Electronic Arts(EA) - 2024 Q1 - Quarterly Report

Financial Performance - Total net revenue for the fiscal quarter ended June 30, 2023, was $1,924 million, representing a 9% year-over-year increase[124]. - Operating income increased by 23% year-over-year to$ 542 million, while net income was $402 million with diluted earnings per share of$ 1.47[124]. - Net cash provided by operating activities was $359 million, a significant increase of 560% year-over-year[124]. - Net revenue for the three months ended June 30, 2023, was$ 1,924 million, an increase of $157 million or 9% compared to the same period in 2022[161]. - Full game net revenue for the three months ended June 30, 2023, was$ 443 million, up $102 million or 30% year-over-year, driven by the release of Star Wars Jedi: Survivor and FIFA 23[163]. - Live services and other net revenue for the three months ended June 30, 2023, was$ 1,481 million, an increase of $55 million or 4% compared to the same period in 2022, primarily due to sales of extra content for FIFA Ultimate Team[164]. - Full game downloads generated$ 301 million in revenue for the three months ended June 30, 2023, a 27% increase from $237 million in the same period last year[162]. - Packaged goods revenue was$ 142 million for the three months ended June 30, 2023, reflecting a 37% increase from $104 million in the prior year[162]. Bookings and Revenue Recognition - Net bookings for the three months ended June 30, 2023, were$ 1,578 million, an increase of $279 million or 21% compared to the same period in 2022[136]. - Live services and other net bookings were$ 1,177 million, up $43 million or 4% year-over-year, primarily driven by sales of extra content for FIFA Ultimate Team[136]. - The company recognizes revenue from subscriptions ratably over the subscription term as the performance obligation is satisfied[144]. - Revenue for service-related performance obligations for digitally-distributed games is recognized over an estimated eight-month period beginning in the month of sale[150]. - The company evaluates sales to end customers via third-party storefronts to determine if revenue should be reported gross or net of fees retained by the storefront[151]. Expenses and Costs - Cost of revenue increased by$ 54 million, or 17%, to $368 million for the three months ended June 30, 2023, compared to$ 314 million for the same period in 2022[167]. - Research and development expenses rose by $24 million, or 4%, to$ 596 million for the three months ended June 30, 2023, primarily due to a $12 million increase in stock-based compensation[168]. - Marketing and sales expenses decreased by$ 5 million, or 2%, to $229 million for the three months ended June 30, 2023, mainly due to a reduction in personnel-related costs[170]. - General and administrative expenses decreased by$ 4 million, or 2%, to $163 million for the three months ended June 30, 2023, primarily due to a decrease in stock-based compensation[173]. Cash Flow and Capital Management - Net cash provided by operating activities increased by$ 437 million to $359 million for the three months ended June 30, 2023, compared to a net cash outflow of$ 78 million in the same period in 2022[176]. - Total cash and cash equivalents decreased by $165 million to$ 2,259 million as of June 30, 2023, from $2,424 million as of March 31, 2023[175]. - The company returned$ 377 million to stockholders during the three months ended June 30, 2023, through share repurchases and dividends[182]. - As of June 30, 2023, approximately $1,165 million of cash and cash equivalents were domiciled in foreign tax jurisdictions, available for repatriation without a material tax cost[182]. Tax and Deferred Assets - The effective tax rate for the three months ended June 30, 2023, was 28%, down from 29% in the same period in 2022, due to a higher proportion of non-U.S. income in lower tax jurisdictions[174]. - The company recognizes deferred tax assets and liabilities based on expected future tax benefits and the impact of differences between financial statement amounts and tax bases[152]. Strategic Plans and Future Outlook - The company plans to transition its global football franchise to the new EA SPORTS FC brand starting in fiscal year 2024, aiming to create the largest football club in the world[131]. - The 2023 Restructuring Plan aims to prioritize investments in growth opportunities and optimize the real estate portfolio, expected to be substantially complete by September 30, 2023[134]. - Capital expenditures are expected to be approximately$ 275 million in fiscal year 2024, primarily for facility buildouts[181]. Risk Management - The company manages interest rate risk through a short-term investment portfolio primarily consisting of high credit quality debt instruments[194]. - The company employs foreign currency forward contracts to hedge anticipated exposures related to foreign currency-denominated sales and expenses[190]. - The company believes that the risk of counterparty nonperformance in foreign currency forward contracts is not material, but market disruptions could affect this[191]. - As of June 30, 2023, a hypothetical 150 basis point increase in interest rates would have resulted in a $2 million, or 1% decrease in the fair market value of short-term investments[196]. - As of June 30, 2023, a hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in potential declines in the fair value of foreign currency forward contracts used in cash flow hedging of$ 210 million[192]. - A hypothetical adverse foreign currency exchange rate movement of 20% would have resulted in potential declines of $419 million in the same contracts[192]. - For balance sheet hedging, a 10% adverse movement would lead to potential losses of$ 101 million, while a 20% movement would result in losses of $202 million[192]. Internal Controls and Compliance - The effectiveness of the company's disclosure controls and procedures was evaluated as effective by the CEO and CFO as of the end of the reporting period[198]. - There were no changes in internal controls over financial reporting that materially affected the company during the fiscal quarter ended June 30, 2023[199]. - The company does not hedge its short-term investment portfolio against market price risk relating to marketable equity securities[188].