Q1 2021 Electronic Arts Inc Earnings Call
Good afternoon.
My name is down and I will be a conference operator today.
Hi, I would like to welcome everyone to the electronic Arts Q1, 2021 earnings Conference call.
Mr., Chris evidence VP of Investor Relations you May begin your conference.
Thanks definitely.
Welcome to <unk> first quarter fiscal 2021 earnings call with me from the arms to Die Andrew Wolf Sinatra, Yes, I'd like Jorgensen, Austria.
Please note that unless you see phonics earnings release are available at <unk> <unk> <unk> Dot Com. In addition, we posted earnings slides to accompany our prepared remarks.
Finally, after the call we will post all prepared remarks audio replay of this cool all financial model and the transcript.
With regards to what kind of our annual shareholder meeting will take place next week on on Thursday August six I will be a virtual audio only making juicy ongoing health concerns in fiscal two cents requirements related to that coatings 19 I've done.
Our Q2 fiscal 2021 item is cool is scheduled for Thursday November 5th.
This presentation Coleman's includes forward looking statements regarding future events and the future financial performance for the company actual events and results may differ materially from our expectations. We were saying it's all most recent form 10-K for discussion of risks that could cause material actual results to differ materially from dougs discuss today.
Well that strikeouts makes these statements adult today July 2020, and disclaims any duty to update them.
During this cool the financial metrics with the exception of free cash flow will be presented on a GAAP basis, well comparisons made in the course of this coal car against the same period in the prior yet unless otherwise stated now I'll turn the cold I got to Andrew.
Thanks, Chris.
First off I hope that all of you listening today, a well and that you had your families are in good health.
This is an unprecedented tolling and it was an unprecedented first quarter for our business at electronic jobs with extraordinary growth in our games in large services and record financial performance.
I'll speak to both of those in a moment, but first let me touch in our efforts to continue supporting our teams through the evolving Colbert 19 situation.
I mean, certainly crocodile amazing teams electronic out the ingenuity creativity determination of all about talented people, it's making it possible for us to continue delivering all the great games and called it the players even there's almost all of US continue to work from home.
Well being about people adult top priority I to keep everyone as safe as possible. The vast majority of 'cause it he will be working for them or at least through the remainder of the calendar year.
These are challenging times for everyone managing through the Pandemics, that's what effect.
In their personal and professional lives.
How were hoping however, weekend, which support and resources, including quarterly payments to assist our people with work and one calls and care needs. A pandemic can lead program additional show was instrumental in preschool help and more.
In addition, the ongoing challenges the pandemic. These last few months I brought forward important cultural conversations around racial and social justice harassment and which conduct.
Good long held equality inclusion endorse the epicenter wearable leaks on electronic out and as a company. We've made up positions clear and demonstrated without actions that we have a long term commitment to making a positive impact you now wall.
As we've shared previously our business focus continues to be on our key growth drivers delivering amazing games and content offering large services would extend and enhance the experience and connect more applied across more platforms and why supply.
You know first quarter before 21 engagement was exceptionally strong across our portfolio, we launched new games limit incredible growth in a lot services and welcome to tens of millions of you place either the network beginning Michael.
The biggest first quarter in <unk> history, with net bookings and operating cash flow both setting new records.
As a result, we're raising our full year for 21 net revenue and net bookings guidance today.
We've seen tremendous growth over the last four months, you know business and across the industry.
Yeah, we sit at the intersection of two fundamental secular trends that have become increasingly clear.
First social interactions in a world a moving from physical to digital.
And second the consumption of sports and entertainment is moving from Libya Interactive.
We've seen both of these trends accelerate during the cold with 19 period.
Tens of millions of new plays have come into our games and we also have many pledge returning to real franchises office and Tom away.
In addition to higher engagement from our existing players these new and returning place now deeply engaged in a large services, establishing new play patent and building you friendships route guides.
So while there are no aspects to this period of time, we're in and it may be difficult to predict the patents have you and returning players. We expect these trends to continue during and after the pandemic.
We remain committed to continuing to innovate in this space keeping he I at the forefront of providing social interaction an interactive in time to a wide global audience.
Oh sure a few highlights you capture what else seems to live in supplies in Q1.
We launched two new games to place during the quarter command and conquer lean Boston, which was incredibly well received board fans and critics and became a top selling troubling origin and staying agile was born out paradox remarks on the Nintendo switch.
Our teams also delivered over 30, new content update trail console and PC titles, including two major gotten expansions as well as more than 50 updates from mobile games.
All of this and the continued development, although upcoming titles for 21 and beyond was completed without teams working from home.
Hi, Thanks Legends continues its momentum as an exceptional lives service building on strong performance through the last several quarters and bringing even more place together in the game.
Q1, so the most games sessions flight Ann Hards revenue totaled since the launch quarter biotechs and engagement in season five reached the highest level since elfa gross new season of content.
Grady begin getting advance continued to be a huge role for apex community and the most recent event last treasures had more than 96 million hours played in the first two weeks would bring I pick supplies on the switch and steam and we're excited when injuries crossed like later this year. So more players getting just engage and play together with.
Our friends.
The World has an insatiable appetite for sports and to the experiences that EA sports the limits and now games with real World Sports disrupted EA sports has become the center of the emotional connection to sports and we brought millions of new returning an existing plays into their own personal sports stories throughout games.
