Q1 2024 Electronic Arts Inc Earnings Conference Call
Good afternoon, My name is Josh and I will be a conference operator today.
At this time I would like to welcome everyone to the electronic Arts first quarter fiscal year 2024 conference call.
I would now like to turn the conference over to MS. Katie Burke Director of Investor Relations. Please go ahead.
Okay.
Thank you welcome to Ea's first quarter fiscal year 2024 earnings call with me today are Andrew Wilson, our CEO Stuart Canfield, our CFO and Loren <unk> President of Entertainment technology and Central development. Please.
Please note that our SEC filings and our earnings release are available at IR Dot Dot Com. In addition, we have posted detailed earnings slides to accompany our prepared remarks lastly, after the call. We will post our prepared remarks, an audio replay of this call and a transcript with regards to our calendar our second quarter of fiscal 2020.
For earnings call is scheduled for Wednesday November 1st as a reminder, we posted a schedule of upcoming earnings calls for the fiscal year on our IR website.
This presentation and our comments include forward looking statements regarding future events and the future financial performance of the company actual events and results may differ materially from our expectations. We refer you to our most recent Form 10-K for a discussion of risks that could cause actual results to differ materially from those discussed today.
Chronic arts makes these statements as of today August one 2023 and disclaims any duty to update them. During this call the financial metrics with the exception of free cash flow will be presented on a GAAP basis. Please see our earnings slides for further information all comparisons made in the course of this call are against the same period in the prior year unless otherwise do.
Now I'll turn the call over to Andrew.
Thanks, Katy it's great to be here with all of you to begin I want to welcome Stuart Canfield, who most of you already know I have worked with Joe for nearly two decades. He has been a trusted partner and valuable leader through many of the biggest transformations electronic ads.
Excited to be working with Stuart as our new Chief financial officer, driving multiyear growth and unlocking long term value.
It was a record Q1 for <unk> with net bookings of $1 6 billion.
21% year over year, driven by sustained momentum across the entire EA sports FIFA ecosystem and the launch of Star Wars Jedi survival.
During the quarter, we executed across our business launching five new high quality titles, while providing over 145 content updates across 37 titles at.
Our teams continue to create the entertainment and experiences that inspire engage and connect hundreds of millions of players.
Every EOG employee for all that you do for our communities. Thank you.
EA sports FIFA had the biggest Q1 in our company's history. The franchise continues to deliver compelling content to our growing community driving strong engagement and accelerating net bookings growth.
FIFA ultimate team engaged tens of millions of fans and daily average users grew 15%.
FIFA mobile attracted over 65 million new players in the quarter alone.
For online produced double digit growth across monthly weekly and daily average users.
These remarkable results are a testament to our incredible teams executing against our strategy sharpened by 30 use of passion innovation and leadership in interactive football.
Star Wars Jedi survival is pure blockbuster entertainment rooted in a timeless culture defining IP our team at respawn, probably launch this title to critical acclaim and commercial success.
Millions of players have already engaged with the game, making this one of the biggest events in a star Wars Galaxy this year.
Thanks to the strength of this legendary franchise and communities are banned our development team has committed to bringing this jedi experience to Playstation four and Xbox one.
Over the coming year, we will harvest the community's passion and capitalize on key Star Wars franchise moment to drive continued engagement for this incredible game since going free to enter the Sims four continues to reach a broader global audience welcoming over 4 million new players in the quarter. In addition to continuing to deliver new car.
And experience to expand assumes for the Maxim team is developing a new innovative parallel experience that will not the imaginations of the next generation of players.
In Q1, our mobile business delivered ahead of our expectations driven by outperformance across our broad portfolio, including FIFA Mobile Star Wars Galaxy of heroes and assumes free play.
Over the last year, we are focused and refined our approach to mobile we're excited to see the results as we continue to drive for long term profitable growth.
During the quarter, we launched Lord of the rings heroes of Middle Earth based.
Based on strong metrics. The team is chewning in balancing the game to scale user acquisition and promotion in the coming months.
Apex legends is one of the strongest franchises and live services in the industry with 18 million active monthly players and impressive retention rate of over 70%.
After a highly successful 16 season, we launched <unk> and 17 in May with new variations of gameplay and monetization.
While this new season did not meet our financial expectations. The team is implied important learnings, including new game mechanics to engage and retain players which are already generating momentum.
We will continue to reinforce the strength of this franchise by introducing new modes of play and investing in regional marketing as well as Culturalize Asian in key markets.
Looking forward I've never been more excited for what's to come as we head into the biggest sports season in our company's history.
As the world's preeminent interactive American football experience Madden NFL continues to deliver higher engagement year over year, an indicator of future success.
This franchise is one of the most powerful Ips in all of sports and is at the center of football culture, bringing the community together in our game and beyond.
We are building on a tidal wave of community excitement after the reveal of Josh Allen as Madden NFL 20 forwards cover athlete.
