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Electronic Arts Revenue Drops 11 %

by Rainier on Feb. 2, 2006 @ 5:32 p.m. PST

EA released its 3rd quarter ended Dec 31, 2005 and over all net revenue dropped 11%, resulting in a 31% profit drop. NFS Most Wanted, FIFA 06 Harry Potter, Sims 2 and Madden NFL 06 each sold over two million copies in the quarter, while NBA Live 06, SSX On Tour, Tiger PGA TOUR 06, From Russia with Love and BF2: Modern Combat sold over one million copies.

Net revenue was $1.270 billion, down 11 percent as compared with $1.428 billion for the fiscal quarter ended December 31, 2004. Sales were driven by Need for Speed Most Wanted, FIFA 06, Harry Potter and the Goblet of Fire, The Sims 2 and Madden NFL 06, each selling over two million copies in the quarter. NBA Live 06, SSX On Tour, Tiger PGA TOUR(R) 06, From Russia with Love and Battlefield 2: Modern Combat also had strong sales, each selling over one million copies in the quarter.

Net income for the quarter was $259 million as compared with $375 million for the prior year. Diluted earnings per share were $0.83 as compared with $1.18 for the prior year.

Non-GAAP net income for the quarter, excluding certain items, was $268 million as compared with $391 million a year ago. Non-GAAP diluted earnings per share were $0.86 as compared with $1.23 for the prior year. (Please see Non-GAAP Financial Measures and reconciliation information included in this release.)

Trailing twelve month operating cash flow was $733 million as compared with $722 million for the same period a year ago.

"We ended 2005 in a very strong competitive position," said Larry Probst, Chairman and Chief Executive Officer. "We were number one on the PlayStation 2, the Xbox, PSP and PC in both North America and Europe. We also had a successful launch on the Xbox 360 and expect that we will be the number one publisher on this platform in 2006."

"Calendar 2006 will be a year of investment ahead of revenues," said Warren Jenson, Chief Financial and Administrative Officer. "Our resources will be focused on next-generation software and the global expansion of our online and mobile businesses."

Current Highlights (comparisons are to the quarter ended December 31, 2004, unless otherwise stated)

  • Net revenue for the quarter: North America down 11 percent to $618 million; Europe down 13 percent to $577 million; Asia, including Japan, up 7 percent to $75 million. Reported net revenue decreased by $21 million or one percent due to changes in foreign currency rates.
  • Need for Speed Most Wanted sold over seven million copies in the quarter with over 60 percent sold internationally.
  • EA launched five Xbox 360 titles in the quarter resulting in 30 percent revenue share in North America and 24 percent in Europe.
  • Six titles reached platinum status in the quarter, bringing EA's total for the calendar year to 27.
  • EA had 22 percent revenue share in North America and 23 percent revenue share in Europe.
  • EA had four of the top 10 titles in North America and six of the top 10 titles in Europe in 2005 - Madden NFL 06 was the #1 title in North America and Need for Speed Most Wanted was the #1 title in Europe.
  • EA signed an agreement with Twentieth Century Fox and Gracie Films to bring The Simpsons to next generation consoles.
  • The Company's exclusive license with Tiger Woods was extended for six years.
  • EA entered into a definitive merger agreement with JAMDAT under which EA will pay $27 per share in cash in exchange for each share of JAMDAT common stock.

Business Outlook

The following forward-looking statements reflect expectations as of February 2, 2006. Results may be materially different and are affected by many factors, such as consumer spending trends, the popular appeal of EA's products, development delays, current-generation and next-generation hardware availability, timely release of next-generation hardware platforms, the seasonal and cyclical nature of the interactive entertainment industry, the overall economy, competition, changes in foreign exchange rates, EA's effective tax rate, and other factors detailed in this release and EA's annual and quarterly SEC filings.

Fiscal Fourth Quarter Expectations Ending March 31, 2006

  • Net revenue is expected to be between $550 and $600 million.
  • Non-GAAP diluted earnings per share are expected to be between $0.06 and $0.14.
  • GAAP net loss per share is expected to be between ($0.15) and ($0.23). This range includes $0.17 of estimated acquisition-related charges associated with the likely closing of the JAMDAT transaction, $0.09 related to the possible decision to repatriate up to $500 million in foreign earnings under the American Jobs Creation Act of 2004, and $0.04 of estimated charges related to the reorganization and establishment of an International Publishing headquarters in Geneva and other restructuring activities.

Non-GAAP Financial Measures

Electronic Arts uses non-GAAP measures of operating income, net income and diluted earnings per share. These non-GAAP measures exclude the following items, including any related tax effect, from the Company's statement of operations:

  • Amortization of intangibles
  • Employee stock-based compensation
  • Restructuring and asset impairment charges
  • Acquired in-process technology and other acquisition-related charges
  • Certain non-recurring litigation expenses
  • Other-than-temporary impairment of investments in affiliates

In addition, the Company's non-GAAP results exclude the impact of one-time tax adjustments.

Other significant non-recurring items may occur from time to time that require an adjustment to these non-GAAP measures. When these items occur, the accounting impact will become a reconciling item between the GAAP results and these non-GAAP measures.

The Company believes that excluding these items is useful for illustrating and explaining operating results and comparisons to prior periods. Management considers these non-GAAP measures in its decision-making to facilitate more relevant operating comparisons.

A reconciliation of GAAP operating income to non-GAAP operating income; GAAP net income to non-GAAP net income; and GAAP diluted earnings per share to non-GAAP diluted earnings per share is included as part of the supplemental disclosures to this release.

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