The acquisition of new and returning pledge and feature grew more than 100% year over year in Q1 with more than 7 million joining during the quarter.
Right now.
These are now among the amongst engage groups appliance demonstrating commitment and longevity you know people live service.
Different Asia grew significantly year over year in Q1, as well with people along for now engaging nearly 30 million place to date.
Button and adult 20 also had an incredible Q1 building on what is already the biggest you able to round mountain franchise.
What a acquisition in Madden NFL grew nearly 140% year over year in Q1, and virtually every measure of Madden ultimate team engagement is up more than doubled over the last year.
The Sims continues to resonate with more plays around the world. The Sims four now has more than 30 million plays lots of data across all platforms and daily weekly and monthly active player titles in the game all reached record highs for first quarter Oh.
Now seems mobile games had an excellent Q1 as well the creative and inclusive nature of the seems experienced on any device is truly unique in all of gaming and we're especially proud of the white helps placed on community and express themselves drink culturally challenging times.
During Q1, we also launched than we do it he taught us on the steep block will bring out games to steam enables us to substantially grow LPC audience. Our origin business grew 75% year over year as well and by opening up the ability for steam and origin plays to play together, we're now position to harness the full power.
Of the PC community.
Bringing taught us to steam is also foundational so yes subscription service that will go live on the platform later this month.
In addition, the total number plate enough subscriptions on origin, Xbox one and PS four grew quarter over quarter would you place coming into our services to experience more great games.
He was on presented a quarterly right looking for little sustaining strong engagement in Q2, although it is difficult to predict ongoing levels of growth in this environment. We have grown l. player base. During this period and added value dwell network.
Oh, Yeah Sports live services are acting as social networks, the sports fans around the world and the strength of those connections will grow as real sports seasons return.
Please note communities for the Siemens Apex Star Wars, and more building relationships throughout games, and we expect them to be with us for a long time to come.
Building on this strength, we have exciting new tolls and taunted coming in Q2 and beyond including Walker to arena, which just launched with Bonnell strike games.
We showcase many of these new experiences in out years play like door Johnston June where our audience grew significantly year over year and the trials and videos that we gave you had been watched more than 31 million times.
We will begin launching a new EA sports games, starting August no roles in the World can sports fans find the breadth and depth of interactive experiences like the ones you know EA sports portfolio. This year.
Would you see for launching on August 14, we've got something for every fighting an amazing roster fighters tremendous cost abomination brand you environments and more fluid gameplay, all making is the most authentic and then my game we've ever created.
None NFL 21 is then set to launch on August 28 on top of major gameplay innovation, a new campaign mode and more of the Superstar X factor abilities that fans love would bring creative and innovative new ways to play not in that build on the strength of our NFL partnership.
We have more people than ever before applying and connecting through FIFA I went deeper 21 launches on October nine the world's leading football experience will expand with more ways to play with friends Voltus squad and bought talk will bring your social dimensions. The game and we're also delivering the most comprehensive update degree mode that we've ever really.
Hi, Joe 21 launches October 16, and we're excited about the great working though NHL team this year and we'll share more about that soon.
Then in the holiday season, EA Sports will also lead to why on the new Playstation five an X. box series X.
Next generation versions of fee for 21, another 21 will bring the next level of innovation and interactive sports experiences to friends with the launch of the new consoles. This will be a great you have you games and content for sports fans around the world.
Without cloud based broadcasting platform, but E sports operating at global scale, we delivered 80 Bucks and more E sports broadcast content in the last four months than we did in all of.
Oh Gosh, you 2019 demand for FIFA apex legend, and not E sports content across major network is unprecedented.
And the Great Entertainment, we are providing is bringing more applies and views into new experiences without games without significantly expanding and diversifying your content for the rest of this year I plan to deliver three times as many broadcasts advancing its like 21 over the last year spending linear and digital broadcasts.
Well I bleach celebrity I'm, saying competitions.
In addition, the global E sports ecosystem for apex legends FIFA and Madden.
We also just launched the seems spot on TBS and basi outflows in a reality competition TV shows seamlessly integrating entertaining place stories and gameplay alongside weekly challenges for the sinful plays it's an entirely new and unique way to create competition.
It shows the innovation, we can bring to the east board space without franchises and we're excited by the fan reaction to date.
We're also very pleased with response to our New Star Wars squadrons Guy and promoted studios set to launch on October 2nd.
This is going to be the gain for anyone that if I had the fantasy appalling a star wars stuff on the deep level of immersion built by all teams in collaboration with Disney and Lucasfilm.
We're excited to out another on your experience to the portfolio of Amazing Star Wars titles, we delivered to fans, especially one that opens up new dimensions like full VR support and cross play.
Our business is strong and it's been an amazing start to the these are challenging Taunton pandemic and would deeply appreciative of all that out teams are doing to continually innovate and deliver for appliance and push the boundaries are being attractive entertainment at every step of the why you've done while working from home.
We also have to think all about applies for their support well humbled to see so many using old games and our network as a way to connect with their friends and families. During this time.
There is much more to come from us electronic arts, and therefore 21.
Now I'll hand, the call because like.
Thanks, Andrew we saw an extraordinary levels of player engagement through the first quarter far higher than we even ever expected.
Or had forecasted Mary.
And it proved more resilient than we had expected.
Engagement was broad based with net bookings for lives services at extraordinary levels for FIFA Madden apex legends the Sims in our mobile titles.
