Electronic Arts Inc. (NASDAQ:EA) Q3 2024 Earnings Call Transcript

Electronic Arts Inc. (NASDAQ:EA) Q3 2024 Earnings Call Transcript January 30, 2024

Electronic Arts Inc. beats earnings expectations. Reported EPS is $2.96, expectations were $2.91. Electronic Arts Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon. My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Electronic Arts Third Quarter Fiscal Year 2024 Earnings Conference Call. I would now like to turn the conference over to Ms. Katie Burke, Director of Investor Relations. Please go ahead.

Katie Burke: Thank you. Welcome to EA’s third quarter fiscal year 2024 earnings call. With me today are Andrew Wilson, our CEO; and Stuart Canfield, our CFO. Please note that our SEC filings and our earnings release are available at ir.ea.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 fourth quarter fiscal year 2024 earnings call is scheduled for Tuesday, May 7. As a reminder, we post the 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-Q for a discussion of risks that could cause actual results to differ materially from those discussed today. Electronic Arts makes these statements as of today, January 30, 2024, 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 stated. Now, I’ll turn the call over to Andrew.

Andrew Wilson: Thanks, Katie. It was a strong Q3, as we continue to entertain hundreds of millions of players and fans around the world. Our exceptional teams created high-quality games and experiences across our broad portfolio that, drove deep engagement and record live services. This quarter, two of the world’s most celebrated interactive entertainment experiences EA SPORTS FC and EA SPORTS Madden NFL delivered phenomenal strength, as sizable drivers of long-term growth. We are launching amazing games and experiences that entertain massive online communities, create blockbuster interactive storytelling, and harness the power of community in and around our games. EA’s Q3 results are a great example of our execution across our strategy.

The FC platform is thriving at the center of the action, fandom, and culture of the world’s game. The launch of EA SPORTS FC 24 has been a great success and has, once again, outperformed our expectations. Players are connecting, competing, and celebrating global football with their friends, driving strong engagement across FC’s multi-experience ecosystem. In Q3, players dove into Ultimate Team, driving double-digit net bookings growth and delivering the franchise’s biggest net bookings week ever. FC Mobile also generated deep engagement with daily active users up by 29% year-over-year, while FC Online grew new players by 20% year-over-year. In calendar 2023, Madden NFL was the best-selling sports game in North America and continues to grow.

Madden NFL 24, is engaging more players year-over-year through new, innovative gameplay features and compelling live services. In Q3, net bookings grew and engagement with Ultimate Team increased 19%. Madden Mobile also saw an increase in players during the quarter, generating double-digit growth across the community. Our business is gaining momentum as our communities continue to grow and the definition of play rapidly expands, to include watching gameplay, creating user generated content, and connecting with friends and families in and around beloved IP. There are billions of players around the world and this number, is expected to increase as younger generations choose gaming as their number one form of entertainment, generating incredible opportunities, for us to engage and deliver new experiences.

The evolving worlds, unfolding stories, and rich characters of our live services are deepening players’ relationship with our IP and broadening the global appeal of our portfolio. To further entertain our communities, we are building more ways for them to play, watch, create, and connect to generate growth and longevity in our biggest franchises. The Sims franchise, is the definitive life for simulation experience, offering its multi-generational community incredible ways to connect, create, and express their individuality. During calendar 2023, players have spent an astounding 1.8 billion hours in the Sims 4, a nearly 30% increase from the prior year. We remain committed to the global growth and innovation of this franchise. We’re focused on delivering what the community wants most, from ongoing, new content and game modes for the Sims 4, to the social innovation, expansion, and connection in our future Sims release.

Millions of passionate fans continue to come together through the nonstop action of Battlefield. The Battlefield 2042 community continues to grow, with total players up 17% year-over-year, and Season 6 live services driving strong engagement with weekly average users up 37% year-over-year. Our team is working hard to deliver for the community with increasingly engaging live services, like the recent announcement of Season 7 with new maps, weekly missions, and much more. In addition, we are making investments in the future of the franchise. Our exceptional teams from multiple world class studios, working with cutting-edge Frostbite technology, are building an expansive, community-focused Battlefield universe for fans all over the world. As a category leader with millions of loyal fans, we are looking forward to celebrating the fifth anniversary of Apex Legends.

