Q2 2021 Electronic Arts Inc Earnings Call

Okay.

Good afternoon, My name is Jason and that'll be our conference operator today at this time I would like to welcome everyone to the electronic Arts Q2, 2021 earnings Conference call.

Mister <unk> evidence Vice President of Investor Relations you May begin your conference.

Thanks, Jason walk into a second cool to have physical 2021 that is cool with me from that heightens today are Andrew Wilson, and <unk> and like Jorgensen C. F O N C O O P.

Please note that a rescue C. Phonics at all I think is released are available I <unk>, yeah. He dot com and additionally posted adding slides to a company I prepared remarks.

Yeah, I'll stay off the Covid, you'll pissed off prepared remarks on old you replay off this call off an extra modem.

And a transfer.

No that we completely revamped the adding slides. This cool so they know can say in all of the matrix and color that we historically have included in Blake's remarks. These changes free up tunnel Nicole for more analysis from Blake and Andre and provide more of a tendency for questions for me. Please.

Please let me have your feedback on this change.

With regards to Ah, Canada G. Three fiscal 20th 21, <unk> scheduled for Tuesday February the second.

As a reminder, we post our entire year with earnings calls on our website.

Already even amidst these unprecedented circumstances, we are executing on building great strength across our business here are a few key examples.

We have delivered eight new games. So far this year at a network has grown to more than 330 million unique account as tens of millions of new players have joined to enjoy more of our amazing games and content.

Really implies so far this year up 25% year over year around the world. Our multi platform Sims community continues to grow and have seen small player base on PC and console is now the largest in franchise history.

Thanks Legend has established itself as a top global franchise with major year over year growth and continued expansion opportunities.

The business for us with an E I in steam communities able to play together, we're able to harness the full opportunity and the P. C space as it continues to show strong growth.

We can easily the industry as the only developer and publisher with the ability to bring this much quality content suppliers. We've done this through unprecedented circumstances in the last six months and now we're delivering more great experiences you know current quota.

We started out third quarter by launching tune U E a sports games.

Went live globally on October nine three for 21 already had a record number of players in the game through the early access benefit about subscription.

Ah Plyometrics and fee for 21, a strong and fever Ultimate team also continues to grow with matches in the mode up 30% year over year.

And I shall 21, which includes the fan favorite NHL ninety-four rewind that's quickly become the most successful N H L game, yet on current Gen consoles.

Hello World.

We're excited to have an opportunity to bring even though applies in about fees and Madden franchises. This year and we're providing a smooth transition supplies I'm, calling gen consoles to move out of with a nexgen upgrade.

Looking at I want to offer a few thoughts an outgrowth drivers for FY twenty-two and beyond.

The new market, including the middle East and Eastern Europe.

Southern continues to grow in popularity around the world and we now have six new soccer mobile games in development for unusual <unk> and new markets.

About that and it is just a testament to the strength of electronic Arts.

As you know from Chris's introduction, we're trying something a little different with our earnings call this quarter.

And you should listen to my prepared remarks in conjunction with the expanded presentation, we posted on our Investor Relations website earlier today.

Bookings for the first three weeks up relative to the comparable period last year.

Our game pass ultimate and we expect making it available on that platform will lead to another step up in EA play subscribers.

21 for the current generation of cancels kind of upgrade for free to the next generation versions any time before the launch of the 22nd or 22 versions of game next year. In addition, we expect to leverage the ongoing strength of fee for 20 engagement and building an even larger.

Her audience 21.

Our expectations for full year GAAP revenue remain 5.625 billion cost of revenue to be 1.485 billion and earnings per share of $3.15. We are reaffirming our operating cash flow guidance of 1.85.

We are now guiding physical 2021 that bookings to be 11% higher than physical 2022.

This is incredible growth some driven by the shelter in place orders, but much also driven by the work our teams do every day and bringing new life services content and games to players.

Even with the strong year, we still expecting that bookings in earnings to grow next year.

The growth will be driven by a great slate of new titles, including battlefield or blockbuster sports titles need for speed and the titles, we moved out of fiscal 21 22.

We anticipate a strong performance from our life services and we continue to bring our franchises to new platforms. For example, bringing apex legend to mobile with that I will now turn it back to anger.

