LONG TERM VALUE CREATION BLAKE JORGENSEN, CFO

Transcription

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2 LONG TERM VALUE CREATION BLAKE JORGENSEN, CFO

3 SAFE HARBOR STATEMENT This presentation contains forward-looking statements that are subject to change. Statements including words such as anticipate, "believe, estimate or expect and statements in the future tense are forward-looking statements. These forwardlooking statements are preliminary estimates and expectations based on current information and are subject to business and economic risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth in the forward-looking statements. Some of the factors which could cause the Company s results to differ materially from its expectations include the following: sales of the Company s titles; the Company s ability to manage expenses; the competition in the interactive entertainment industry; the effectiveness of the Company s sales and marketing programs; timely development and release of the Company s products; the Company s ability to realize the anticipated benefits of acquisitions; the consumer demand for, and the availability of an adequate supply of console hardware units; the Company s ability to predict consumer preferences among competing platforms; the Company s ability to service and support digital product offerings, including managing online security; general economic conditions; and other factors described in the Company s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, These forward-looking statements are valid only as of May 17, forward-looking statements or information. Electronic Arts assumes no obligation to update these 3

4 BUSINESS MODEL ($ IN MILLIONS) Full Game Downloads Subscriptions Extra Content Mobile KEY BUSINESS METRICS % DIGITAL 29.3% GROSS MARGIN 63.1% OPEX $2,245 Packaged OPERATING MARGIN 9.5% EARNINGS $284 FY12 FREE CASH FLOW $105 On a non-gaap basis. See the Appendix for a presentation of the GAAP metrics and a reconciliation. 4

5 BUSINESS MODEL ($ IN MILLIONS) Full Game Downloads Subscriptions Extra Content Mobile KEY BUSINESS METRICS % DIGITAL 55.4% GROSS MARGIN 71.4% OPEX $1,961 Packaged OPERATING MARGIN 28.5% EARNINGS $1,018 FY12 FY16 FREE CASH FLOW $1,130 On a non-gaap basis. See the Appendix for a presentation of the GAAP metrics and a reconciliation. 5

6 BUSINESS MODEL Full Game Downloads Subscriptions Extra Content Mobile Packaged FY12 FY16 FY E On a non-gaap basis. 6

7 FUTURE GROWTH PLATFORM INDEPENDENCE GENRE GEOGRAPHY DIGITAL PLAYER NETWORK 7

8 PLATFORM INDEPENDENCE LIMIT THE IMPACT OF PLATFORM CHANGES Continue to diversify the product mix towards live services to reduce or limit the impact of technology changes Minimize the cost of transition to any new platform with Frostbite Invest to stay ahead of the technology curve 8

9 DIVERSIFIED REVENUE REVENUE OVER TIME ($ IN MILLIONS) 6,000 New Releases 5,000 4,000 $3,793 $4,021 $4,319 $4,566 $4,900 Catalog Mobile 3,000 Live Services 2,000 1,000 Annual Sports and Live Services - FY13 FY14 FY15 FY16 FY17E On a non-gaap basis. See the Appendix for a presentation of the GAAP metrics and a reconciliation. 9

10 Console Gaming Market Size HISTORICAL CONSOLE CYCLES Gen 4 PS4/Xbox One/ Wii U $20B Gen 3 PS3/X360/Wii $15B $10B $5B Gen 1 95-'00 Cycle $27B Gen 2 PS2/Xbox/NGC $51B $105B $0B FY16 FY15 FY14 FY13 FY12 FY11 FY10 FY09 FY08 FY07 FY06 FY05 FY04 FY03 FY02 FY01 FY00 FY99 FY98 FY97 FY96 Note: Market data is based on a calendar year aligned with EA fiscal years for illustrative purposes (e.g., CY2014 = FY2015) Source: NPD, GfK, Famitsu and EA internal estimates 10