Over the past few months, we have listened closely to our community, and have deployed new features, new styles of play, and new content. We have also implemented tools, to better understand day-to-day game performance. In Q3, our new modes drove improved engagement, and the early impact of our new content in the current quarter is promising. To generate future growth, we are focused on entertaining core players and engaging new players, by investing in geographic expansion, innovating in the game economy, and making it easier than ever, for players to jump into our gameplay. Turning to FY ’25, we will deliver even more excitement and entertainment through an expanded portfolio of connected ecosystems. Industry-leader EA SPORTS will launch a strong core slate of titles and always-on live services, to grow our sports business as a global community and drive value, year-after-year.

Our journey building FC, the world’s largest interactive platform for global football fans will continue with accelerated gameplay innovation, more social connection, and new brand collaborations to deliver even more value for players. Our teams, working with an incredible roster of partners, are just getting started with FC. We are well positioned to grow this platform as a cultural phenomenon. The momentum in Madden NFL will continue with events and experiences, tied to the biggest moments in the sport, alongside deeper investments in this ecosystem, including leaps in gameplay and deeper fan immersion. In addition to the meaningful advancements in Madden, we are bringing back fan favorite EA SPORTS College Football for the first time in over a decade.

Looking further ahead, as more people spend more time playing and connecting in and around our titles, we see incredible potential for growth. Within our online communities, we are expanding blockbuster storytelling through deep, rich characters and new story modes to deliver bigger, broader games and live services. Connected experiences offer new, cutting-edge ways to engage and inspire players, and can unlock future innovative growth opportunities. Over the coming years, we expect accelerated growth in our business. Our long-term outlook coupled with secular tailwinds, drives further conviction in our strategy. By aligning our priorities and investments with our greatest opportunities, we can make the biggest impact and drive long-term value in service of our people, our players, and our shareholders.

Now, I’ll hand the call over to Stuart to provide additional details on our business.

Stuart Canfield: Thanks, Andrew, and good afternoon, everyone. For the third quarter, we delivered net bookings of $2.37 billion, up 1% year-over-year, or 2% in constant currency, and in line with our expectations. Strength in our live services business, particularly EA SPORTS FC Ultimate Team, was partially offset by some softness in the full game. Live services net bookings grew to a record $1.71 billion in Q3, up 3% year-over-year, or up 5% in constant currency, exceeding our expectations, as we continue to drive healthy engagement and bring new players to our franchises. Full game net bookings of $654 million was down 5% year-over-year, or down 4% in constant currency, versus a high prior year comparable that included the World Cup event.

On a trailing 12-month basis, total net bookings was up 8% year-over-year, with live services contributing $5.6 billion, or 73% demonstrating the resilience of this evergreen business model. Building on the strong momentum from our launch at the end of Q2, EA SPORTS FC again exceeded expectations, as EA SPORTS FC Ultimate Team and FC Mobile delivered exceptional double-digit net bookings growth, against a World Cup comparable in the prior year. Our global football business net bookings grew 7% year-over-year, as our teams continue to drive strong retention of our core player base, through the FC brand transition. EA SPORTS Madden NFL, also saw another strong quarter, with net bookings up 5% year-over-year, highlighted by strong engagement trends across full game, Ultimate Team, and mobile.

Additional highlights from the third quarter included new releases of EA SPORTS UFC, NHL, and World Rally Championship, which contributed to further expanding the aggregate fandom and strength of our EA SPORTS community, creating additional value-added services in one of the largest sports brands and platforms in the world. In a highly competitive quarter, Apex Legends did not meet our expectations, as our teams continue to learn and iterate with each new season and event. In the past few weeks, our recent cross-over promotion showed early promising signals, delivering two of our highest net bookings days over the fiscal year. With Season 20 launching in February, our teams will deliver more innovation as we continue to build for the long-term.

We remain committed to Apex Legends, a proven franchise with loyal fans, and we will continue to invest in opportunities to drive new growth points as we build and expand the franchise over time through engaging a broader base of players. Moving to our GAAP results, we delivered net revenue of $1.95 billion, up 3% year-over-year. As we continue to operate with focus and discipline, operating expenses were favorable to our expectations, also benefiting from some phasing of spend to Q4. On a year-over-year basis, operating expenses were up 3%, driven primarily by incremental marketing spend as we invested to support our titles and the EA SPORTS FC transition through the critical holiday season. Our GAAP earnings per share was $1.07, up 47% year-over-year.

