Hasbro for the exclusive rights to
create digital games based upon intellectual properties including
MONOPOLY, SCRABBLE, YAHTZEE, NERF, TONKA and LITTLEST PET SHOP.
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EA acquired BioWare Corp.™ and Pandemic™
Studios in January 2008, adding strong development talent and ten
new franchises.
-
EA’s December 2007 employee
satisfaction survey showed significant improvement over the last
appraisal in 2004. Results included a double-digit gain in employee
engagement.
Business Outlook
The following forward-looking statements, as well as those made above,
reflect expectations as of May 13, 2008. Results may be materially
different and are affected by many factors, including: development
delays on EA’s products; competition in the
industry; changes in anticipated costs, expected savings and impact on EA’s
operations of the Company’s reorganization
plan; consumer demand for console hardware and the ability of the
console manufacturers to produce an adequate supply of consoles to meet
that demand; consumer demand for games for legacy consoles, particularly
the PlayStation®2; the financial impact of
potential future acquisitions by EA, including the potential acquisition
of Take-Two Interactive Software, Inc.; the popular appeal of EA’s
products; changes in foreign exchange rates; the overall global economy;
EA’s effective tax rate; and other factors
detailed in this release and in EA’s annual
and quarterly SEC filings.
Fiscal Year Expectations – Ending March
31, 2009
Beginning in fiscal 2009, the Company will use a long-term normalized
tax rate for evaluating operating performance, as well as planning,
forecasting and analyzing future periods, and assessing the performance
of its management team. Based on its current long-term projections, the
Company intends to use a long-term normalized non-GAAP tax rate of 28
percent.
Conference Call
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 2008 ended
March 31, 2008 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: (877)
856-1960, access code 220497, or via webcast: http://investor.ea.com.
A dial-in replay of the conference call will be provided until May 20,
2008 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.
1 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, if
any, from the Company’s unaudited condensed
consolidated statements of operations:
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Change in deferred net revenue (packaged goods and digital content)
-
Acquisition-related charges
-
Amortization of intangibles
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Certain litigation expenses
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Losses on strategic investments
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Restructuring charges
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Stock-based compensation
-
Income tax adjustments
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.
Beginning in fiscal 2009, the Company will use a long-term normalized
tax rate for evaluating operating performance, as well as planning,
forecasting and analyzing future periods, and assessing the performance
of its management team. Based on its current long-term projections, the
Company intends to use a long-term normalized non-GAAP tax rate of 28
percent.
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