This completely new experience will offer more fun more immersive gameplay and for the first time ever cross play to amplify the power of community as we build a connected multi platform ecosystem around American football.
On July 13th we unveiled our vision for a new era of global football with EA Sports UFC 24, alongside this amazing title, we announced advancements of FC Mobile and FC online in Asia, as well as new experiences FC Tactical mobile and FC Pro esports.
This was the biggest reveal we've ever had generating almost double the positive worldwide response to FIFA 20 threes debut.
Over two 5 million people have watched the event live and on demand so far an amazing celebration for the global football community.
To secure a fan first future for FSC, we have announced new long term global partnerships with Wi Fi The Premier League La Liga traveling Bundesliga Liga F and many more with these recent announcements alongside our existing and ongoing network of partnerships. The game will showcase 19th.
Fully licensed football is 700 squads 30 leagues and the biggest competitions as a result FC 24 is the most authentic indirectly football experience ever created.
It's also a massive leap forward in gameplay innovation with a trio of cutting edge technologies.
The promotion.
Playstyles by after and have revolutionized frostbite engine.
The highly anticipated release of <unk> 24 in September is the first giant step forward towards realizing our multi experienced global platform capable of connecting over a 1 billion fans.
To do more extraordinary things for all people players and communities. Our teams are building the strongest pipeline in the history of ebay to drive multiyear growth over the next few years, we will launched numerous experiences that grow and deepen the fandom about legendary IP.
Multiyear targeted investments toward our biggest opportunities include global titles like blockbuster storytelling from Dragon age incredible skateboarding gameplay and social connection from skate.
And a revival of EA Sports College football that celebrates the action culture and tradition of the sport like never before.
We're also hard at work on a new experience from assumes that will transform what players can do with creativity, a sprawling action adventure Iron Man game.
<unk> of battlefield as a truly connected ecosystem and the expansion of the apex legends universe across platforms geographies and modalities of play.
The most recent reveal of our Black Panther project set and a massive explore will universe marks the latest chapter of Eas collaboration with Disney and Marvel Games team.
To drive player engagement and deliver returns for our shareholders, we will build unrivalled IP driven platforms that entertain massive online communities.
Plus the stories and amplify the path community and R&R games being thoughtful and deliberate around feature sets launch timing and quality will lead to long term profitability as we invest in our vision and lead the future of entertainment.
Now I'll hand, the call over to Stuart to provide additional details on our business.
Thanks, Andrea and Hello to everyone.
I'm honored to be on my first earnings call in my new role as Chief Financial Officer.
Throughout my 20 year career at <unk> I have been and continue to be inspired by a talented teams and the entertainment and experiences they create for our players.
<unk> future and I have great conviction that our strategy and teams will help us achieve our ambition to lead the future of entertainment.
Turning to our business, we continue to see healthy engagement and new player acquisition across our portfolio and have started the year strong today, we are reaffirming our full year net bookings outlook.
I'll now speak to our Q1 results.
Net bookings were $1 6 billion up 21% year over year or 25% in constant currency, primarily driven by continued strength in the E sports FIFA and the release of Star Wars Jedi survival. This is the second record quarter in a row for EA sports FIFA with year over year growth accelerating from Q4.
At this entire franchise continues to demonstrate the strategic potential of a connected massive online community.
Our full game net bookings were $401 million.
Up 143% year over year or 152% in constant currency.
Driven by the release of Star Wars Jedi Survivor.
As Andrew noted the title was a critical success with performance in line with our expectations.
Based on the strength of the IP, the engaging gameplay and new ways to bring the title suppliers Starwood jealous survival will continue to deliver long term value.
Our live services were up 4% year over year or 7% in constant currency.
Even a quarter with such strength in full game live services, which demonstrates our highly resilient reoccurring business model was 75% of total net bookings.
With ongoing innovation and EA sports FIFA Ultimate team remains a material growth engine for our live service business with strength across the acquisition engagement and monetization.
In mobile net bookings were up 3% year over year or 5% in constant currency, excluding the impact of lapping the sunset of apex mobile.
We continue to make material progress across our portfolio as we manage our business for long term profitability.
FIFA mobile delivered record Q1, net bookings almost doubling from the prior year driven by historic levels of player engagement and new player acquisition.
And although early in our launch initial metrics are promising for a new title motor the rings heroes of midlife.
Apex legends is a highly successful original IP for EA with a strong community of loyal core players.
This quarter net bookings were below expectations, largely driven by underperformance from seat in 17.
As an evergreen live service that is constantly evolving our teams continue to innovate on content and introduce new modes of play to engage a broader base of players across different geographies.
Echo Andrew we will continue to invest behind the talented team at respawn to drive long term expansion and growth of the franchise.
On a GAAP basis, we delivered Q1 net revenue of $1 9 billion up 9% year over year.
Operating expenses were roughly flat and below our expectations as we shifted marketing spend for new releases, primarily EA sports UFC to later in the year.
As a result earnings per share was $1 47 up 32% year over year.