Thanks, Blake games have become an essential threat of the digital lifestyle for people around the world with more plans and and are continuing to connect and engage strawberry charges Ah business has grown significantly dishy and we are confident projected meaningful grows into F Y 22 and beyond.

<unk>, everybody stays healthy and enjoy some great games. This holiday season, and now Blake and I I hate to your questions.

We had sports be at the same speed or whatever it is.

Hard to say.

And I will tell you.

We have been very careful not to try to predict that in our guidance and thus the reason that we provided the guidance we provided because it is a world in which we have never been in before and.

And so trust that we will keep investors.

And the sell side.

Up to date as we see things, but we want to also be really careful because it's a world that as I said, we just don't have a lot of history and and we want to be really careful.

But we also want to know that we are one of the most important entertainment vehicles for people during this difficult time.

Hi, Thank you maybe just a quick follow up if I may any update on the outlook for China.

Right.

You know.

<unk> is a very hard thing to predict what we know is with our partners in China, a we are very optimistic.

But.

Guessing approvals is really difficult, but we are we're optimistic we believe that this is something that we.

We can ultimately get approval on but more importantly, remember the mobile game for apex outside of China, China doesn't require approval and so it's more about.

Making sure. The game is correct testing that game and then rolling it out in the key markets and were pretty confident and all all of those we talked about.

The Japanese market is one of the largest markets for apex second largest in the world.

We believe that there is a huge opportunity for mobile in that market and so we will continue to focus on where we think those largest markets are for early roll out and we'll keep people informed as we start to test the game and get it into the market, but I think as Andrew said in his comments we believe.

That that's coming in the in the in the in the coming fiscal 222, and we're excited we're very excited about the opportunity there.

Thank you for my thanks.

Thanks.

Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line.

She almost from Jefferies. Your line is open.

Great. Thanks for taking the question.

Andrew curious if you could provide any more color on on the EA play partnership with Microsoft Game Pass I guess why does why is the partnership makes sense or EA and why was it appealing and then Blake. If you could just provide any any broad commentary around how the economics of that deal where that would be helpful. Thank you guys.

I have a couple on Madden you guys mentioned that Madden NFL 21 has 30% more players year on year I.

I understand that the title has a new mode. This year called the yard. So any color you can provide on how how that mode. It's performing and if it was a driver to either play player or engagement growth and just.

In the future are there any plans to monetize either the yard lawyer for FIFA Ultimate mode directly or do you think it's just best suited as an engagement enhancer. Thank you.

Great question again, when we think about modeling and we think about future for that matter, we really think about it as a platform to bring machines of the sports together do engage in a in interactive consumption of the sport and you can.

10, 15 years ago, we would have had multiple games arcade style simulation store management style that we would put in the marketplaces separate package goods as we've really transformed our business.

Into the world of digital as we moved to the experience from product to service for our players what what I pledge of also told US is they want us to keep them together they want to come together, regardless of what format, they're engaging with and so as we continue to develop the Madden franchise as we can develop the FIFA French.

You should expect it will continue to add these new mode galleries apply through the product to the service what we've seen so far this year in Madden is there's been really good strong engagement in the yard. It's early it's still early in its lifecycle.

But its offering this opportunity for people to come into the franchise in a new light and play a more casual experience.

If they haven't really wanted to engage in a full 11 de 11 experienced abuse gone by but it also allows our hardcore players to do something a little different a little more social.

And a little faster pace than the traditional Madden game and so overall, we feel like it adds a substantial element to the overall player experience both for new players and returning players on the same has been true for bolt insider FIFA.

In the context of a.

Cosmetic sale items.

We'll start to experiment with that what we've seen across the industry is when done right the purchase of cosmetics.

That allow you to individualize and personalize your experience and build status in that environment. As you play with your friends have been really really well received we've.

And resulting monetization in our existing franchises. The second thing. He has done his comment and said there are a number of key franchises like FIFA, who have unbelievable exponential opportunity around the world.

And he's he's put in motion a series of internal development and external development that will really start to execute against that big franchises like FIFA and some others that we'll be able to talk about more soon and then the third thing is he also has a tremendous network out there in the mobile Sia and there are a lot of great.

Developers out there who have really great games, and really great game attack mechanics, and one of the experience and expertise, but just do not have the IP to build their games around all the marketing muscle to really drive acquisition in what is becoming an increasingly competitive market and so Jeff is also doing a lot of outreach with.