Operating cash flow in the quarter was $1.26 billion, up 13% year-over-year. On a trailing 12-month basis, free cash flow was a record $2.16 billion. And we returned $376 million to shareholders through dividends and our ongoing share repurchase program. We are entering the final quarter of FY ’24 well positioned to deliver on our commitments for the fiscal year. With our strong business performance year-to-date, our unrivaled portfolio of IP, and our consistent execution in our core live services business. Even in an incredibly competitive market, we are poised to deliver growth in net bookings consistent with what we outlined at the beginning of the year. At the same time, we are tracking to deliver higher levels of underlying profitability and record free cash flow.

We remain deliberate and focused around the prioritization and allocation of resources across our teams and portfolio as we make progress against our long-term strategy to drive durable growth, strong cash flow, and shareholder returns. Turning to our Q4 outlook, I’d like to start by sharing a few key considerations. First, as a reminder, our Q4 net bookings, is impacted by timing, including releases of our full game and content offerings in the prior year. Second, we expect moderated growth in our EA SPORTS FC franchise as we lap record prior year performance. For the full year, we now expect EA SPORTS FC net bookings, to grow mid-to-high single digits, excluding FX. Third, we continue to take a measured approach to Apex Legends in its largest quarter of the year, as we introduce new modes of play and content offerings.

And finally, we expect impact from FX to be minimal, as the benefit from more favorable currency exchange rates, is offset by hedging gains from the prior year. As a result, we expect net bookings of $1.625 billion to $1.925 billion, down 16% to down 1% year-over-year, including approximately eight points of impact from the timing noted earlier. We expect GAAP net revenue of $1.625 billion to $1.925 billion and cost of revenue of $360 million to $410 million. We expect operating expenses of $1.125 billion to $1.205 billion, including a $70 million impairment charge of certain acquisition-related intangible assets. This results in GAAP earnings per share of $0.20 to $0.68 for the fourth quarter. Before handing back to Andrew, I’d like to take a moment to share some early perspective on our multiyear growth objectives.

EA is in an advantaged position to lead the future of interactive entertainment, with ongoing secular tailwinds and structural shifts within the industry, further amplifying our strategy. Our long-term financial framework is founded upon creating value for our shareholders by accelerating growth, delivering forward operating leverage, and increasing cash flow. In executing on our strategy, we expect to scale operating leverage through the following growth levers: 1) expanded player acquisition, engagement, and retention 2) highly accretive digital and live services 3) blockbuster new releases from our development pipeline, alongside compounding growth across our core franchises, and 4) discipline and focus on aligning our cost structure to invest in support of our strategic growth opportunities.

As we look ahead to FY ’25, and more specific guidance in our upcoming Q4 earnings call, I wanted to share some initial considerations. Assuming minimal impact to our results from FX, we expect low-single-digit net bookings growth, reflecting continued execution in our core businesses in a lighter release slate year. And excluding any impact from future share repurchases, we expect mid-to-high single-digit growth in underlying profitability. Looking beyond FY ’25, over the next couple of years, we expect our net bookings growth to accelerate, bolstered by our portfolio of industry-leading IP. Compounding growth within our core Sports franchises, new content and engaging experiences across our massive online communities, and iconic new releases like Battlefield, Sims, and other in-development titles, provide the inflection point that fuels net bookings growth and increases underlying profitability.

And we expect to continue to deliver meaningful operating leverage and drive increased cash flow conversion, even as we continue to invest, to support our strategic objectives. In summary, with our incredible talent, industry-leading IP and technology, global and growing communities of fans, and our focus and discipline around our strategic objectives, we are confident in our ability to continue to deliver on our long-term growth commitments and drive value for our players and for our shareholders. I look forward to sharing more over the coming quarters. Now, I’ll hand it back to Andrew.