We delivered operating cash flow of 359 million one of our largest ever Q1 results.
And returned $377 million to shareholders through share buybacks and dividends.
Trailing 12 month basis free cash flow is up 2% year over year.
Now turning to guidance.
Let me start by sharing our assumptions as we think about Q2.
First our guidance assumes continuing momentum in our existing global football business. In addition to our strong launch for EA sports UFC late in the quarter.
We're taking a more measured approach for apex legends at the team applies learnings from season, 2017, and introduces new modes of play across various markets.
Third we plan to heavily invest ahead of the launch of the <unk> platform for the global football community EA Sports UFC.
And finally as a reminder, net of hedges relative to last year, we continue to expect FX headwinds.
As a result of these assumptions, we expect Q2 net bookings of $1 7 billion to $1 8 billion down 3% to up 3%.
Down 2% to up 4% in constant currency.
For the second quarter, we expect GAAP net revenue of $1 825 billion to 195 billion and cost of revenue to be $430 million to $450 million.
We expect GAAP operating expenses in Q2 to be between 111 billion and $1. One 2 billion up 9% to 10% driven by marketing investment noted earlier and.
And we expect earnings per share to be approximately 72 to <unk> 89.
Now turning to the full year.
We are reaffirming our full year net bookings guidance range of $7 3 billion to $7 7 billion, roughly flat to up 5% or up 1% to up 6% in constant currency.
We are revising our GAAP operating expenses guidance to $4 two five to $4 $3 7 billion driven largely by reductions in stock based compensation.
As a result earnings per share guidance range is now $3 42.
$3 92.
We are reaffirming our guidance for our other full year metrics.
We expect operating cash flow of $1 7 billion to $1 9 billion in.
Capital expenditures of around $275 million, which would deliver free cash flow of about $1 4 billion to $1 6 billion.
To conclude our strong first quarter is a testament to our incredible brands Evergreen live services and our ability to deliver compelling entertainment to hundreds of millions of players around the world.
As we make progress around aligning our teams behind our biggest long term opportunities. We will continue to stay focused disciplined and agile to deliver multiyear growth now.
Now I'll hand, the call back to Andrew Thanks to it.
<unk> is set to launch some of the world's most anticipated and celebrated games and experiences.
At a time without growing global community of choosing games as their first form of entertainment and primary way to stay connected with friends through shared fandom, the value and opportunity of creating interactive entertainment has never been greater.
With our exceptional teams and unrelenting commitment to execution.
World Class IP and Ted.
Logical advancements that will accelerate and expand our ability to deliver new levels of creativity and innovation.
He is building towards incredible growth in the east to come now.
Now Stuart lower NII are here for your questions.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad. Our first question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.
Thanks, so much for taking the questions. When we look at the mobile performance in the quarter I wanted to get your perspective on where we are in the cycle of recovery in mobile more broadly obviously mobile was.
And the area that struggled as we moved out of the pandemic and dealt with some of the challenges from the IBSA headwinds from Apple's privacy changes that as we get deeper into 2023, and you think about growth and investing behind mobile into 2024 calendar just more interested in how your perspectives have changed about mobile as part of the <unk>.
Broader mix of the portfolio. Thanks.
<unk>.
Thanks, Eric Let me take the first part of that and then I'll hand off to Stuart I think that we have always believed that mobile is an incredibly valuable platform for us not just in the context.
Being the world's largest gaming platform and our ability to generate return from blockbuster IP that is mobile native but also our ability to use mobile as a tool for acquiring new users to our broader ecosystems of play and you're seeing that happen around what will be FC later this year what is currently.
From what will be FC later in this year and we're also starting to see that as we as we build out towards other blockbuster ecosystems around our biggest IP as I think about the business broadly we spent a lot of time and a lot of energy over the last 12 months really right sizing the cost profile of our mobile business.
Driving for greater efficiency and higher levels of engagement and monetization across a very broad portfolio.
And certainly through Q1, we were seeing results ahead of our expectations. Our sense is that we will have growth from here, but it is a different mobile market that we're going into things do take longer from launch to scale and size and certainly we think the biggest opportunity is almost certainly a random.
A big broad IP driven ecosystems.
Alright, just to add on a couple of points there on the financial side. So obviously, we talk to in Q1 outside of the apex headwinds, which will be there for several quarters as we lap the sunset of the title.
Obviously, we were up 3% and 5% at constant currency as we saw in the script I think how do we prefaced that Q over Q, we're seeing to the point in the script underperforming expectations on some of our key titles, we called out Galaxy of heroes, we talked of FIFA, we continue to rollout on low the rings and heroes of metal and expect that to <unk>.
For you to grow through subsequent quarters.
We are expecting and have guided to a 1% growth in Q2 as well. So overall, we saw a stabilization in Q4, we saw acceleration in terms of the GAAP Q over Q in terms of declines year over year, and we feel well positioned behind the strategy levels. The Andrew just laid out.