External developers and publishers and looking at ways that we could partner differently with them with al sleight of IP and without marketing muscle.

Even in the context of licensing or co development co publishing or in some cases acquisition and so I'm not be more excited for a number of years about what I think we're going to get to achieving a mobile business and again, what we know is mobile is tremendously competitive.

Somewhat unpredictable there.

A lot of games that come to App stores on an annualized basis, but we are seeing that way.

Build games with great teams around trusted IP that offer unbelievable experience and value supplies that monetization opportunity is very very strong and we're confident about that going into F 22, with FIFA and apex Legends and Star Wars Galaxy of heroes and others, but certainly.

As we look out further in the 23 and 24, we feel like we're well positioned there as well.

Thank you.

Your next question comes from the line of Robert Berg from Brumberg. Your line is open.

Hi, guys. Thanks for the questions.

Just on next generation interested to hear your thinking behind the free Nexgen upgrades that youre, referring to for FIFA. For example is the high price that some of your peers.

The charging for their games and how you assess it on your current strategy and then a quick follow up with whether you think that even with the free upgrade path. The next gen consoles is delaying.

Purchasing decisions of any of your plants, even just a few weeks or months. Thanks.

Yes, I would say I mean, we always know and we've seen over history that.

People will.

Oh delay purchases without doubt I mean.

Its just its natural in the console transition, but I would also remember that.

There will only be a small amount and this is not a negative on Sony and Microsoft business is used to reality of how many councils they can produce.

Dave I think both publicly talked about eight to 10, 11 12 million councils and the market between now and the end of March.

Because that this is just reality right. So we know that some people have weight, but.

But also some people will upgrade over time and the reason we did the upgrade program is we wanted to make sure people felt that they would would be comfortable by.

Buying it.

Gen four version and the notion that they would be able to upgrade without any problems and it's all about the consumer experience, it's about making sure you're staying connected to your social network that plays the same game that you're playing.

And we didn't want anyone to feel like for some reason because they didnt want to know who they are they wanted to wait for a new console that they didnt fall out of the key component of what is so important in our games, which is the ability to play with your friends.

And it's not much more complicated than that we do think it if we look back on past console transitions, we know that it will take time to build the inventory and the level of new consoles, but we also know based on what we've seen in the new consoles.

It will add incredible opportunities for us to build better and better games over time because of more power and.

And that's where we get really excited about and as we've talked about.

We will build.

A series of games this year and continue to add to that no different than we've done in past console cycles I think the rest of the industry is that way.

And that's that's how people approach us, but it is where it gets really really exciting a year or two years from now because I will tell you games are going to be unbelievable when you start to see them.

Year or two years from now and the new concepts.

And a quick follow up if I can if the gains are going to be.

Somebody roots, you say do you think that warrants a higher price point in the future.

Yeah, you know I mean, I don't really want to weigh in on that yet.

We've always said the games are getting more expensive. The experience is getting deeper the time that people are playing games is getting longer.

One might argue that that might require a higher price point over time, but we'll we'll we'll address that as we get closer to more games coming into a into the next gen console transition and when I, what I tried to fall.

Now back to is.

Let's stay focused on the excitement of what we can do with the new games and price will follow that we'll figure that out and I don't want people to read into that we're going to raise prices or not we don't know yet what we do know is we're going to be able to do a lot more things for the new consoles and our partnership.

It's with the new console, Sony and Microsoft and others that are making a conscious.

Perfect. Thanks, so much.

Jason could you give us the next question please.

Oh, My apologies I was muted.

Next question comes from the line of Andrew Uerkwitz from Oppenheimer. Your line is open.

Hey, Thanks for let me take a question last couple of questions.

First one is could you give us a little history lesson.

On the impact that new consoles have on sports titles it seems that.

The new powerful parcels could you a lot.

Quickly for ball physics and.

And volumes and crowds and audiences. So do you normally see.

A pickup.

Back you want the the history lesson you know P. S. Two was all about you know can you make athletes look like the real world athlete P. S. Three or you know the the next generation with all of that can you make the move like real athletes. The generation that we're now is can you make them a moat lie.

You'll athletes and as we look at the next generation of of platforms. It can you bring all of those together and add a level of intelligence to those players.

The upholstery or suspension of disbelief that you are in fact engaging real athletes in a real game on a real pitch and so I expect that we will continue to do and drive unbelievable new development in the context of the base technology that draws the game play the second thing that you also see as we move through.