Andrew Wilson: Thanks, Stuart. I am inspired by the opportunities ahead, as we continue to execute our long-term strategy. Our mission to inspire the world to play is evolving and expanding beyond the traditional bounds of play. Technological advancements are powering creativity and innovation, transforming what we can deliver. We are positioned to bring bigger, broader games and experiences to an even larger global audience in the coming years. Our awesome teams, industry leading technology, world-class IP, and global network of players position EA as a leader of the future of entertainment. Now, Stuart and I are here for your questions.

Katie Burke: Thank you. Brianna, we’re ready for our first question.

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Andrew Uerkwitz with Jefferies. Please go ahead.

Andrew Uerkwitz: Thanks for taking my questions. One tactical, one long-term. On the tactical one, it looks like the fourth quarter and full year guidance ranges, are pretty wide relative, to what you normally do. Just curious, one, if that’s correct, and two, why is that when it seems like a lot of live services is outperforming?

Stuart Canfield: Andrew, this is Stuart. I’ll take that. Yes, first of all, the range, as we look forward, we’ll continue to be broader, in this case, in the quarter, in part for two reasons. One, it’s a more dynamic quarter for us, as you referenced, on our core live services. And the range is that, it reflects the both strength and opportunity we see. So, we’re slapping a record World Cup comp for FC, and also is a fiscal high quarter for Apex. The second part, I’d also flag is that, as a reminder on the prepared remarks, is that we have eight points of headwind as well from timing of content released in the prior year. So, hence, the spread between the top and the bottom, is based around the biggest dynamic services we have in the quarter, particularly FC and Apex.

Andrew Uerkwitz: Got it. That’s helpful. And then, I appreciate you giving the color on the forward years. On the operating leverage, could you just maybe, walk us through a little bit, or give us additional color on the primary drivers there? Is that more live services from games, like Sims or Escape eventually? Or is that just naturally operating leverage from the fact you guys don’t capitalize costs? Just kind of help us out, understand that dynamic a little bit better. I appreciate it? Thank you.

Andrew Wilson: Yes, let me start with this. Let’s take a look at sort of the business over the longer term. We’re laying out that overarching framework. It’s kind of grounded in three pieces, accelerating growth on the top line, expanding leverage on the bottom and increasing cash flow. We’re looking at that through a couple of different lenses. So one is, we do expect to continue to drive compounding growth across our core franchises. Plus, we expect to release from our pipeline that’s been in development. And both of those will be bolstered, by expanded player acquisition, engagement and retention. As you know, our live services make up almost three quarters of our business, which highlights the evergreen nature of that business model and thus the ability to drive compounded growth, on those franchises through the future.

New releases are the second part and they’re an important lever for us, on that multi-year growth journey. And we’re really flagging, through the long-term journey. They’ll create some non-linearity in that growth, in terms of how we accelerate through the later years, depending on timing around that pipeline. Additional context would be that as we continue to drive through live service, and we see greater digital, we get far more accretion through that mix. We’re also continuing to be really focused around getting leverage and scale out of OpEx in terms of our cost structure to drive growth. So, we think about those four pieces, core compounding growth across our current core business and live services, a more digital nature around that drives accretion and scale.

Add to that the new releases that come through the pipeline, and ongoing management of costs, to ensure that we’re investing for the future will ultimately provide leverage over the long-term for us.

Andrew Uerkwitz: Got it. Thank you. I appreciate the color.

Katie Burke: Brianna, next question, please.

Operator: Our next question comes from Matthew Cost with Morgan Stanley.

Matthew Cost: Hi, everybody. Thanks for taking the question. One would just be on some recent changes we’ve seen on app store fees in Europe, for Apple specifically. I guess, any early learnings there, any reflection on the possibility that you could see outside to gross margins for your mobile game business, at least in Europe? Is that an option that you would be interested in? Since I know it’s an opt-in thing for game publishers. That’s point one, question one. Question two, just beyond college football, as we get a little bit closer to release, can you do anything to help scale the opportunity for everyone and sort of think through what is incremental versus, what might come from the existing Madden customer base? Thank you.

Andrew Wilson: Hi, Matt. So, I’ll quickly touch on the Apple one first. Yes, we’re also aware of the intentions to update the European app store tied to their fees. We’re still actively reviewing all of those updates and sort of working to understand potential implications to our business and any changes that may flow through from a gross margin perspective. As we gain more insight, understanding, we’ll be able to provide a more update sort of next quarter in terms of how that might map through for us and impact gross margin, but no updates, or reflection of that at this point.