Great. Thank you so much for the color on you upfront ran my follow up on how mobile and traditional play it might integrate on a title like AFC. So thanks, so much.
Thank you operator next question please.
Our next question comes from the line of Clay Griffin with Moffett Nathanson. Your line is open.
Yes, Hey, good afternoon. Thanks for taking the question I was wondering if Andrew I appreciate the context in terms of the pipeline I guess.
Wanted to get.
Update on college football is a lot of things going on in terms of licensing and I.
Just wondering if you could just give us a sense of.
Okay.
Where that title is I suppose.
And then on fees I wanted to ask.
The daily active number just wanted to get a sense of.
To drill down if you might be able to give us some sense of monetization impacts in the quarter that ultimate team.
Okay, Great. Let me take the college football pace, and I'll hand off to Stuart to think about FIFA in the quarter.
Tim is making incredible progress around college football again, we have a long history and an incredible legacy around building. This great game in it in terms of the context of American football. In addition to our very very very famous and culturally relevant Madden franchise College football has always played a meaningful part.
Got.
In game play in this country. The team is doing an incredible job building out what would be the future of college football game play is really coming together and really capturing all of the action and pageantry and the difference in college football versus the NFL I feel very confident in what the team is doing.
Certainly we're working through the license.
Situation broadly and as of now we've got many if not most of the schools licensed as part of our licensing platform will continue to work.
With the various governing bodies of the sport in the country.
And some key third party partners that we have around how.
And when to include college athletes themselves into the game and we will work very closely with them, but I am confident that this will be an incredible reemergence of our college football experience that it will capture all the action and pageantry driven by the schools and all that goes on with the schools in the context of this game.
And I do believe that we will find a place where we can work in lockstep with the athletes for inclusion in the game as well.
And clearly with regards to specifically your question on fee for I think I'll just frame up first I think it's a second successive record quarter for us with the franchise.
The growth was across all platforms, we alluded to mobile net bookings almost doubling Q over Q.
Low double digit growth collectively across all forms at full game through ultimate team mobile and <unk>.
For one of our most successful quarters in FIFA.
That's great and just district go down again.
The daily active increases is that a function of frequency or new player of growth how should we think about that.
On the data side, that's really referencing a couple of pieces one on the mobile side in particular as the team has continued to drive reoccurring frequency and content drops we used to have a much larger spaced out.
<unk> service consideration now the teams are bringing much greater frequency and therefore greater engagement by virtue and Youre also seeing that evolve itself through the bookings and the overall performance of the mobile SKU.
Great. Thanks, one thing I would add there on mobile broadly at a live services broadly.
Is it given that we had this broad portfolio of live services across console across PC free to play across mobile we brought in some incredible mobile native talent without without glue acquisition.
With Gulf Clash.
We're starting to really reconcile how to effectively drive these live services at scale and that includes both how we build cold game mechanics, how we build new modalities of play on top of those core game mechanics, how we drive user acquisition and how we really build modalities of play and live.
On a more regular basis to drive extraordinary retention in our franchises and what you're seeing in an.
In our football franchise broadly across console PC free to play and mobile and we're starting to see in the context of even the learnings.
We have had with apex coming out of season 2017, and what we're doing in and around mobile really embedding. This great learning that we've had as we brought new talent into the organization and as we as an organization have learned to run. These lab services scale. Our expectations. This will continue to be a strong tailwind for us as the nature of the industry continues to change.
And we operate in this new version of our industry at scale.
Great. Thanks, Thank you.
Operator next question please.
Our next question comes from the line of Andrew <unk> with Jefferies. Your line is open.
Thanks for taking my question I just have.
One short term one long term question on the short term side, you called out apex weakness here.
Quite quite substantially.
In your prepared remarks, but you've kept your full year guide.
Is it something else kind of making up for it or is the weakness just not not that that was just any comment there on how to reconcile the comments around apex in the yearly guidance.
Yes, So first let me talk about apex, a little bit and Loren can probably even provide some more detail again. This is this extraordinary franchise, which has continued to grow and is one of the great franchise at our industry right now.
It has its ebbs and flows that we've seen its ebbs and flows and again if I go back to my previous comment as a company that has been running live services at scale now for <unk>.
Nearly two decades, we launched out our first live service with FIFA online back in 2006, we've seen these ebbs and flows in and around our live services and certainly we've seen that in the context of apex and so we come off a record level seen in 2016, the team made some really interesting and creative and innovative.
Changes in 17.
It didn't it didn't meet our expectations. It's also relevant to note that we went into a very competitive quarter.
We.
Few things are happening now one is the team has worked diligently to make very quick changes and respond to community feedback and community reaction and the performance of season 2017, and we're already starting to see momentum as we go through our current quarter.
But this is the nature of our business today is that we will continue to innovate at the very cutting edge of entertainment. Many of those things will work and by virtue of the collective learning about organization, we will almost certainly learn faster than others in the industry, but that doesn't mean that there won't be some ebbs and flows and as we think about the long term value of the franchise.