11 EA Digital and Packaged Goods Revenue BUSINESS MIX DURING CONSOLE TRANSITIONS Physical Revenue Full Game Downloads Digital Extra Content Subs/Ads/Other Mobile $6B $5B $4.3B $4B $3B $2B $1.7B $0.1B $0.1B $3.0B $0.5B $0.4B $0.9B $0.4B 52% $1B $1.7B $2.8B $2.1B 48% $0B FY02 FY07 FY15 On a non-gaap basis. See the Appendix for a presentation of the GAAP metrics and a reconciliation. 11

12 EA Revenue and R&D Expenses MANAGING THE COST OF TRANSITION EA Net Revenue R&D Expenses % $6B $5B $4.3B $4B $3B $3.0B $2B $1.7B $1B $0B 22% 31% 23% FY02 FY07 FY15 R&D Expenses as % of Net Revenue 12

13 GENRE GROWTH RPG Racing Casual & Other Action Shooter Sports Strategy & Sim Fighting PC/Console Software Market $13.5B 1. Time periods: CY15 for market sizes, EA share calculated over last four years. 2. Revenue models: packaged goods and full game downloads 3. Geo: US + Europe (W. EU and E. EU) Source: NPD, GfK, GSD, and EA internal estimates. 13

14 GENRE GROWTH RPG Racing Casual & Other Action Shooter Sports Strategy & Sim Fighting PC/Console Software Market $13.5B EA Segment Share 1% 18% 67% 10% 33% 22% 3% 2% 1. Time periods: CY15 for market sizes, EA share calculated over last four years. 2. Revenue models: packaged goods and full game downloads 3. Geo: US + Europe (W. EU and E. EU) Source: NPD, GfK, GSD, and EA internal estimates. 14

15 GENRE GROWTH RPG Racing Casual & Other Action Shooter Sports Strategy & Sim Fighting PC/Console Software Market $13.5B $6.2B Opportunity EA Segment Share ACTION SHOOTER 18% 67% 10% 33% 22% 3% 2% Motive Star Wars BioWare Battlefield Battlefront Titanfall 1. Time periods: CY15 for market sizes, EA share calculated over last four years. 2. Revenue models: packaged goods and full game downloads 3. Geo: US + Europe (W. EU and E. EU) Source: NPD, GfK, GSD, and EA internal estimates. 15

16 GEOGRAPHIC GROWTH Total Market Revenue $44.1B Asia (excl. ME) China Japan S. Korea Other Asia Eastern Europe LATAM Middle East THE LANDSCAPE Increased Broadband Penetration Platform Mix Evolving EA Market Revenue 2% 8% 7% 12% EA Consumer Revenue Data Source: 1. Mobile: AppAnnie 2. Console: EA net revenue to consumer revenue conversion from local teams 3. PC F2P: EA China & EA S. Korea Market Size Data Source: NPD, GfK, Famitsu, AppAnnie, and EA internal estimate 16

17 DIGITAL GROWTH FULL-GAME DOWNLOADS EXTRA CONTENT SUBSCRIPTIONS MOBILE 17

18 DIGITAL GROWTH DRIVES GM AND REVENUE Full Game Downloads Subscriptions Mid 70s% Gross Margin Extra Content Mobile 71.4% Packaged 63.1% FY12 FY16 FY E On a non-gaap basis. See the Appendix for a presentation of the GAAP metrics and a reconciliation. 18

19 DOWNLOADS DRIVE MARGINS DIGITAL DOWNLOAD DISK Gross Margin Low to mid-80s% Low to mid-60s% FY12 FY15 FY16 SIGNIFICANT GROWTH POTENTIAL FY16 0% 25% 50% 75% 100% On a non-gaap basis. 19

20 EXTRA CONTENT ACCELERATES TOP LINE GROWTH FY NET REVENUE, NON-GAAP, $MILLIONS FIFA FIFA + FIFA Ultimate Team FY16 corrected for approx. $160M FX headwind