Stuart Canfield: And on college football, our expectation is it will be additive. As we think about Madden, Madden is performing incredibly well this year. As we said in our prepared remarks, the biggest game, the biggest sports game in calendar year 2023, we’re seeing increased engagement in the game and increased monetization in Ultimate Team as part of that. The team is continuing to invest meaningfully into the modes of Madden and the expansion of Madden as a product and certainly as we look at the NFL broadly and the fan base continue to grow and the incredible season we’re having this year, our expectation is that we will invest behind Madden and grow Madden, and that what college football represents as a game that’s been 10 years in the waiting for our fans.

Is that there’s incredible amount of pent up demand and we expect that to be additive to the ecosystem. And over the broad course of time, the way our team thinks about this, is how do we really expand the football community in this country and internationally through a combination of both Madden and college that, we think will be both complementary in gameplay, but overall additive to the ecosystem.

Matthew Cost: Great, thank you.

Katie Burke: Thank you. Next question, please.

Operator: Our next question comes from [Chris Schull] with UBS.

Unidentified Analyst: Great, thanks for taking the questions. You mentioned in the press release that you’re prioritizing investment in the largest opportunities for multi-year growth. I appreciate you’re looking to drive growth across the portfolio, but which franchises in particular – do you see the most incremental opportunity, as you look out into fiscal ’25 and beyond? And then we’ve also seen some new developments and announcements from your peers around subscription gaming. Can you just remind us how you’re thinking, about the role of subscription gaming, to your business and what traction you’re seeing with EA Play and how do you balance making content available on your platform versus third-parties? Thanks.

Andrew Wilson: Yes, great question. Thank you. First and foremost, I would go back to as a core entertainment company, it is always important that, we are developing and investing in new IP, to grow the future pipeline opportunity, that optionality that Stuart referred to earlier. And we have the strongest pipeline, I think we’ve had in many, many years as we go into those out years in terms of both our core IP and new IP. If we look at the trailing 12-months, both in terms of engagement and monetization, what we do see however, is that the biggest games are these games that really entertain and engage massive online communities. And these are existing franchises that either evolve on a month-by-month cadence, or evolve with annual releases plus live services.

And so, as we think about the foundation of growth for our business, we think about FC. Again, this was the first year of FC branding. What we’ve spoken about in the past few quarters, is having that FC branding and partnering more closely with the core leagues in territory gives us more growth opportunities, than we believe we ever had before. It is building around Madden NFL and expanding the broader college football base, but it’s also investing in the Sims and in Apex and in Battlefield. And ultimately some of those as we go down through the next coming years. And so, while we will continue to invest meaningfully behind new IP, and we will be thoughtful and focused on those investments, we see significant opportunity based on how communities are coming together in games, around our biggest franchises, FC, Madden, Sims, Battlefield, Apex.

And we will work meaningfully, to expand those over the coming years.

Stuart Canfield: And then on subscription, remember we have been early in subscription as a company. We have EA Play as a subscription that exists across platforms. It is part of the Game Pass Ultimate service on Xbox Live as well. I think that we believe, as we look forward that subscription will be a meaningful part of our industry, over the course of time. It hasn’t really translated in the same way that a linear television or movie subscription has or a music subscription, just because of the nature of engagement in our content relative to those other mediums. However, as we think about the future, we do believe there is an opportunity to fundamentally disrupt how households consume content broadly. As we look at leaders in a space like Netflix and them leaning into games, as we listen to the performance of Warner Brothers’ games division and their conversation around how that might feed into their broader subscription over time.

We think we are in an incredibly strong position to continue to lead on subscription, at least as it relates with interactive, because of both the depth and the breadth of our portfolio, which as we look at our portfolio, we believe it is unrivaled in the industry, and spans across many genres, including sport, which of course is a meaningful driver of entertainment value in the coming years.

Unidentified Analyst: That’s very helpful. Thank you.

Katie Burke: Thank you, Chris. Briana, next question, please.

Operator: Our next question comes from the line of Eric Handler with ROTH MKM.