And we factor that in.
Okay got.
Got it Thats helpful.
Thank you Andrew for the question.
To add onto what Andrew is saying I think he covered it well as far as how we think about life services experimentation and learning and responding to players we also.
As we've talked about in the opening statement, we have one of the most premier shooter developers in response and in our ability and their strength and optimizing for the shooter audience that huge strength. We have is also provided a pretty significant opportunity for us as we think about new game modes and more accessibility for a broader.
Player base, so think about us being incredibly strong with core shooter players again 18 million active monthly players over 70% retention and we have a runway with more players around the world as the team thinks about more accessible nodes.
Bringing in things such as bots to help play a new player experience in first time player experiences. So theres a big focus on that the second area I would say on apex. It. The team is really focused on is just the geographic expansion. So we've had strong success in North America, and Asia, and we're going to continue to evolve our strength there.
And look at Culturalize Asian marketing areas of focus in other parts of the world to continue our growth. So again good success and then more to come in that area and then we have opportunity.
And the third part of monetization and converting within the game play still so even though were 17 seasons in four and a half years and we still see opportunity on monetization in areas such as IP integration brand partnerships evolving some of the some of these early and as we have for the legends are specific to individual.
<unk> and we are looking at creating opportunities for these airlines and artifacts to span across all engines and to appeal to broader player. So we see still significant opportunity and growth in the franchise and I think the team has a really good grasp and have their head around where we're prioritizing and what their focus is.
Got it Super helpful. Yeah go ahead, and Andrew just to cover the financial Pacific question upfront as well and if I back off everything Andrew and Laura just noted.
Think about obviously, we entered the year with a more measured approach given the prior Q3 and Q4. We know Q3 is a natural competitive window for us inside of how we split the year on H. One obviously, we've got record FIFA performance across the franchise and obviously mobile is ahead of our expectations and you should think about Q4 from a seasonality perspective, APAC, Spain one of.
Our stronger quarters as well so that's how ultimately it balances back in terms of the range on the guide.
Got it that's Super helpful. And then just kind of a long term question.
Maybe her Laura and Stuart.
Is Andrew did a great job of kind of outlining the pipeline and I think it's safe to say were deep enough in a post COVID-19 world, where maybe developments getting back to normal.
Where do we stand on that and as you kind of think about the <unk>.
<unk> soft guidance I think was kind of the goal was every year high single digit growth double digit bottom line growth are we getting back to the point, where that's that's going to be normal again.
Or is there should we expect some still lingering impacts from gain delays in COVID-19 and work from home and whatnot.
Yes.
Yeah. Thanks, Andrew.
We just recently reorganized our company into two segment into two divisions of entertainment and sports and we think that there is significant growth potential still in both areas.
With a vertical focus in our entertainment business, which I'm currently leading we see significant growth potential in the development of these connected game ecosystems as Andrew outlined in accident blockbuster titles as we talked about Marvel with <unk>.
Black Panther, and Iron Man and Star Wars games as well, so we see a really strong combination and our strategy around these connected games and these blockbuster action games and I would say that this is a new evolution of our strategy. So to say that we would go back to development as we went to new it I think that we are looking forward and continue to.
Re invent and evolve our development approach and practices based on the opportunity based on our new strategy and based on the new structure of our organization.
And Andrew just to kind of loop back on the long term financial thinking I think that as you know obviously, we were expense versus capitalized and we've been in an investment cycle as we build out the multiyear pipeline that Andrew referenced in his script I think in terms of is it going to be sort of normalized I think we will continue to map through sort of timing and sequencing, but both.
Those releases you should expect us to start to talk to that towards the back end of the calendar year early into the next calendar year and.
We know we will give more credence to timing, but wanted to make sure that we are really clear with our development teams and get into the quarter levels. We expect but you should expect us to get to ultimately without multiyear type sort of more step function change in the future.
Got it that's really helpful. Thank you both.
Operator next question please.
Our next question comes from the line of Matthew cost with Morgan Stanley . Your line is open.
Hi, everybody. Thanks for taking the question.
I guess, starting maybe with Andrew and Laura can you talk a little in a little more detail about the decision to reorganize the studios into the entertainment in the sports segment, and what Youll be able to do differently and better now that you couldn't do before and then I have one follow up thanks.
Yes, let me start there and then Loren can come in and kind of share a little about how she's thinking about the entertainment part of the company.
Again, we've had this.
We are in as a company first and foremost our ran out plays we have over $700 million in our network and Theyre spending more and more time with us and as we think about the future serving those players in a world where they choose interactive entertainment as their first form of entertainment and they choose the games and experiences that they play as the number.
One way to connect and stay connected with their friends and as we think about the future of entertainment for us when we drive towards entertaining and engaging.
Audience of 700 million that we hope grows well beyond $1 billion to $2 billion over the course of time, we wanted to really think about how best to serve those players and what we are almost absolutely certainly have crossover between players who play FC in apex and need for speed and Matt and the nature of develop.