As increased sales of our games across the breadth of our entire catalog, we connected with more people the games, they want and to each other.
All this was reflected in our results record Q1 highs in net revenue net bookings life's services and cash flow.
Report the specifics of our results on a GAAP basis than use our operational measures of net bookings to discuss the dynamics of our business.
Before I get to the numbers, let me remind everyone have a threed reporting changes we implemented this quarter and discussed in our last quarter call first we now represent GAAP net revenues in the income statement as one item rather than as product and service second we report mobile bookings Roseland platform fees.
Stood up not.
Finally, we updated the presentation of our net bookings by composition to focus on full game and lives service sales our historical results have been a recast for comparability.
He is net revenue was $1.46 billion compared to 1.21 billion a year ago and are above above our guidance by $239 million.
Operating expenses were 700 million compared to 607 million a year ago.
This was above our expectations driven by variable compensation due to our strong performance in the quarter as well as co related costs and lower attrition.
Operating income was $471 million compared to 415 billion, a year ago and above our expectations.
Diluted earnings per share it was $1.25 as well above our expectations of 93 cents driven by the topline b.
Operating cash flow for the quarter was $378 million up $220 million from last year.
Capital expenditures for the quarter were $38 million, resulting in a free cash flow of $340 million.
Operating cash flow for the last 12 months was $2.02 billion a new record.
Sure earnings slides for further cash flow information.
Our cash and short term investments that we ended the quarter were $5.96 billion up 15% year on year.
Now I'd like to turn to the key drivers of our business this quarter.
Net bookings for the quarter were $1.39 billion up $608 million from the prior year and $390 million above our guidance driven by strength across the board with strong performance from our core franchisee spend a lot of services.
Currency headwind net of hedges was $42 million year on year [noise].
Lives service and other than that bookings were $1.103 billion up $416 million from the prior year.
It's extraordinary results as a consequence of the years at work we've invested in building teams processes and content for our titles, which delivered strength across our portfolio.
FIFA Madden apex legends and assumes all grew very strongly.
Ultimate team was up 70% on a like for like basis adjusting for the timing of ultimate team events for the extra week in the quarter going for currency.
Last treasures apex legends presented its most engaging of than ever and delivered its biggest season since launch and as Andrew mentioned, the Sims four exceeded 30 million users life to date in Q1 net bookings was more than doubled year on year.
Mobile was up 32% success across our portfolio led by Star Wars Galaxy of heroes, which had the best quarter since 2018.
The game has now generated over 1 billion in lifetime bookings.
FIFA mobile Sim city, the Sims Freeplay more all screen and in more showed growth other similar magnitude.
[noise] full game bookings were $287 million includes $92 million from the prior year.
52% of our unit sales are now digital rather than physical measured on X. box warning Playstation four over the last 12 months.
Net bookings for the package goods and for the full game digital downloads all hall.
This was primarily driven by our catalog.
A brief note on financial reporting before we go into guidance.
People are playing our games for longer as a result for the amazing content providers are alive service teams and social connections they make within our games. So for GAAP reporting we're increasing the period of time over which we recognize the portion of net revenue. This begins in our second quarter only affects.
GAAP revenue and only affects the timing of recognition not total net revenue.
We estimate that it will move the recognition of approximately 300 million in cap that revenue from fiscal 2021 into fiscal 2022 does not affect net bookings for operating cash flow.
Now turning to guidance due to the significant outperformance during the quarter were increasing both our net revenue and net bookings guidance for the full year in doing so we had to balance the significant boost we saw in Q1 and the confidence we haven't our games in live services against the unknowable macroeconomic environment for the rest of the.
Fiscal year.
Taking a cautious view that assumes that we will continue to see a modest tailwind to engagement driven in part by continued shelter in place orders. This is offset by a weaker economy or couldn't be weaker economies around the world slightly later sports launches.
There are reasons for optimism for example, we battled added tens of millions of players. So the EPA player network since the beginning of April as Andrew mentioned FISA alone attracted 7 million new players on console in the last quarter and more people are playing FIFA now at this time and preclude than any previous cycle.
This is significant and that people have played the game a recently are more likely to by the new one.
New players are building networks of friends in our games as they play engagement FIFA and Madden continued to be massively above where we would normally expect them to be nevertheless, we haven't launched a major trial since the pandemic struck so it's too early to draw general conclusions.
Our business is strong our games are on track hopefully our base case around the uncertain economic will prove to be too cautious.
Thus our expectations for full year GAAP revenue are now 5.6 to 5 billion cost of revenue to be 1.4 feet 3 billion and earnings per share $2.97.
We're raising our operating cash flow guidance by $275 million to 1.85 billion.
We continue to anticipate capital expenditures of around 125 million, which would deliver free cash flow of 1.72 product.
Note on Opex before moving into the business drivers.
The increase in our prior guidance is mainly driven by variable compensation plus higher than expected headcount due to lower turnover during this difficult period.
We continue to invest in our growth drivers and in particular, we're increasing the number of modal mobile titles, we have made development.
We now expect net bookings for the year to be 5.9 $5.400 billion above our prior guidance.
Versus last year. This factors in an FX headwind of about $100 million and as you build your models note that we are also forecasting a falling interest rates of about $80 million compared to last year as we mentioned in our last quarterly earnings call.
But second quarter, we now expect get GAAP net revenue of 1.1 to 5 billion cost of revenue to be 280 million in operating expenses of 755 million.