21 EXTRA CONTENT ACCELERATES TOP LINE GROWTH FY NET REVENUE, NON-GAAP, $MILLIONS FIFA FIFA + FIFA Ultimate Team Addition of FIFA Ultimate Team FY16 corrected for approx. $160M FX headwind

22 MONEY TIME GAMES SUBSCRIPTIONS GROWTH SUBSCRIPTIONS ARE A KEY DRIVER OF PROFITABILITY Non-Subscribers Subscribers PLAY MORE GAMES 0% 50% 100% 150% 200% 250% 300% 350% 400% Non-Subscribers Subscribers PLAY FOR LONGER 0% 50% 100% 150% 200% 250% 300% 350% 400% Non-Subscribers Subscribers INVEST MORE 0% 50% 100% 150% 200% 250% 300% 350% 400% Source: EA, EA estimates 22

23 MOBILE GROWTH DIVERSE LONG-LIVED Title 1 Other Title 10 Title 9 Title 8 FY16 Net Revenue by Title Title 2 Title 3 Q3 FY12 4 years and still growing AND GROWING PROFITABLY. Q4 FY16 Title 7 Title 6 Title 5 Title 4 FY12A Mobile Revenue 19% CAGR FY17E On a non-gaap basis. 23

24 EA PLAYER NETWORK EA s OPPORTUNITY TO DRIVE LONG TERM GROWTH A connective tissue for the global gaming population Persistent digital identity across devices Highly-relevant, socially connected Personalized experiences for players around the world 24

25 GROWTH Organic Growth New Genres Competitive Gaming FY16 FY E Geographic Subscriptions Player Network 25

26 INVESTING TO DRIVE GROWTH PRODUCT DEVELOPMENT SALES AND MARKETING G&A 26

27 BUSINESS OPPORTUNITY Full Game Downloads Subscriptions Extra Content Mobile FUTURE OPPORTUNITY % DIGITAL GROSS MARGIN OPEX OPERATING MARGIN Packaged EARNINGS FREE CASH FLOW FY12 FY16 FY E On a non-gaap basis. 27

28 STRONG AND GROWING CASH GENERATION FREE CASH FLOW Returned to shareholders Retained USES OF CASH $1,130 Return to shareholders Fund growth $105 FY12 FY16 FY E 28

29 CONCLUSION STRONG GROWTH: REVENUE, EARNINGS AND CASH GENERATION Engagement-driven strategy Leveraging digital to drive growth and profitability Large untapped growth opportunities Potential to leverage player network 29

30 APPENDIX

31 NON-GAAP FINANCIAL MEASURES Electronic Arts uses certain non-gaap measures of financial performance. The presentation of these non-gaap financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-gaap financial measures used by other companies. The non-gaap financial measures used by Electronic Arts include: non-gaap net revenue, non-gaap gross profit, non-gaap operating income (loss), non-gaap net income (loss) and non-gaap diluted earnings (loss) per share and non-gaap diluted shares. These non-gaap financial measures are adjusted for the items referenced below, as applicable in a given reporting period, from the Company s financial statements. The adjustments to the non-gaap financial measures exclude the following items (other than shares from the Convertible Bond Hedge, which are included): Acquisition-related expenses Amortization of debt discount and loss on conversion of notes Certain non-recurring litigation expenses Change in deferred net revenue (online-enabled games) College football settlement expenses Income tax adjustments Loss (gain) on strategic investments Loss on licensed intellectual property commitment (COGS) Restructuring Shares from convertible bond hedge Stock-based compensation The Company uses a fixed, long-term projected tax rate internally to evaluate its operating performance, to forecast, plan and analyze future periods, and to assess the performance of its management team. Accordingly, the Company applies the same tax rate to its non-gaap financial results. During fiscal year 2016, the Company applied a tax rate of 22 percent to its non-gaap financial results. For fiscal years 2014 and 2015, a 25 percent tax rate was applied, and during fiscal year 2013 and 2012, the Company applied a 28 percent tax rate. Based on a re-evaluation of the Company s fixed, long-term projected tax rate, beginning in fiscal year 2017, the Company will apply a tax rate of 21 percent to its non-gaap financial results. Electronic Arts believes that these non-gaap financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the Company s performance by adjusting for certain items that may not be indicative of the Company s core business, operating results or future outlook. 31