Eric Handler: Good afternoon. Thank you for the question. Andrew, I wonder, if you have you ever thought about taking all of your essentially siloed sport communities and thinking about a way to bring them all together so that hockey fans, can talk to soccer fans, or football fans talk to UFC fans. And that way, you can build a huge community around that, where you could then layer in various highlight clips of real-world games and e-commerce, just sort of create, for lack of a better word, a metaverse, given how massive your community is?

Andrew Wilson: Incredible question, and also very insightful. And certainly, as you think about our network, which is well over 700 million right now, about half of that interact with our sports games. And so, as we think about our sports community, it is almost certainly one of the largest collective sports communities on the planet. As we think about EA SPORTS as a brand, we know from brand research around the world. It’s also one of the most recognizable and recognized sports brands. And as we think about emerging consumer generations, Gen Z and Gen Alpha, for many of them, their first relationship with sports comes through their relationship with the leagues and teams and sports they love, as a result of their interaction with their EA SPORTS products.

And so, what we know to be true is right now, as we think about our players. They spend on average about 90 minutes a session inside of one of our games. They then leave that game experience, where they’ve been deeply connected with their core friend unit, and they go and they talk about that experience on another platform. And then they go and create content about, that experience on yet another platform, and then finally, they go and watch that content on another platform. We do believe, we have a meaningful opportunity over the coming years to actually harness the power of that community, both inside and outside of our games, which is really the third pillar of our core strategy, and will be led by our EA SPORTS brand. So again, a super insightful question, nothing to announce today, but you should imagine that we see the very same thing.

We see an incredible opportunity by virtue of the breadth and depth of our sports portfolio, the breadth and depth of our sports relationships around the world, which I think are unmatched on a global basis, and certainly the size and magnitude of our sports gaming community, and the relationship they have with their favorite sports through us, but more importantly, the connections that they’re making with their friends, as a result of the time they spend with us. We think there’s a meaningful opportunity for us to expand on that, both inside the game, and we’re seeing that already, in our core products like FC and Madden, but also outside the game. And some of the starting points of that, are some of the deals that we’ve done with our licensed partners that do allow us to bring highlights, and other non-gaming content into the ecosystem broadly.

So, best I can say is watch this space.

Eric Handler: Thanks. And just as a quick follow-up, I wonder if you could just give a little bit of an update about sort of the state of the mobile industry, sort of what you’re seeing. Did mobile bookings were up modestly in the quarter. Do you think you’ve reached stabilization and you can expand from here? What are you seeing in the market?

Stuart Canfield: All right. I’ll – give a quick position on the financial framing that you just talked to. So yes, sort of in Q3, we actually tracked up 5% at constant currency when you exclude lapping of Apex from the prior year. We did see improvement sequentially. We saw double-digit improvement between Q2 and Q3. Our overall mobile portfolio, as you talked to, you saw the strength that we called out in particular around FC within that mix. We saw double-digit growth year-on-year, as we even entered a World Cup comp. In terms of how we think about mobile, as we move forward. I think we’ve been very clear on the strategy that, we’re focused on, which continues to lean into the success we’ve seen around FC and our broader ecosystems as both an entry point, and expansion for us in terms of players.

We’ll continue to lean and focus on those across our biggest opportunities through whether it’s FC, Madden, Sims, Battlefield and beyond. Second part is we continue to look for the biggest hits in IP and opportunities that can stand alone on mobile itself. Wrapped inside of an incredibly disciplined approach as we’ve focused on driving profitability across this platform to some of our more historic levels versus the past. So, those are three kind of profiles we expect. So yes, quarter-over-quarter sequential improvement, strength overall year-on-year with plus 5% and a diligent strategy and approach from us around our biggest opportunities on ecosystems, IP within the platform with mobile itself, and obviously disciplined P&L performance around the business.

Eric Handler: Thank you very much.

Katie Burke: Thank you, Eric. Operator, next question, please.

Operator: Our next question comes from Brian Pitz with BMO Capital Market.

Brian Pitz: Thanks for the question. Andrew, we’ve seen reports that sports leagues like the NFL and NBA considering ownership stakes in the likes of ESPN. Obviously, EA has one of the most valuable audiences in sports. Just curious, are there opportunities for EA to partner more closely with these leagues? And also from another dimension, I guess, how do you think about this opportunity as the NFL and other leagues embrace sports betting? Is there a real money gaming opportunity? I know the industry has looked at it in the past, but I think we’re in a new place now going forward? Thanks.