<unk>.
And the nature of how those games are built and developed is very different and is getting more different as time passes and what we wanted to get to as we as we continue to scale. The company as we continue to scale our franchises and scale of the live services that are born from those franchises get to a place where we were able to empower al.
<unk> creative leaders, even more than we have been we've been on a move over the last five or six years to really.
Give more power to our creative leaders to build and grow and drive their businesses with a direct connection that they have with our players and we want this was the very next evolutionary step in that process and really about giving them more creative autonomy business autonomy as they are most deeply connected and directly connect.
<unk> to these networks of players in these communities at places I play with and it was really about getting to an accelerated level of decision, making and an accelerated level of development I think we're already starting to see the benefits of that we've outlined our strategy very clearly we believe that the future of entertainment is interactive we believe that any large scale.
Entertainment company will need to understand and appreciate and be able to develop in the context of interactive entertainment for these audiences that are choosing what we do is their first full.
And as we think about that building out these platforms that deliver experiences and the time at the end of time and the time massive online communities. This ability to tell blockbuster interactive stories and his ability to harness the power of these communities not just inside the game, but outside the game and as we look at what's going on with FC right now.
As we think about our re imagined Madden as we think about the reemergence of college football and all thats happening across our EA sports portfolio, we're seeing accelerated moves towards that as I think about what's happening in la as organization.
And the speed at which the respawn team has been able to respond in the context of what's happening in apex season 17, as we move towards apex sees in 18, as we think about what's happening for battlefield and whats happening for the Sims I'm real.
Excited because I think we're already seeing the clock speed of our organization increase and my sense is that will mean that we will build more things better things high quality things that entertained more people around the world over time.
Yes, very well said and to layer onto it Andrew.
Has outlined is that we are thinking that we are such a talent centric company and when you have the incredible talent and development leadership that we do that we're lucky to have an electronic arts.
Oftentimes as leaders, we evaluate and look at how can we remove barriers helped the speed at which they develop and how they show up for our players. So we are incredibly focused on lifting up and removing friction for our talent. So they can show up for our players every day and we've talked about it a lot on this call about being a life service company and having content and updates and.
Learning and turning and tweaking and using our levers to show up for our players and optimize that that requires that a vertical more vertical organization and it requires.
As little friction as much connection to go to market ideas go to market strategies commercial thinking around how we show up for players as well as the game design as well as technology. So the more we can integrate that.
Faster, we can accelerate the potential of our growth and candidly the more.
And leased and tethered RF talent field.
Farmer gratifying experience for them, we believe and I will just tell you too on the in the entertainment side. We are just focused incredibly like lasers on execution and so we know we have great talent. We now we have these incredible brands Inscape Sims apex battlefield Marvel Star Wars, We know we have and then.
<unk>.
Credible product and experiences now we have to add heads down execute help the teams move as quickly as they can accelerate that through technology and support.
And let them run so we can get to this growth that we know we are capable of in the coming years.
Great. Thank you and then just quickly on M&A.
There was a small mobile gaming M&A deal in the news today, which is the first time that something like that I feel like it's come across our radar in a while.
Is there more opportunity or things are conversations maybe restarting in terms of potential acquisitions that had been paused over the past year or two and do you see opportunity to do more or with glue and pay them. It can play them. It can codemasters do you feel like you've kind of brought in what you need to bring in for now.
I think right now we feel very good about who we are as a company and the <unk>.
Abilities and talent and teams and IP, we have across the organization.
And we have a very clear.
A clear strategy and an even clearer our pipeline for growth across IP and across platforms that being said.
It is.
We're always looking for great opportunities to drive even more growth.
And entertain even more people through great games and experiences in IP.
And we will continue to work and look at that over the course of time, but it's not something right now that.
We're actively engaged in.
Thank you.
Thank you operator next question please.
Our next question comes from the line of Colin Sebastian with Baird. Your line is open.
Great. Thanks, good afternoon, and congrats again to Laura and Stuart.
I guess first just following up on apex, maybe put a finer point on some of the changes.
Andrew and Lori you talked about with the game is the expectation that we will see in season 18, some of that improvement.
Engagement, given the game mechanics, and the monetization there.
And then secondly, just on Star Wars, just kind of curious to learn more about the <unk>.
Plan and the expectations.
As we look to see that extends in terms of the lifetime of the franchise as well as live services I think more detail there might be useful as well. Thank you.
Thanks, Colin I'll take the apex question and then we can talk about that broader star Wars.
Piece next.
On apex and the way to think about it is when you. When we have these live services and I laid out the areas of expansion of new addressable audiences and players are geographic expansion and then monetization conversion mechanics that will evolve over time, we think about and look at the apex development cycle and candidly.
Most life services cycles as short mid and long term. So you will see some we will see some adjustments and changes in season and season 2018, and we expect to see even bigger more impactful changes in 19, and 20 and into the future for the following year. So.
