Electronic Arts(EA) - 2026 Q1 - Quarterly Report

Part I - FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) Electronic Arts reported slightly increased net revenue but decreased net income, EPS, assets, and operating cash flow Condensed Consolidated Statements of Operations (Q1 FY26 vs Q1 FY25) | (In millions, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net revenue | $1,671 | $1,660 | | Gross profit | $1,392 | $1,397 | | Operating income | $271 | $364 | | Net income | $201 | $280 | | Diluted EPS | $0.79 | $1.04 | Condensed Consolidated Balance Sheets | (In millions) | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,518 | $2,136 | | Total current assets | $2,545 | $3,276 | | Total Assets | $11,699 | $12,368 | | Deferred net revenue (current) | $1,334 | $1,700 | | Total current liabilities | $3,040 | $3,459 | | Total Liabilities | $5,617 | $5,982 | | Total Stockholders' Equity | $6,082 | $6,386 | Condensed Consolidated Statements of Cash Flows (Q1 FY26 vs Q1 FY25) | (In millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17 | $120 | | Net cash used in investing activities | ($89) | ($69) | | Net cash used in financing activities | ($568) | ($546) | | Net decrease in cash and cash equivalents | ($618) | ($500) | - The company completed one non-material acquisition during the quarter, resulting in a slight increase in goodwill to $5.39 billion[41] - In May 2024, a new $5.0 billion stock repurchase program was authorized, superseding the previous program. During the quarter, the company repurchased 3.0 million shares for approximately $375 million[86][88] - Revenue from live services and other was $1,382 million, while full game revenue was $289 million. Console remains the largest platform, generating $1,007 million in revenue[96][97] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue and operating income trends, net bookings growth, and a revenue recognition policy update - Key financial results for the quarter ended June 30, 2025: - Total net revenue: $1,671 million (+1% YoY) - Live services and other net revenue: $1,382 million (-2% YoY) - Operating income: $271 million (-26% YoY) - Net cash from operations: $17 million (-86% YoY) - Returned $423 million to stockholders ($375M buyback, $48M dividend)[113] Net Bookings (Q1 FY26 vs Q1 FY25) | (In millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net revenue | $1,671 | $1,660 | | Change in deferred net revenue | ($373) | ($398) | | Net bookings | $1,298 | $1,262 | - Net bookings increased by 3% YoY, driven by Split Fiction and the global football franchise, partially offset by a decrease in Apex Legends extra content sales[116] - The company completed its annual evaluation of the Estimated Offering Period for revenue recognition. For new sales starting Q2 FY26, revenue for mobile and PC/console free-to-play games will be recognized over a unified eleven-month period. This change is expected to shift approximately $81 million in net revenue from FY2026 to FY2027[133] - The company returned $423 million to stockholders during the quarter through $375 million in share repurchases and $48 million in dividends[171] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency and interest rates, impacting fair values of hedges and investments - The company hedges a portion of its foreign currency risk related to forecasted sales and expenses. A hypothetical 10% adverse foreign currency exchange rate movement would result in potential declines of $236 million in the fair value of cash flow hedges[178][181] - For balance sheet hedging, a hypothetical 10% adverse currency movement would result in potential losses of $106 million in the Condensed Consolidated Statements of Operations[181] - Interest rate risk exposure is primarily in the short-term investment portfolio. A hypothetical 150 basis point increase in interest rates would result in a $1 million (1%) decrease in the fair market value of these investments[184] Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period[186] - There were no changes in internal controls over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[187] Part II - OTHER INFORMATION Legal Proceedings The company is subject to ordinary course litigation, which management does not expect to materially affect financial statements - The company is subject to claims and litigation arising in the ordinary course of business, which are not expected to have a material adverse effect on its financial statements[71][191] Risk Factors The company faces significant strategic, operational, legal, and financial risks, including competition, cybersecurity, and regulatory issues - Strategic Risks: - Intense competition from established and emerging companies - Significant revenue concentration in a few popular franchises, such as EA SPORTS FC - Potential for product development delays to miss key selling periods - Failure to anticipate or adapt to new technologies like AI and evolving business models[193][195][196] - Operational Risks: - Vulnerability to security breaches and sophisticated cyber-attacks, including ransomware and exploits of in-game virtual economies - Potential for outages and disruptions in IT infrastructure and cloud services - Intense competition for attracting and retaining key executive, technical, and creative talent[212][215][216][218] - Legal & Compliance Risks: - Subject to complex and evolving global laws regarding consumer protection, online safety, and data privacy - Scrutiny of business models involving virtual items and currency - Risk of infringing on third-party intellectual property rights[223][224][228] - Financial Risks: - Exposure to foreign currency fluctuations, as international revenue comprised 59% of total net revenue in FY25 - Obligations and covenants related to outstanding senior notes and a revolving credit facility - Potential for changes in tax rates or exposure to additional tax liabilities, particularly in the U.S. and Switzerland[232][233][235] Unregistered Sales of Equity Securities and Use of Proceeds The company authorized a new $5.0 billion stock repurchase program and repurchased approximately 3.0 million shares during the quarter - In May 2024, a new stock repurchase program was authorized for up to $5.0 billion stock repurchase program, expiring May 9, 2027[243] Share Repurchases for the Three Months Ended June 30, 2025 | Fiscal Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Mar 30 - Apr 26, 2025 | 1,244,547 | N/A (Mix of ASR & Open Market) | | Apr 27 - May 24, 2025 | 805,982 | $150.09 | | May 25 - Jun 28, 2025 | 933,455 | $149.03 | | Total | 2,983,984 | | - The maximum dollar value that may still be purchased under the program as of June 28, 2025, was $2,277 million[244] Other Information Three executives adopted Rule 10b5-1 trading plans to manage their personal holdings of EA common stock - Three executives adopted Rule 10b5-1 trading plans during the quarter: Jacob J. Schatz (EVP, Global Affairs), Mala Singh (Chief People Officer), and Stuart Canfield (CFO)[246] Exhibits This section lists exhibits filed or incorporated by reference as part of the Form 10-Q report - The exhibits listed in the exhibit index are filed or incorporated by reference as part of the report[247]