Andrew Wilson: Yes, again, great questions. I think the relationship between the NFL and the NBA and the likes of ESPN, is super interesting to us. I would think about this on two vectors. One, we have incredible relationships with our sports leagues. Many of them we’ve had for over 30 years and they have evolved with us, and we have evolved with them. A big part of what we have done through the rebrand of FC, is actually gotten significantly closer to our European Football League partners. And much of what we’ve done as we have renewed and bolstered those relationships for the next decade, and beyond is really think about, how we can come together in service of fans more broadly, not just fans in the context of interactive gameplay.

And part of what you’re seeing here as we start to bring highlights into our games and really think about FC as a platform, is kind of testament to that evolution of the nature of our relationship. I do believe that we have the opportunity to do the same, with the NFL and the NBA and you should imagine that we’re working very closely with all of our league partners, NHL, UFC, F1, and we see a tremendous opportunity to really think about, EA SPORTS as a platform for engagement, and how we might grow in service of our fans, with our league partners. I would also highlight we’ve had a relationship with ESPN for the best part of 30 years and have worked very closely with them and continue to work very closely with ESPN and the Walt Disney Company as we think about the future of entertainment broadly.

And so, we feel very good about our position in this future. We feel very good about the connection we have with the fans. We feel very good about our opportunity to grow our business as a result of this evolved service opportunity we have with them.

Brian Pitz: Thank you.

Katie Burke: Operator, next question please.

Operator: Our next question comes from the line of Andrew Marok with Raymond James.

Andrew Marok: Thanks for taking my questions. I wanted to dig into a couple of things on the recent Apex event this last month with FINAL FANTASY. So commentary sounded really good in the prepared remarks, but with the dynamic that versus prior collection events, it was maybe less expensive for the first few items, but more expensive to complete. How did that affect payer dynamics and what are some of the key learnings coming out of that event for you guys?

Andrew Wilson: I guess – at a macro level we’re really, really happy with that event. It was very well received by the community and it actually performed incredibly well. And certainly as we were in what was a very, very competitive quarter, there were a couple of competitive titles that, actually did some really unique and interesting things in the quarter. And so, the performance of Apex with that collection event in the context of some of these other unique things happening in the competitive landscape. We think shows tremendous promise for how the franchise continues into Season 20 and beyond. I’ve spent a lot of time with the team lately. The team are very committed to the game. They’re very committed to the community.

They’re working diligently to offer new types of content and new types of mechanics into the game. And they’ve put tools in place to test those meaningfully to ensure that, both they’re enhancing gameplay. But also that they’re fulfilling the needs and motivations of the community. And I’m very encouraged by what we saw out of that collection event. And I’m very encouraged as we go into Season 20 and all the new and interesting things that the team’s doing.

Andrew Marok: Great. Thank you. You kind of led into what was going to be the next part of my question. So, we’ve seen Apex do some smaller crossover events in the past, but how did the FINAL FANTASY partnership specifically kind of come about? And with the increasing intent kind of in the rest of the states, as you hinted at for a lot of these cross media partnerships, how much room and intent, is there for more of these more substantial crossovers within Apex?

Andrew Wilson: Yes, I think we’re still learning and the team is now thinking through, what that might look like. Remember, Apex is this incredible game that has attracted hundreds of millions of people to play. That’s tremendous retention in its core. And underneath that core gameplay, which is incredible and what Respawn is known for, is also tremendously deep lore about who these characters are, where these characters come from, and how those characters interact in the world. And so, we have to be very thoughtful about any brand crossovers that we do, to make sure that we’re not impeding on the authenticity of the characters or the game in any way. What I think the Final Fantasy crossover did was actually open our eyes to the kinds of things that are possible, and the kind of things that will be super well received by our core fan base and new fans alike.

And how that lines up with the core law of the game. And so I would expect that we have more opportunities to do this in the future. But I would also expect that the team will continue to protect both the core game play, the core character set and the core law in the world, what this event does show is we have probably more ability to do things in that direction than we may have thought previously.

Katie Burke: Thank you. Operator, our last question, please.

Operator: Our last question comes from the line of Mike Hickey with Benchmark Company.