Transitions is it is kind of modality shifts how people play single apply to multi player Multi-ply too cooperative play and you'll see us continue to do that.

Uhm with the with the power of these new platforms and how we can bring place together in new modality apply and you're starting to see some of those things with how we we started with voltaren, how we started with a yard and you should expect that we will continue to expand the modality apply on new platforms and then lost in this happened as we moved from offline online it's really the social.

Nature of the game and how you tie the game to the real World of sport and you've heard me talk about how we're building Madden. So that there was a greater influence of what's happening in the real world of sport on your game, but you should also imagine it will start to think about how do we use the technology. These new platforms, how do we use them plus the combination of the cloud to bring.

Millions and millions of place together in a social ecosystem around the consumption of their favorite sport I'm more excited by that as much as the vice technology quite frankly, because these are becoming social networks. The sports fans and Covid has accelerated that for us as the consumption of sport more broadly has moved from lane.

Iraq, Dave and physical interaction has moved you know social interactions moved from physical to digital so as we think about the combination of the basic knowledge of influence game play the the different modalities applied that new platforms will enable and the new platforms combined with a cloud to offer an expansion of a social network Oriental.

Patient of these games, we're really excited about the future and you tie that into what will almost certainly be a growing marketplace. We think we have tremendous opportunity not just this year, but many needs to come.

Oh, sorry, I I appreciate your enthusiasm for the new technology, that's a great color.

I can just sneak one more in Blake last quarter you mentioned.

You know you remain very interested in M&A and and want to be active there how should investors square that thought with the buyback and the new dividend can you give us your latest thoughts on M&A.

Yeah, I I I would not connect the dots between the buyback or dividend with him in a I mean, we cause you is I think you. All know we were on a consistent path of buyback and we paused. It at the end of the last part of the buyback program. When we finished.

It at the end of March because we were going into Covid and I think we're pretty.

Transparent with people that it wasn't just a street issue. It was also a concern around our our employees thought about how we're spending our money and we feel more confident of that today and in fact, I would say we feel more confident.

Because we've added a dividend now the reality is if we're talking about the buyback level and the dividend level, we're still either under or coming close to our annual cash flow.

And we have substantial cash on the balance sheet and substantial debt capacity, so don't read into that.

Is the inability or.

Lack of desire to do any acquisitions, we are incredibly focused on what could we buy but at the same time. We're also focused on making sure we don't destroy shareholder value environment and doing an acquisition.

And I I don't want a commoner any individual acquisitions, but you know, it's a balance of driving growth, but at the same time being responsible with your guys' capital cause that's where her with investors Catholic cause that's what really matters to us.

What I would say, though is that the one thing to read into the buyback and the dividend is.

An incredible confidence in the business.

And that's not short term confidence because that's not how we operate the company.

I remind people, we increased our guidance by almost $500 million.

At the end of the first quarter and if many of you have been around a long time, we almost rarely ever increase Sky's is coming out of the first quarter now granted we had the covid situation that created one of the greatest first course, unfortunately because of the.

The situations there was going on around the world, but what we are continuing to do is feel very very confident about our business.

I don't want anyone to read the fact that we may not be raising guidance now has a negative because we need to I'll remember we've raised cousins $500 million during the year. We thought we were gonna do $555 billion and we're talking about close to $6 billion him what you've heard for me.

And or an eye today is we're planning on growth again next year. That's the most important message what I will also tell you if anyone can predict right now what's gonna happen in the economy over the next three months or six months.

Call Me and tell me because it is going to be very difficult and we are very careful in how we present and focus our guidance in our business, but we are very confident in the strength of our business right now and we are seeing things as we mentioned a simple example.

Apex, Japan, and we don't know when it will happen, but if it happens it will be pig.

There is so many different things inside our business that are so strong.

That we are very very excited about where it can go so I just I don't Wanna I don't want anyone to get ahead of themselves on guidance, but I don't want anyone to think that the message we're sending out.

As in any way negative.

We haven't raised guidance because remember we raise guidance by $500 million and we've told people, we're gonna growing and next year. So keep it in that context, that's where it gets exciting that's where the opportunities I know that's not the question you asked.

But don't read anything into things like share repurchase for <unk>.