Resulting earnings per share 21 cents from the second quarter.
We anticipate net bookings for the second quarter to be $875 million.
The significant year on to your variance is driven by the move FIFA 21 from Q2 Q3 and by the later launch of Madden NFL in Q2, which we have previously announced.
The change in mix for Q2 ways on gross margin for the quarter Madden stays in Q2, but as less lives service opportunity than in prior years prior years by virtue of starting later and FIFA moves at the beginning of Q3.
With regard to live services remember, we are focused on engagement head of product launches, so expect lower bookings that point of that cycle.
See the phasing that we provided in our quarterly presentations on our IR website.
You'll see that the smaller Q2 is more than offset by a much larger Q3, and a slightly larger Q4.
As we approach six months working from home, we're finding ways to continue delivered great games and services.
We're excited to showcase the incredible efforts, our Madden FISA NHL and you actually see teams have done through the upcoming or the lead into the upcoming launches by the work of all of our lives service James.
The shelter in place orders have so far been a strong tailwind for our business as players look for safe and social entertainment is difficult times.
Macroeconomic headwinds in the second half seems very likely nevertheless, our ability to deliver high quality AAA and indeed titles for our players combined with the incredible success of our ongoing lives services and increased reach across platforms and geography enable us to continue to deliver for.
Players and investors.
Now I'll turn the call back to address.
Thanks like these past few months I'd be unlike anything we've ever experienced it was an extraordinary quota for games and for electronic Arts. How business is strong. We've just had the largest first quarter in the history of the company with tremendous engagement with existing nude and returning players.
Yes.
We are well positioned to build on that strength you can deal with a more amazing games in content, including you EA sports titles more groundbreaking fund E Sports content Star Wars squadrons launching in October and more.
We will continue to extend and enhance the experiences and a lot of service on all platforms from console to PC to mobile.
And I'll focus on connecting more applies across more platforms will continue as we bring out subscription to seeing integrate our games with stadia experience support for cross play and reach more platforms without games, including the next Gen consoles coming later this year.
It's also increasingly apparent that cobot 19 could be with us for some time keeping all of our team site is our first priority there the true strength of electronic out and that commitment and coverage during the challenges of recent months has been deeply inspiring.
The only have they continue to develop and launch gains from home. Our employees have supported nearly 1000 different charities in the last three months, including tens of thousands of hours of volunteered time.
They contributions to covered relief efforts and racial justice organizations, along with matching funds an additional contributions from EA have total more than $3 million to date.
In this environment supporting our teams building, a culture and striving to amplify the positive impacts at play in our communities around the world has never been more important.
We look forward to sharing more updates with you in the quarters ahead.
Well and stay healthy.
Now Blake and I here for your questions.
In order tactical question. Thank you.
Okay.
I ask the question.
Hi Star then the number one on your telephone keypad.
If you would like to withdraw your question.
The pound key.
Please stand by we've compiled acuity roster.
Your first question comes from the line of Mario New.
With Barclays.
Great. Thanks for taking the question I'm from one on she saw and then once doors.
The first one on feedstock within a re leasing now in fiscal Threeq here.
Although as previously announced this shift does drive fiscal Twoq guidance to comment on industry itself can you help quantify how much of this shift this cost in terms of Bucky.
Any other dynamics to keep in mind going forward and should we expect chief at 22.
On to now be back in a normal fiscal two release quarter.
Yeah. It's good question and I appreciate to you asking.
The entire Delta is fever, no nothing else is going on.
We've tried to be pretty clear about that I don't think people if necessary heard that protects the entire delta.
We also not changed the back half of the year guidance down. So you should assume we are planning on we will make up anything we might have missed during the quarter.
The two quarters. The other thing I would just want to remind people is that it's all of that ultimate teens. All event, driven driven that means that there maybe some of that rolled into next year, which actually strengthen next year as well as this year. We made a simple decision, which is we wanted to give both the FIFA Madden team a couple extra weeks.
The final and what is you know been the most difficult situation we've ever lived through which is building dance from home we are incredibly impressed.
With what they've been able to do and how they've been able to innovate the game within this context and so.
Our view is brokers that most investors aren't focused on.
Each quarter, they're focused on the full year, we just raise guidance by $400 million.
Hi, and I remind people in the history of both Andrew and I running the company.
We have only raise guidance in the first quarter one.
So you guys on though our conservative approach.
And how were always cautious we also mentioned today.
We know there is and.
After thinks there's not economic risks in the back half of the year I'd like to know that but we all know there's economic risks.
And so I think I would take our raising our guidance and not lowering guidance in the back half year, even after moving FIFA and Madden is a pretty positive signal and I think Andrew and I, both pensions in the call. The other thing, which was we are continuing to see engagement and monitors.
Nation levels higher than we normally seen during the where we currently are in the second quarter.
And I'm not telling you that that's going to change the second quarter or we would have changed guidance could we just don't know yet.
But remember the unbelievably high monetization, we signed Q1 does not drop off a cliff it will slowly decline as we all go back to a normal life.
But if you asked many of us that might be six months nine months or two years.
And what we also mention which I think is the most important component it is.
As people read rejoin or join as a new member of the social network around the game they tend not to lead and so this should ultimately long term benefit our business.
And it's just the problem for us as we've never lived through this before and none of US have you guys haven't either so we don't have a road map to be able to help us be able to predict exactly what it's going to look like and so we're trying to be we try to be transparent we're trying to be straightforward.