Michael Hickey: First question is kind of a challenge, Andrew, because it hasn’t been announced that we obviously have a fair amount of evidence that the switch to, from Nintendo should come out this year. And from what we know, it’s going to be a bigger display, more horsepower. It seems like it is something a platform that would better lend itself to your game. So in as much as you can sort of talk about an opportunity that’s not beneficially announced. Just curious if you think you can have more success on that sort of platform that seems better geared towards your games? The second one is sort of, it looks like ’25 is not calling an investment year, but most of the growth here is driven by your core games and Live Services.

But you look at your longer-term pipeline, you think about Battlefield, Mass Effect, Star Wars, obviously, you’ve been great in the action genre. I think you’re still developing a shooter from Respawn as well. [10 Street] to play maybe user-generated content, licensed properties like Ironman, Black Panther, I mean all of those seem feasible by fiscal ’27. So just sort of curious, I know you kind of talked about your longer-term growth opportunity in near term, you focused on leverage, but do you think you’re sort of in a position here in the next 2 years to sort of accelerate your top line growth just given how substantial your pipeline appears to be?

Andrew Wilson: Yes. A lot there, and you’re a little quiet at the beginning, but I think what you’re asking or was suggesting there has been some rumors that Nintendo was doing a new console, and to the extent that I’m able to comment on things that are not yet announced, do I think that might benefit our company and our portfolio? Again, I can absolutely not comment on anything that has not been announced or acknowledge it in any way. What I would say, though, is, to the extent that platforms over the course of the last 20 years have come out and offered improved CPU, GPU, memory, battery life, screen resolution, to the extent those things have happened, where we’re able to deliver more immersion for our players, particularly around our biggest franchises like FC, like Madden, like Battlefield, like Apex that has typically been very good for our business.

Our players’ ability to really experience our games at the highest level has typically worked out very well for us. And so without commenting at all on anything around Nintendo or the Switch, I would just say. New platforms are good for us, where new platforms offer improved CPU, GPU, memory, battery life, screen resolution that typically is a plus for our particular portfolio of games and the community that plays them.

Stuart Canfield: Mike, just to kind of tackle your second question. Let’s take ’25 first, a second, and I’ll build it back into the longer-term answer I gave before, and we prepared remarks on as well. So first on ’25. So I think the key here is we expect growth in our core business. We’re 73% Live Service and obviously have a consistent Full Game Sports release slate, plus we’ve talked to College coming in the summer next year in 2024. Second, we do have a lighter release slate, which obviously comps to a Star Wars launch and a more expansive sports like where we saw 8 titles released this year. And we’ve called out also that Battlefield is not in our FY ’25 outlook, third, we continue to drive leverage. And I’ll just point you to your question around sort of an investment year.

You can see sort of by the underlying profitability range that we are still getting scale and leverage by virtue of efficiencies in the business. But also continue to resource and reallocate against some of our bigger growth opportunities. The last one, obviously is just a reminder, we continue to expense costs. So we continue to build into that acceleration that flows into the longer term beyond FY ’25 that will be highly beneficial we think of operating leverage to some of the questions we’ve had earlier. So you kind of put that together. So FY ’25, obviously a core business growth. We’ll talk more about the details in our Q4 call, lighter slate ongoing scale and leverage from the core business itself and obviously, we expense as we go from an investment perspective.

We do expect to see for all the titles in terms of new releases, plus ongoing growth in our core business that we do believe we continue to get accretion and long-term growth and incremental cash flow that accelerates through those following years to the comments we laid out earlier.

Andrew Wilson: Okay. Thank you all for being here, and thank you for your great questions, really good questions today. I want to extend my deepest appreciation to our teams for their passion, their hard work and commitment in delivering incredible interactive entertainment to our growing global communities. And to close, I’d say, we’re confident in our ability to deliver value through our accelerated growth, forward operating leverage and increased cash flow over the longer term. We look forward to updating you next quarter on our fiscal year results on May 7. And before we sign off, it would be remiss of me if I didn’t congratulate our local Bay Area team, the 49ers for making the Super Bowl hell of a game on Sunday, good luck against the Chiefs in Las Vegas, Go Niners.

Operator: That concludes today’s meeting. Thank you all for joining. You may now disconnect.