Again, there is theres a lot the team can do it a lot they have levers on and then there are some things such as mode or changes in mechanics that just take a longer runway to develop.
And then on Star Wars, just just for my clarity were you referring to.
That was Jedi franchise will star Wars broadly as we think about the future of the of the IP and our ability to tell these incredible blockbuster stories in the Galaxy of Star Wars.
Yes, Andrew I guess, leveraging the strength of the recent Star Wars games mobile as well as.
Jedi and how you foresee that.
Over time, turning into a broader franchise with live services and ongoing engagement.
Yes, we don't have anything to announce today.
But we have an incredible partnership with Disney and Lucas.
We've had incredible success in that partnership.
Across the Battlefront Star Wars, Jedi franchise, and absolutely with Star Wars Galaxy of heroes.
Our teams are always thinking about.
What are new experiences that we might be able to create certainly I would love to see.
More than a Jedi franchise over time is just as extraordinary gain that tells you is extraordinary story.
Certainly again, we might be a little biased, but our sense based on the feedback we're getting from our community and the quality of that product is one of the great beats in the Star Wars Galaxy. This year and will likely continue to be a very meaningful part.
Of that galaxy for many years to come.
Certainly as we as we bring it to Playstation four and Xbox One we think there'll be another little bump there for the franchise and so nothing to announce today other than we have an incredible relationship with Disney We've had incredible success, so far in that partnership and to the extent that we can find new opportunities to execute.
Against new experiences, including live services.
Part of that partnership we will explore them.
Great. Thank you.
Thank you operator next question please.
Our next question comes from the line of Matthew Thornton with <unk> Securities. Your line is open.
Hey, good afternoon, everyone. Thanks for taking the question maybe two if I could I guess first.
Anything you can say or talk about just in terms of what the early indicators are telling you around the FC launch.
Obviously, it's still still know we have a lot of the marketing still in front of US I think the title has a couple more early access days this quarter than it did last year, but just kind of anything that the early indicators are telling you.
And then just secondly, as we think about the back half of the year just curious any ebbs and flows that you would you would call out I think you were really helpful. In this in the prepared comments around strength in apex needing some work throughout the year. So I think that's pretty well understood. But you also called out a bunch of other things Star Wars Jedi coming to prior Gen console is I'm not sure if that's this.
Year or further out you talked about a sandwich parallel experience I think we've got a FIFA mobile major update coming later this year. So I guess just outside of the frontline release like any other ebbs and flows that we should be cognizant up for the back half of the year. Thanks, everyone.
Yes, Greg.
Great question.
I would think about this probably in three buckets. The first is the launch went incredibly well and certainly that was the first moment, we talked about FC we've been building towards this for some time.
And working incredibly closely with our partners.
In a very directly connected way with a global community across console across PC across mobile across geographies. So the launch went incredibly well.
It was nearly double.
The positive performance of the launch versus FIFA 23, which in and of itself had achieved some records in terms of its launch awareness in it.
And its launch access so our expectation there is very very strong that we've hit the right tone we've built.
Incredible relationships with partners. So that we have all of the right licensed content everything we had before plus more.
We've got game teams across console PC and mobile that all innovating at the very front line to make sure that this is not just a.
A change of symbol, but it is in fact, a symbol of change and so if I combine what's happening with what happened at the launch on the <unk>.
Feedback and performance of that.
With what we're doing in the game, we feel very good about that element. The second element I would point you towards is just the performance of the franchise broadly.
We've highlighted this many times before one of the greatest predictors of future success is both recency and depth of engagement and on both of those fronts. The existing franchise continues to perform exceptionally well again, what we said in the script was it just had its second record quarter in a row.
Even as typically you would see that starting to wine as there is not much going on in the world of football right now at least comfortable bought for the women's World Cup, which.
Which is doing great things in Australia, New Zealand.
We would typically start to see the business wine at this point, we're not we're seeing still really strong engagement and regular engaged community and so that in and of itself is probably one of the greatest predictors of future success, and then third as we as we highlighted in the script, we've got a giant marketing budget against.
Yes.
If you're on mobile or PC free to play you will wake up and your your existing experience will now be FC and you'll get all of the new benefits of that and if you're on comps. So we are going to be spending meaningful amounts of money certainly more than we ever have done before we're taking no risks on that front to make sure everybody that loves football in the world understand.
<unk> FC is how it applies to them and that it's coming in September and so net of all of that I think that if you take into account our launch plus the quality of the games that we're making across platforms you.
You take into account the current engagement and recency and regularity of that engagement. When you take into account that we are literally rallying the entire company behind this launch more than we ever have in the 40 years of the company's history around any launch.
Feel very good about it.
I'll just add onto Andrew just a couple of things to think about I think are important do you think about the financial guidance.
Obviously, we will have dynamics and timing between Q2, hence the guide and later in the year, particularly two investment around FC obviously heavily Q2 pre launched focused also should start to think about to your point on FC how we knew once the timing and recognition of revenue between Q2 and Q3.