32 FY17 GUIDANCE RECONCILIATION The following table provides a reconciliation of the non-gaap financial measures regarding Electronic Arts FY17 guidance to the nearest comparable GAAP financial measures. These are preliminary estimates and expectations based on current information as of May 10, 2016 and are subject to business and economic risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth herein. The reconciliation provided below reflects rounding and other approximations. In millions, except per share data GAAP Guidance Acquisitionrelated expenses Amortization of Debt Discount and Loss on Conversion of Notes Change in Deferred Net Revenue (onlineenabled games) Shares from Convertible Bond Hedge Stock-Based Compensation Tax Adjustments Non-GAAP Guidance Approximate Digital Net Revenue $ 2, $ 2,900 Approximate Packaged Goods & Other Net Revenue $ 1, $ 2,000 Approximate Net Revenue $ 4, $ 4,900 Approximate Gross Margin % 71.0% 0.7% - 0.8% % Approximate Operating Expense $ 2,306 (6) (200) - $ 2,100 Approximate Tax Expense $ $ 297 Net Income $ (82) $ 1,117 Earnings Per Share $ 2.53 $ 3.50 Number of shares used in computation Diluted (1) These forward-looking statements are valid as of May 10, 2016 only. Electronic Arts assumes no obligation to update these forward-looking statements. 32

33 HISTORICAL GAAP FINANCIALS ($ in millions) FY2012 FY2013 FY2014 FY2015 FY2016 Net Revenue $4,143 $3,797 $3,575 $4,515 $4,396 % Digital 28% 38% 51% 49% 55% Gross Margin % 61.4% 63.4% 62.3% 68.3% 69.2% Operating Expenses $2,510 $2,288 $2,195 $2,138 $2,144 Operating Margin % 0.8% 3.2% 0.9% 21.0% 20.4% Net Income $76 $98 $8 $875 $1,156 33

34 HISTORICAL GAAP TO NON-GAAP REVENUE RECONCILIATION ($ in millions) FY2012 FY2013 FY2014 FY2015 FY2016 PG / Other $2,984 $2,357 $1,742 $2,316 $1,987 Digital 1,159 1,440 1,833 2,199 2,409 GAAP Net Revenue $4,143 $3,797 $3,575 $4,515 $4,396 Change in Deferred Net Revenue (online-enabled games): PG / Other ($25) ($227) $486 ($227) $48 Digital (40) Total Change in Deferred Net Revenue (online-enabled games): $43 ($4) $446 ($196) $170 PG / Other $2,959 $2,130 $2,228 $2,089 $2,035 Digital 1,227 1,663 1,793 2,230 2,531 Non-GAAP Net Revenue $4,186 $3,793 $4,021 $4,319 $4,566 34

35 HISTORICAL GAAP TO NON-GAAP NET INCOME RECONCILIATION ($ in millions) FY2012 FY2013 FY2014 FY2015 FY2016 GAAP Net Income $76 $98 $8 $875 $1,156. Change in Deferred Net Revenue (online-enabled games) 43 (4) 446 (196) 170 Acquisition-Related Expenses Stock-Based Compensation Loss on Licensed IP Commitment College Football Settlement Expenses (5) - Restructuring & Other (1) - - Certain Non-Recurring Litigation Expenses Loss (Gain) on Strategic Investments - (39) Amortization of Debt Discount Income Tax Adjustments (168) (61) (179) (219) (567) Non-GAAP Net Income $284 $264 $534 $806 $1,018 35

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