Electronic Arts(EA)2024-02-05 16:00Revenue Performance - Total net revenue for the fiscal quarter ended December 31, 2023 was 1,327 million, up 5% year-over-year[130] - Net revenue for Q3 2023 was 64 million increase compared to Q3 2022[166] - Net revenue for the nine months ended December 31, 2023 was 618 million, a 1% decrease from Q3 2022, primarily due to the prior year release of Need for Speed Unbound and a decline in the global football franchise, partially offset by Star Wars Jedi: Survivor[168] - Live services and other net revenue for Q3 2023 was 117 million (7%) to 114 million (3%) to 2,366 million, driven by sales of EA SPORTS FC 24, EA SPORTS Madden NFL 24, Apex Legends, and The Sims 4[141] - Live services and other net bookings increased by 1,712 million for the three months ended December 31, 2023[141] - Full game net bookings decreased by 654 million for the three months ended December 31, 2023[141] - Digital full game downloads accounted for 68% of total units sold in fiscal year 2023, up from 65% in 2022[133] - Full game downloads revenue for Q3 2023 was 187 million[167] Gross Margin and Profitability - Gross margin increased to 72.8%, up 3 percentage points year-over-year[130] - Net income was 1.07[130] - The effective tax rate for the nine months ended December 31, 2023 was 18%, lower than the 29% in the same period in 2022, due to a one-time tax benefit and R&D capitalization guidance[187][188] Cash Flow and Financial Position - Net cash provided by operating activities was 318 million to 802 million to 933 million in 2022, driven by higher collections and lower tax payments[192][193] - Net cash used in investing activities decreased by 158 million in 2023, primarily due to a 22 million to 1,129 million to stockholders in 2023, including 154 million in dividends[200] Revenue Recognition and Accounting Policies - Revenue from Games with Services is allocated 75% to software license and 25% to future update rights and online hosting, recognized ratably over the Estimated Offering Period[146] - Revenue from Online-Hosted Service Games is recognized as the service is provided, with one distinct performance obligation: online hosting[147] - Revenue from extra content is accounted for similarly to Games with Services if it has offline functionality, otherwise as one distinct performance obligation: online-hosted service[148] - Subscription revenue is recognized ratably over the subscription term as the performance obligation is satisfied[149] - Licensing revenue includes fixed minimum guarantees and sales-based royalties, recognized upon commercial launch and ratably over the contractual term for future update rights[149] - Revenue for service-related performance obligations is recognized over an estimated 8-month period for digitally-distributed games, 10-month period for retail games, and 12-month period for PC and console free-to-play games[155] Expenses and Costs - Cost of revenue decreased by 89 million (5%) during the nine months ended December 31, 2023, primarily due to higher personnel-related costs and stock-based compensation[181] - Marketing and sales expenses increased by 8 million (5%) during the three months ended December 31, 2023, primarily due to higher personnel-related costs[186] Foreign Currency and Hedging - The strengthening of the U.S. dollar negatively impacts the company's reported international net revenue, particularly against currencies like the Euro, British pound sterling, Australian dollar, Japanese yen, Chinese yuan, South Korean won, and Polish zloty[205] - The company uses foreign currency hedging contracts to mitigate some foreign currency exchange risk, but these activities are limited in protection and can result in losses[205] - A hypothetical adverse foreign currency exchange rate movement of 10% or 20% would result in potential declines in the fair value of foreign currency forward contracts used in cash flow hedging of 393 million, respectively, as of December 31, 2023[208] - A hypothetical adverse foreign currency exchange rate movement of 10% or 20% would result in potential losses in the Condensed Consolidated Statements of Operations on foreign currency forward contracts used in balance sheet hedging of 405 million, respectively, as of December 31, 2023[208] Investments and Financial Instruments - Short-term investments had gross unrealized gains of less than 3 million, or 1%, decrease in the fair market value of the company's short-term investments as of December 31, 2023[212] - A hypothetical 150 basis point increase in interest rates would result in a 750 million in 2031 Notes with a 1.98% interest rate and 500 million unsecured revolving credit facility was established on March 22, 2023, with no amounts outstanding as of December 31, 2023[198] Capital Expenditures and Shareholder Returns - Capital expenditures are expected to be approximately 1,129 million to stockholders in 2023, including 154 million in dividends[200] Internal Controls and Risk Management - The company's Chief Executive Officer and Chief Financial Officer believe that the disclosure controls and procedures were effective as of the end of the period covered by the report[214] - There has been no change in the company's internal controls over financial reporting that has materially affected or is reasonably likely to materially affect the internal control over financial reporting during the fiscal quarter ended December 31, 2023[215] - The company's system of disclosure controls and procedures has inherent limitations, including the possibility of human error, circumvention or overriding of controls, and reasonable resource constraints[216]