Worth, noting that the licensing structure will transition back half of the year versus front half of the year and obviously, we had a heavier launch slates last year in the back half of the year. So we can walk through that with you all in the call Downs, but just note theres definitely ebbs and flows and timing and particularly.
Point that to Q2 in particular as you look at the EPS, we've put out and how that resonates year on year.
Operator, we're ready for the next question.
Our next question comes from the line of Benjamin <unk> with Deutsche Bank. Your line is open.
Hey, guys. Thanks for the question.
You guys referenced that your margins today are reflective of some investments in long term project and I'm. Just wondering if you guys could help us.
Little bit better understand the impact there and maybe what margins might look like in more of a steady state and then secondly.
What do you anticipate any changes in consumer spending as student debt payments were to resume at scale.
I'll tackle the second one was the first one I think obviously, we're not going to create any any guidance or direction.
On margin structure on a steady state go forward I think I'd just point you to the fact that obviously we've had depressed margins. We've continued to invest in expense as we go we do expect to get back to levels. Prior to our a couple of years ago as we step that margin through.
Think about as we bring some of those titles to bear in the future. Both from an owned IP perspective, and some of the scale of battlefield. When we think about the business models that will come with other titles around Simpson Skype, you should expect that to flow down and be accretive from a margin level as we step through it in the future years.
Yes.
I don't know that I can comment specifically on student debt of what might happen there what I would say is this though.
<unk> is a fundamental human need and it has been since the beginning of time as we look at the emerging generations of consumers, including students. They choosing interactive entertainment as their first form of entertainment as a couple of reasons for that one it is way more engaging than maybe what traditional entertainment was.
It helps you connect with friends and stay connected with friends. So the nature of the relationships that you build through your consumption of these entertainment properties is significantly more rewarding on a personal basis than watching a movie ever wasn't I loved movies with three of the most important thing as it represents the best value Entertainment, even as you think about our incredible ski.
<unk>, an incredible financial performance and growth that we have ahead of us.
At an individual consumer level. It still represents the best value entertainment on the planet on a per hour basis of entertainment and so I'm not sure what will happen with student debt, but my sense is.
As we've continued to see our industry grow I would continue to see our company grow as we continue to scale the nature of experiences that we deliver to our consumers and the level of the entertainment and connection that provides them that regardless of what happens in that area. We will continue to be their first choice for entertainment.
Okay. That's helpful. Thanks, guys.
Thank you and operator, we will take our last question.
Our last question comes from the line, David Karnofsky with J P. Morgan Your line is open.
Alright, thank you.
Last quarter. It was noted that players were concentrating their spend on major franchises. Just wanted to see first if there was any update to that and then Andrew in your commentary you highlighted a goal for apex is an experience across platforms.
That includes mobile as well so can you speak to how you envision potentially re launching that title on phones and how they approach could differ to the prior gains. Thank you.
Yeah. So let me touch on the first part.
Do think we continue to see.
Big titles, getting bigger and live services getting bigger.
And certainly as a company with with a broad portfolio of large scale IP and large scale live services. We believe that we will be long term beneficiaries of that trend.
That doesn't mean that we won't build smaller titles over the course of time. They are these incredible stories that we believe should be told in the context of entertainment. We are focusing our investments. So that we can build a cost base around those thats appropriate, but we're also really getting behind our biggest opportunities and as we've talked about our strategy.
<unk> and building these.
These experiences that entertained massive online communities. Our expectation is that will be a large scale growth driver for us.
But when thought about the right way games like Dragon age and Jedi can can tell truly blockbuster stories and really break into that top category of games I think what we see today is the mid tier and lower games that maybe did pretty well through COVID-19 because people had a lot of spare time.
Jim.
There are parts of the industry that really aren't doing and performing as well and as we think about our future you should expect that we will continue to focus our investments and our energy and our resources against these big opportunities because we do believe that is where the industry is trending.
Hi, David I will take the apex mobile question is Vincent the team evaluate and look at it again, the runway and potential that we have on the franchise.
On the short mid term that I've outlined today, and we see really strong potential in further storytelling and additional modalities and genre play remember apex is set and the titanfall world. There's a lot of demand and interest in this universe.
As they evaluate and we look at where the opportunities are we are looking at new genres. We're looking at potential new platforms and we are looking at as I mentioned earlier that the geographic expansion. So nothing to announce today, but all things are not only under consideration, but a meaningful part of our strategy for the future of the brand.
Okay. Thank you very much for being with US today and thank you for all of your questions. Once again I want to express my deepest appreciation to our incredible teams for delivering a record Q1, we look forward to updating you next quarter on November the first after what I think is going to be our biggest EA sports season ever.
Including Madden 24 and of course, our highly anticipated launch of EA Sports FC 24. Thank you so much have a great day.
That concludes today's meeting. Thank you all for joining you may now disconnect.
Please wait the conference will begin shortly.
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