And we're we're trying to be optimistic because we are optimistic but we're also trying to be realistic that we know that there's economic strains out there around the world that could ultimately come back to impact.
Our business or anybody's business, so sorry to go on about the question, but I think.
We want to try and make sure. We're understand people are understanding that its full FIFA.
And madness FIFA ultimate team that are moving but other than that were not signaling anything else other than we made a decision. We made it sometime ago, we announced that sometime ago. We wanted to give the teams a few extra weeks to to make sure that the the product was exceptional when it came out the door and work comp.
So that's what's going to be now your second question, sorry, I went onto long in the first question I forgot your second question [laughter].
That's great I had in that aspect going that's very helpful. Mike. So despite ones on Star Wars can you provide some color behind that decision process regarding pricing squadrons that $40 with no additional MTX. So I do think now all the gains in our credit equal.
Overall I'm surprised how the standard has been for $60 beauty gains in the last 15 years. So why go away dollars all in and not free to play or just in general what are your thoughts on potentially pricing next gen titles that higher price point of $70 et cetera.
Yeah, I guess all have Andrew just sort of help out on this as works and it's important here for both of US you know I mean, we always look at the top the games and and we want to make sure. We are providing the greatest value for our players and you know games all have different.
Scale and most of our games right now I'm shoot scale. We designed this game to really focus on what we heard from consumers, which is one of their greatest season, that's to be able to fly X, but ex wing fire fighter and being a dog fight and.
So it doesn't have the breadth of some of our games, but is still an incredible game and so that's why we chose to price at a slightly lower lower level to also allow access to as many people as possible who had that star Wars fantasy.
Oh, it Andrew jump in and talk about you know, how we view pricing long term, but I think you've seen us over the years.
Differentiated pricing on lots of games, we have differentiated pricing on things like transfers zombies games, because we knew that they were skewed to younger audiences for example, or maybe didnt have the depth of all of the game mode that you might see and a.
And ultimate array of fee for Madden.
Andrew you want to add to that.
I would start with water supply motivations withdrawn fulfill and what are the expectations. All all of those play groups in fulfillment those motivations I think we stopped their long before we ever get to cross point.
And as you've seen from US we have games across the spectrum of pricing, whether that's free to play or at $60 or at $60 within it with an additional large service or is pot all of our subscription offerings and at the end of the day as we think about it we start with a player we start with the motivations.
And expectations, they have and we build out the game in this case. This is a very deep an immersive game and that 40 always felt like the right price point.
Given the breadth of the game very proud of what motivated doing we wanted it to be a wholly self contained experience.
That was deeply in Michigan that fantasy.
As we think about pricing more broadly I would come back to that position, which is we start with one of the ply motivations. We're trying to fulfill what are the expectations that plays have around depth and breadth and live service in any given.
Experience and we build from there as we think about this year you've seen what we've done as we've announced that we will offer the ability for applies to the transition free of charge from existing generation console titles. So the next generation console titles for FIFA and Madden.
We did that we set out to build this the best.
Playstation four Xbox one experiences we could.
As well as the most innovative and creative experiences for X. box.
Series X and Playstation five and what we want to trapped plays this year, because what layoffs full was the smooth as possible transition that meant that they could jump into the game when it launched on existing platforms and then moved into the next platform as it made sense for them later on in here and that has been out focus this year.
We will continue to kind of look at this overtime.
[music].
Great. Thank you.
Next question.
Yes, hi, definitely.
Your next question comes from the line up Todd younger.
Alright, Thanks Christine.
Thank you so much and I'm glad to hear everybody is relatively well.
It can I ask a if you don't mind just thinking through the changes in really states on the sports titles I know that was probably production driven decision, but when looking at the real live.
Physical sports leagues around the world, especially in the states, obviously, there's a lot of uncertainty about the timing and shape of their seasons. This year and next I'm, just wondering how that maps.
To the release of your games in the events in the live services and how much it matters for instance, you know.
If there was no NFL season in the fall or if it had to be stopped it in the halfway through.
How does that matter to your gains how should we think about that.
I know, it's a sort of a broad hypothetical but theres. So much uncertainty there. So I guess the underlying question is how much.
It does whatever happens is live sports.
Affect.
How we should think about and expect people to engage with since spend money in your games and I have a follow up thanks.
Yes, so I wouldn't want I would.
Okay, that's going to enter.
Sure I would just.
I would start with kind of two things. One is my sense is that we will have sports of some shape or form in the real world over time.
The second thing is regardless of whether we do what we don't.
Sports fans have an insatiable appetite to sports.
Hey, indicted we can we get lumped in month now.
And what you what you heard us talk about in the prepared remarks, and and what you have seen in Q1 is we've been able to fulfill that insatiable appetite for sports without games and there's really when we think about US fortunes are thing about it on to because one is the connection the emotional connection to real world UBS.
It's an all that's happening with appliances and teams and leaks that you love.
The other is we provide you with tool set that features those plays teams at least you love, but allows you to tell you own personal sport stories.
And what you saw from US. This this past quarter is we really leaned into that and we actually all bantered that some so while we provided opportunities in advance so that you might tell your own personal sports stories with your friends at your rivals. We also dropped into that additional E sports content celebrity content and.
