Electronic Arts Reports Q4 FY17 and Full Year FY17 Financial

Electronic Arts Reports Q4 FY17 and Full Year FY17 Financial Results

Results (in $ millions, except per share data)

The following table reports the variance of the actuals versus our guidance for the three months ended March 31, 2017 plus a comparison to the actuals for the three months ended March 31, 2016.

	Three Months Ended March 31,
	2017				2017		2016
	Guidance		Variance		Actuals		Actuals
Net revenue
Net revenue	1,482		45		1,527		1,308
GAAP-based financial data
Change in deferred net revenue (online-enabled games)	(407	)	(28	)	(435	)	(384	)
Cost of revenue
Cost of revenue	242		(40	)	202		226
GAAP-based financial data
Acquisition-related expenses	—		—		—		(12	)
Stock-based compensation	—		(1	)	(1	)	(1	)
Operating expenses
Operating expenses	591		17		608		546
GAAP-based financial data
Acquisition-related expenses	(1	)	—		(1	)	(1	)
Stock-based compensation	(50	)	(1	)	(51	)	(46	)
Income before tax
Income before tax	641		75		716		526
GAAP-based financial data
Acquisition-related expenses	1		—		1		13
Amortization of debt discount and loss on conversion of notes	—		—		—		5
Change in deferred net revenue (online-enabled games)	(407	)	(28	)	(435	)	(384	)
Stock-based compensation	50		2		52		47
Tax rate used for management reporting	21	%			21	%	22	%
Earnings per share
Basic	1.66		0.18		1.84		2.93
Diluted	1.64		0.17		1.81		2.79
Number of shares
Basic	309		(1	)	308		307
Diluted	313		(1	)	312		322


ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in $ millions)

	March 31, 2017		March 31, 2016 ¹
ASSETS
Current assets:
Cash and cash equivalents	2,565		2,493
Short-term investments	1,967		1,341
Receivables, net of allowances of $145 and $159, respectively	359		233
Other current assets	308		287
Total current assets	5,199		4,354
Property and equipment, net	434		439
Goodwill	1,707		1,710
Acquisition-related intangibles, net	8		57
Deferred income taxes, net	286		387
Other assets	84		103
TOTAL ASSETS	7,718		7,050
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	87		89
Accrued and other current liabilities	789		710
0.75% convertible senior notes due 2016, net	—		161
Deferred net revenue (online-enabled games)	1,539		1,458
Total current liabilities	2,415		2,418
Senior notes, net	990		989
Income tax obligations	104		80
Deferred income taxes, net	1		2
Other liabilities	148		163
Total liabilities	3,658		3,652
0.75% convertible senior notes due 2016	—		2
Stockholders’ equity:
Common stock	3		3
Additional paid-in capital	1,049		1,349
Retained earnings	3,027		2,060
Accumulated other comprehensive loss	(19	)	(16	)
Total stockholders’ equity	4,060		3,396
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	7,718		7,050

¹ Derived from audited consolidated financial statements.


ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in $ millions)

	Three Months Ended March 31,				Twelve Months Ended March 31,
	2017		2016		2017		2016 ¹
OPERATING ACTIVITIES
Net income	566		899		967		1,156
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	32		48		172		197
Stock-based compensation	52		47		196		178
Loss on conversion of convertible notes	—		2		—		10
Change in assets and liabilities:
Receivables, net	231		395		(136	)	127
Other assets	(37	)	(14	)	3		22
Accounts payable	11		(57	)	5		13
Accrued and other liabilities	(116	)	(128	)	(5	)	(252	)
Deferred income taxes, net	100		(409	)	100		(403	)
Deferred net revenue (online-enabled games)	(432	)	(387	)	81		175
Net cash provided by operating activities	407		396		1,383		1,223
INVESTING ACTIVITIES
Capital expenditures	(29	)	(30	)	(123	)	(93	)
Proceeds from maturities and sales of short-term investments	313		234		1,281		941
Purchase of short-term investments	(545	)	(605	)	(1,917	)	(1,332	)
Net cash (used in) investing activities	(261	)	(401	)	(759	)	(484	)
FINANCING ACTIVITIES
Proceeds from issuance of senior notes, net of issuance costs	—		989		—		989
Payment of convertible notes	—		(177	)	(163	)	(470	)
Proceeds from issuance of common stock	39		21		72		107
Excess tax benefit from stock-based compensation	12		13		65		86
Repurchase and retirement of common stock	(125	)	(634	)	(508	)	(1,018	)
Net cash provided by (used in) financing activities	(74	)	212		(534	)	(306	)
Effect of foreign exchange on cash and cash equivalents	10		23		(18	)	(8	)
Increase in cash and cash equivalents	82		230		72		425
Beginning cash and cash equivalents	2,483		2,263		2,493		2,068
Ending cash and cash equivalents	2,565		2,493		2,565		2,493

¹ Derived from audited consolidated financial statements.


ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in $ millions, except per share data)

	Q4		Q1		Q2		Q3		Q4		YOY %
	FY16		FY17		FY17		FY17		FY17		Change
Net revenue
Net revenue	1,308		1,271		898		1,149		1,527		17	%
GAAP-based financial data
Change in deferred net revenue (online-enabled games) ³	(384	)	(589	)	200		921		(435	)
Gross profit
Gross profit	1,082		1,092		497		633		1,325		22	%
GAAP-based financial data
Acquisition-related expenses	12		13		12		18		—
Change in deferred net revenue (online-enabled games) ³	(384	)	(589	)	200		921		(435	)
Stock-based compensation	1		1		1		—		1
Gross profit % (as a % of net revenue)	83	%	86	%	55	%	55	%	87	%
Operating income
Operating income (loss)	536		560		(49	)	(4	)	717		34	%
GAAP-based financial data
Acquisition-related expenses	13		15		13		20		1
Change in deferred net revenue (online-enabled games) ³	(384	)	(589	)	200		921		(435	)
Stock-based compensation	47		48		48		48		52
Operating income (loss) % (as a % of net revenue)	41	%	44	%	(5	%)	—		47	%
Net income
Net income (loss)	899		440		(38	)	(1	)	566		(37	%)
GAAP-based financial data
Acquisition-related expenses	13		15		13		20		1
Amortization of debt discount and loss on conversion of notes	5		2		—		—		—
Change in deferred net revenue (online-enabled games) ³	(384	)	(589	)	200		921		(435	)
Stock-based compensation	47		48		48		48		52
Tax rate used for management reporting	22	%	21	%	21	%	21	%	21	%
Net income (loss) % (as a % of net revenue)	69	%	35	%	(4	%)	—		37	%
Diluted earnings (loss) per share
Earnings (loss) per share	2.79		1.40		(0.13	)	(0.00	)	1.81		(35	%)
Number of diluted shares used in computation
Basic	307		301		301		303		308
Diluted	322		315		301		303		312
Anti-dilutive shares excluded for loss position ²	—		—		13		10		—
Shares from convertible bond hedge	(3	)	(2	)	—		—		—

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