Dividend as a negative they're all positives, it's a commitment and have confidence in the business and I think we're that's where Andrew and I are and why it's so exciting and our industry is so exciting going forward. So sorry to feel a little too much more than everyone wanted to hear but.

Yeah, I, just I think both Andrew and I are really passionate about where we think this is going and we want to make sure people don't get over indexed on the short term and they actually read what we're telling people has the real opportunity.

No I think that's I think that's a great color and I I appreciate that cause I think that's a lot of the questions I've been getting so far Tonight and it makes you feel any better I can't even predict one having for dinner Tonight, so great corner and and I will talk to you an excellent.

Thank you.

Chris any more questions in the queue.

There's certainly is your final question comes from the line, how 'bout Bucks Jumbo from Jeffries. Your line is open.

Alright, Thanks, guys. Thanks for letting me hop back on we've we've seen a lot of gambling in the space recently and even on the the Triple a side. So just curious you know as as you stink towards next year and and battlefield. Obviously, that's that's a big theme for for physical twenty-two. So just you know curious if he can provide.

An update about how you're feeling about the the development process and if there's there's any risk you know a a year from now that that maybe that game doesn't watch on time be helpful to get an update their thank you.

Yeah, Great. Great question again, if you look at al prepared remarks compensation. We've had today. We we've launched you know eight games. The 200 lobster. This is and you know season seven of apex legends.

Gearing. This time working from home is there's no doubt, it's extraordinarily hard and we're doing all we can to support out teams in any way. We can there are some benefits that come from having al skiles and having an organizational structure that allows us greater fluidity all.

Talent, where I'm gonna move talent from project to project, we're able to kind of leverage out <unk> in the development process and you've seen that play out and <unk>, you know ability to launch as much high quality content as we have.

You know and and even even as of 11 am. This morning I season, seven is Aipac's legends is on track to be our largest launch day. Since you know the launch a product steam in that first of all ballots performance has been extremely strong a new champion edition.

And is already a top three best sell alone steam we've had the most minutes watched on twitch since the launch of the product. So another testament to just you know the unbelievable inspirational capabilities about teams and their ability to continue to live amazing games experienced in content in the face.

These ongoing challenges as we think about battlefield next year again, you heard me talking about were doing internal play testing, which Dundee guy throughout communion get feedback I was part of the product review last week Uhm, we have rallied that entire studio around the development of battlefield, specifically, we'd given them an extra year of development you were.

Member to ensure that they can in fact build a true nexgen vision around that game die since one of the most talented studios on the planet and we've been able to add you know leadership from <unk> from E. A sports business in David Rotter, who understands both live services and the rigor of development.

We brought in talent from across the industry, who would really bolstered al belief and I'll confidence.

Launch that Guy next year, so lots more to come in the next couple of months, but you know even in the face of challenges I think we've demonstrated an ability to launch amazing games and content I feel really really good about the content would come and make sure I'm part of why we have the confidence in FY twenty-two that we have to grow Vichy which is going to be an.

<unk> extraordinarily record for us is because our scale and of organizational structure at our mating talent al Amazing people are really coming together to deliver amazing contact next year.

Thanks, Andrew.

With that Ah you know I'll I'll I'll turn it back to Andrew just to to a couple of closing remarks I do thank everybody for spending the time and the commitment on fine US and obviously you know you can always connect with Chris error, and myself and others on any questions.

But I'll turn it back to Andrew.

Yeah, and thank you everyone for joining us and you know we do hope you stay sites unhealthy and what appears to be a second so gypped covid and parts of the world. What I think you've heard from us values extreme confidence and where we're at right now and we're like going for a business. We've had strengthened grows on a business issue already force forecasting.

Seven per cent growth you have a U F. F Y 21, we've launched great new games and contests default Madam apex legends. The Sims all continue to be <unk> major growth drivers and we got for the expansion opportunities dishy and beyond we are excited for the upcoming console launches new hardware has historically always grown to mark.

And also with US another opportunity to go out for an Madden franchises with our next Gen games, and we're projecting continued growth and fiscal year, FY 22, and beyond with an expansion about sports portfolio, a double down in mobile extension about lodge services and of course, the new battlefield game. So thank you for bringing me Tonight. Thank you.

For your questions be well thank.

Thank you so much.

That concludes today's conference call. Thank you everyone for joining today you may now disconnect.

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Uhm.

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