And and E sports and Liberty competitions, and what we've seen is that we've been able to uphold and fulfill the motivations of sports fans and the needs of sports fans and allow them to remain connected to the sports I Love and I would tell you I think that we are comfortable doing that for as long as it needs to amended the.
Extent that sports come back online, we believe that further accelerated well business.
Yeah, and you know what I said.
Remarks was ultimate team in the quarter was up 70% I.
I don't think we've ever seen a growth like that and as part of that we know for example, Madden ultimate team was up over 300%.
And there was no sports live sports going on at any point in time during that quarter.
And I think Gander made the point and I would just you know.
Stress. This is when people are sports fans remember their sports fans connect into a social networks.
No one no one plays a fantasy sports game alone it no one place ultimate team alone they play with each other and that means that it builds off of the social network more than anything else and so in the absence of sports people.
Doubled down there are excited and so while we always want live sports to go on because it helps the engagement and excitement around the business. We also know sports fans are not going to stop being sports fans. If the underlying sports stops and I think the first quarter proves that better.
Than anything we've ever seen and so you know we hope sports is back because we all love sports and we want to engage in it I'd prefer not to watch sports with an empty stadium, but at the end of the day, it's better than no sports at all and our games allow people that continued engagement.
With something that they really loved and I would tell you had that extend well beyond sports right. I mean, you might ask well if there is no star wars content.
In the next six months because movie studios are shut down or TV studios are shut down does that hurt your business.
Got it goes just the opposite which is if you're a star Wars fan you want to find every single opportunity user engagement Star Wars, and that's why we thought.
Growth of Star Wars, yet I fall in order growth of our Star Wars Star Wars online.
Business.
And continued growth of the catalog of battlefield, one and for battlefront want to battle for him to during the quarter. It's when you start worse than you want Star Wars, and you got to get somewhere so Ah. So thats why we keep coming back to this is an incredible opportunity for us but at the same time, we also understand.
That we don't we can't predict the future and so we're always careful of trying to predict the future, but we do see a huge opportunity.
Thank you both for that if you don't mind, just one follow up but somebody's got to FC M&A question that you get every quarter. So maybe algo this quarter and just.
It seems more right than ever given your cash balance in the cash generation and that probably in the value of your currency. There's at least one big asset. We know of that is believed to be in the market.
I just wondering your disposition toward.
The thought in the appeal of Oh.
Of acquisition.
How you are thinking through that decision given where the industry sits right now and anything it sharing that thanks.
You know I mean, what I would say there is.
It is very rare that we don't get a chance to look at anything that's up for sale. I mean, you you can imagine people call up and say, we're thinking about films business or we're thinking about selling ourselves.
We are a place that a lot of people want to come.
As a long term home if they decide to sell the business. So we get to look at almost everything.
I can't comment on any specific acquisition other than what I will tell you heads.
As we still have you seen in the past where we've done the best is where we have long term relationships with people and we're really trying to buy great talent versus games.
And I think respond as a classic example that we we were able to bring them into the fold give them incredible support and it was all driven by the fact that they had incredible talent.
Wasn't about tight on that's no offense typographic amazing gaming will maybe see titanfall at some point some time down the road, but it was really about the team and you know it starts at the top with Vince, but it goes all the way through the whole organization.
So we're always looking to that we'll always continue to look at that we would hope we can find more.
Our hope was is that some of the challenges in our broad world economy would actually make people think and understand that being sub scale is difficult, but at the same time as as you've seen from our results I think everybody's going to do well in the next couple of quarters in our industry and so.
Take some time, but trust that we are more interested than ever because we see.
Talent and building great New franchises is critical to the long term broker business.
Fair enough. Thank you both appreciate the questions.
Good. Thanks next question.
Your next question comes from the line up Brian Gee with Bank of America.
[noise] anyway good afternoon.
Good afternoon, they write or taking.
Great. Thanks for taking the questions. So I believe I heard you guys said ultimate team was up 70% year over year, let's revenue.
Can you remind us what that growth rate look like going into shelter in place and here. We are end of July how it looks kind of quarter to date, and then I've a follow up.
Yeah, you know I mean, I I don't off the top of my head remember, but I think we're bouncing between high single digits and low double digits, maybe mid double digits like you know between 15 and 20% I mean, we were having a strong ultimate team.
Quarter.
If you go to the fourth quarter. If you go back and look at the transcript you could probably see it I just don't have an in front of me, but I mean this is.
This is off the charts a different right I mean is exceptional and particularly for games like for for games like Manhattan, where normally the soft spot and a game like that where we really come out of a Super Bowl and there's only a few.
You know slated to where you can kind of continue to drive engagement around things like the draft Dan.
The combined than you would expect this year, maybe because many of those things we're not done in person that might have hurt ultimate team.
But remember the team a couple of years ago started working on changing and adding new modes to the game and improving and it really came into play and.
The past year. So we were saying it's super strengthen both Madden based game and Madden ultimate team coming into the quarter and it just continues to get stronger and stronger I didn't have the other thing is that all the ultimate team team stepped up to think about what new events curve, Dave run in a world of.
You know stay at home work from home or whatever it might be.
And so they doubled down on social and really drove opportunities in world in which there was no sportswear as I said in the last question.
Sports fans were looking for their sports excitement and fix essentially to be able to play and so you saw that in our east for calendar as Andrew mentioned, we we completely double down on E sports, even though we had to do at all from a virtual broadcasting facility versus our own broadcasting facility and our.
Team did an amazing job, creating some incredible content.
Okay and I'll just give you a personal example, when I see my wife watching a madden esports tournament and sheer ring.
I'm on TV I know because she's a massive sports fan I know, we feel we picked the right tone with consumers were delivering for consumers what they want.
So so what we've seen so far as I mentioned on the call earlier you know we saw this peak of massive engagement in the April may timeframe and that slowly declined as some people have gone back to work.
Their offices, but it is still well above what we normally seen particularly at this time of the year, which is the slowest time as we moved from one sports season to the next and I can't tell you. How that's going to look you know for the rest of the quarter or for the rest of the year, but remember we know we.
Hello, and people is getting a lot of people are engaging and ultimate team and the sports franchises.
And we don't think that shuts off overnight and maybe never shuts off and we hope that will give us longer term growth, but you know that ultimate would be a question. When we started talking about next year's guidance and all those things that we normally do.
But don't take our conservatism in any way on guidance going forward as saying anything about the games and about engagement. It's all about the economy at the end of the day and you guys tell me you saw the GDP numbers. This morning are you confident the economy is going to be strong for the next six or 12 months I just don't.
No. That's the thing that weighs on us the most and yet at the same time, we know that the engagement in our games has never been higher too.
See the Sims up 110% year over year.
I mean, that's driven by a lot of new people a lapsed players coming into the sends and we know with Sims remember.
It's grown every year for the last six years that means that people, who come and don't churn out they get engaged and then they continue to engage and all the content that's been produced and the new content and that's where we had a pretty excited.
Oh, sorry, a bigger answer to your question than you'd probably wanted but.
Well I want to make sure everyone understands.
We are prudent we are conservative as you guys all know and yet at the same time, we are unbelievably optimistic about the business, even though we got here be a you know really difficult time around the world.
Now, let's say from you from asking.
Several questions and then.
Getting our time for asking too many snow to finish as one question on on FIFA here for the 7 million players that you guys added sequentially coming into FIFA can you shed light on on who these players are they kind of casual fringe players just looking for something to fill time not spending now converting or are they.
The one that you've seen pair conversion ARPU in line with your legacy hardcore players that have been in there basically sense.
11, playing FIFA ultimate team anything you can say about the new players your react reactivated.
Yeah, Yeah, it's hard to that it's hard to say an Andrew you can add to the so it's just.
It's just early right. So you want to see a pattern over time, but Andrew go ahead John.
Yeah I was a.
A little bit in my prepared remarks, but.
It is early Oh, sorry.
7 million is made up of lots flies plays out would be one for views and some completely new players.
What I would tell you is while it is early and it is a little bit did you go to predict future hydro on these cohorts at this juncture.
They are performing like some of our strongest and most engaged groups in mix in the game and I think Thats Testament to the fact that these games does facilitate this connection to friends in connection with sports and large service that sits within that game is now so intrinsic.
To the experience and a big part of the Joy the place get a and what the teams have done through these last quarter is spectacular in terms of their ability to ended clay and retain existing players lapsed returning plant and the new plays and we're seeing those groups come together and perform in the same.
And why that traditionally very highly engaged.
You know strong playgroups have so like point its early it's it's not easy to predict but the early signs of very strong and we're very optimistic about what this means for the future community long term.
Great. Thank you very much guys I'll get back in Q.
[noise] Stephanie next question please.
Hey, guys. Thanks, we have next question please.
Can you not can you hear me.
Kind of area.
Okay.
Your next question Oh, he's already in Q Mr. Michael.
Hey, Thank you very much for the.
Thank you very much of the question I just have to.
The first is I was wondering if you could just expand on your capital allocation plans, which you put on party so at least with the buyback last quarter.
Do you have plans to.
Authorizing a new buyback and then the second question is can you talk a little bit about how the.
7 million additional players that you added sequentially and FIFA.
Informs your expectation for FIFA 21 unit sales this year that.
Clear that that should be up year over year from a units perspective because of the large player base. Thank you.
Yeah, I mean, we're we're always assuming that we bring new players then we can we can most likely increase.
A player base and the.
Future purchases.
I would say right now.
You can see we didn't take our guidance you down for the back half a year, we simply moved fees.
Two weeks and that's the as a quarterly change so I wouldn't take any of that as a message is that.
We have.
Have moved or changed our our forecast either way, it's just still too it's still too early to say on that.
And so more to come I think by the time, we get to our second quarter earnings will have a bunch better sense of you know do we think.
Guidance is going to go up or down based on where both FIFA Madden hockey are all hockey and you'll see our tracking the workforce, we're very optimistic about all those.
On capital allocation, we paused our program because we felt like at the time. It was it the we didn't pause I'm sorry, we didnt really start a new program because we were at end of our old program and we felt like it was not the right time to send a message both externally as well as internally into our company that we were starting a new.
Program until we got through this pandemic and add a little better feeling about.
How things would look in the future and I think we're closer now.
I can't tell you when we would restart of program. There is no doubt that there's commitment to have a program. It's really a timing issue and it's a timing issue driven by the cobot situation and I think that's pretty consistent with almost every company out there. There's only a couple of companies have started a new programs in the last quarter and.
So that's that's a they'd be yeah. So there's no change in our thinking we believe we want to effectively a man.
I'm always be returning capital to shareholders as you saw us we had the greatest a cash flow we've ever had as a company over the last 12 months, we know that we should be returning some of that if you know barked on a large portion or shareholders and so expect you'll hear something from us in the future I just can't predict exactly what else can happen.
Thank you like.
And your last question comes from the line, Brian Nowak with Morgan Stanley.
Hi, guys, it's on that on for Brian Thanks for taking the question.
We talk a little bit about the Ukraine and behavior, if any that you're seeing between your users into us in Europe I know, we spend a lot of time M&A talking about potential phasing and how it kind of you know, obviously really hard to tell the sort of retention and behavior going to see on players at this stage, but to some extent some many European.
Countries are a little bit ahead at North America.
In terms of the where they are reopening cove. It are you seeing a market different in the behavior of those users are they dropping off more and one of your competitor talked last week about seeing weakness in Europe relative to the U.S. and that's something that is consistent with what you're seeing and then I've a follow up thanks.
Yeah, you know what I'm, saying is more on.
So I'll, let Andrew jump in here, but.
Trends are if you see a trend for a week should be really careful because it may not be a trend for three or four weeks and the European economies are all going through a very different swings, Spain, obviously going through another.
Jump and Coca cases, and so you want to be really careful also you know ever game is different so the trends and FIFA aren't going to necessarily match the trends and wherever the competitor was that they said was flowing.
Or versus any other game CLL and Andrew I'll jump in any sense on it sounds like.
No I I would just say I would echo Blake's comments I would also I'd point to the performance of FIFA throughout last quarter.
We saw a tremendous engagement through the quarter I don't think Blake spoke to kind of a peak.
And that we you know we've seen some change in that but that the engagement true IFISA NLRB games has been very very strong throughout the entire shorter and continues even now to be much much stronger than it would be typically these tom the and so to blights point I think it.
It's too early to tell what we've seen an hour games is continued strong engagement and we believe that thats, because we are providing particularly relates to FIFA in Europe that emotional connection to football that was missing and what we saw his football came back online at least somewhat in Europe is that.
The bolstered that emotional connection to support that that out fees again. The devil provides so too early to tell but we've seen continued strong engagement even in Europe as that you know as some of those market the going back online.
Great. Thank you and then and then that.
On the topic of working from home. Obviously, you know were much farther and now the processes that everyone getting off the curve of learning how to operate in this environment.
Have you learned anything new or are there any changes the way that you guys are thinking about having your workforce were working from from home any new challenges I know there were some public comment from from them. Some people that we found that maybe there were some challenges that they hadnt anticipated with impact if any any thoughts you have there. Thank you.
Yeah, I would again, where all I mean, everybody on this call is working from home and there are many great benefits to working from home as it turns out a you know we've cut down now can you time, you know tremendously we don't travel as much. So we have the opportunity to spend more time without families and.
And in some cases, I think we significantly more productive work from home environment as it relates to our our efficiency levels.
The same time I think we would all acknowledge that there are other components of work from home, but a very challenging.
Home schooling is challenging.
You know this the the mental and emotional well being can be challenged.
Are you spending all the time in one place I think as an organization Weve remained committed to our employees.
We are providing financial assistance mental and physical and emotional assistance were offering flexibility in work hours wherever possible and the off the offering K give a leading.
As as members of Alley employee base think about home schooling, all caring for family and loved ones I think there's a lot of things that we've learned I don't think will it go back exactly the way things were but at the same time I don't think we would ever move to a place where the entire workforce was work from home I do believe there is a kinetic.
Energy that comes from putting creative people together in a building at least for some part of the time and again we.
We just a few months into this as I said in my prepared remarks, we will likely in all likelihood and what we've communicated to employees is that will be.
Most of us will be work from home through the rest of this calendar year at which point, we'll reevaluate and that we're being very open in a dialogue and communication with employees and to the extent that there are things that we can do to help them through this process or the extended they might be longer term changes that we might make a we're opening up that dialogue and happy to.
Patients now so not much to share at this point in terms of long term changes other than there will likely be some but those some probably won't involved the entire workforce staying work from home forever.
Yeah, and the only thing I'd add to that is I, just I remind people would go back and.
And on net bookings are live services was 1.1 of $3 billion up $416 million prior year.
Most of our revenue for the quarter was live services.
And live services are really require people to be doing something every single day, we're running events every week, we're developing new characters, we're developing new content, we're changing things, we're managing security managing monetization that that is as as hard as game development is that.
The fact that we have proven in the quarter that we could show lives services growth like we have I mean, Andrew and I every morning, wake up and realize we are unbelievably glass with an incredible workforce that is figured out how to do this because then it once again as I said earlier, there's no playbook to out of your run life.
I think that ultimate team or apex from hall, no one's ever.
And it just shows the strength of this organization and the commitment that people have to drive or business in that they've never thought they could.
That's pretty powerful and so for anybody who is over indexing on us moving FIFA out of second quarter to third quarter, Hi, I. Just suggest go back and just think about $1.1 billion in live services than before.
That is amazing.
And so that's why I think we're trying to send a signal the people as well we don't like the fact that we had to get here for the via the covert virus.
We've proven that this is something that's really special.
So with that I'll end, the call and look forward to seeing everyone or talking to everyone in person JV someday soon or maybe you know a year from now who never who knows but we appreciate everybodys interest and time and I know, it's a busy day of earnings. So it's for teams, but thank you guys for your questions as always.
And listened in and it will talk to you next quarter.
Thank you do well.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].