Good afternoon. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Electronic Arts Second Quarter Fiscal Year 2025 Earnings Conference Call. I would now like to turn the conference over to Mr. Andrew Uerkwitz, Vice President, Investor Relations. Please go ahead..

Thank you. Welcome to EA’s Second Quarter Fiscal Year 2025 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 third quarter fiscal year 2025 earnings call is scheduled for February 4th, 2025. 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, October 29th, 2024, and disclaims any duty to update them.

During this call, the financial metrics, with the exception of free cash flow and non-GAAP operating margin, will be presented on a GAAP basis. 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 Wilson.

Inquisition. Early critic scores are strong and reflect the high quality, depth, and detail in this year’s action-packed adventure. We expect Dragon Age to be a great example of how our blockbuster storytelling engages and connects fans in truly unique ways.

Looking ahead, I’m excited about what we are building towards over the next 6, 12 and 18 months. You should expect more key developments and news around our massive online communities including Battlefield and skate in the coming quarters.

Our Q2 results represent momentum in our business as we continue to execute our strategy to drive sustainable long-term growth built across the engagement modalities of play, create, watch and connect. Now, let me turn the call over to Stuart for a deeper look into this quarter and our business, overall..

The Veilguard launch this week, and our partner title, slated to launch in Q4. Turning to our FY25 GAAP outlook, we are raising net revenue guidance to $7.4 billion to $7.7 billion. We expect cost of revenue to be $1.53 billion to $1.56 billion.

We now expect operating expenses to be approximately $4.445 billion to $4.515 billion, up 3% to 4% year-over-year. As a result, we expect GAAP operating margin to be 19.3% to 21.1%. We expect non-GAAP operating margin to be 30.7% to 32.1%.

The impact from change in deferred net revenue is expected to be approximately 90 basis points to 80 basis points This results in a revised earnings per share of $3.82 to $4.33. We are also increasing our operating cash flow guidance to $2.075 billion to $2.275 billion. Capital expenditures now are expected to be $225 million.

As a result, our free cash flow guidance of $1.85 billion to $2.05 billion remains unchanged. As a reminder, we had a $150 million cash tax benefit in the prior year. If rates remain unchanged from today, we expect minimal impact to net bookings from FX. For more information on the impact of FX movements, please refer to our earnings slides.

Turning to Q3, we expect net bookings of $2.4 billion to $2.55 billion, up 1% to up 8% year-over-year, largely driven by the launch of Dragon Age and continued growth in our EA SPORTS FC franchise. We expect the performance of our catalog and the impact from sunset mobile titles to be a combined headwind of approximately 3%.

We expect net revenue of $1.875 billion to $2.025 billion, cost of revenue to be $450 million to $480 million, and operating expenses of approximately $1.1 billion to $1.15 billion, resulting in earnings per share of $0.85 to $1.02.

Before I turn the call over to Andrew, I want to take a moment to reiterate our confidence in our long-term financial framework, which we first introduced earlier this year and expanded upon during our Investor Day.

Exiting the first half of fiscal year 2025, we have strong momentum, enabling us to raise our full year guidance, while also building conviction in our ability to significantly outperform the market through FY27 for net bookings growth.

And, as we drive increased scale in our top-line, we expect material margin expansion from FY25 through FY27, even as we continue to invest in the future. Our robust framework for long-term value creation remains strong and we are dedicated to executing the strategic priorities and initiatives presented at our Investor Day.

In closing, I also want to take a quick moment to thank those of you who joined us -- in person and via livestream - for our Investor Day last month. We appreciate your support in our journey as we lead the future of entertainment..

In Q2 we delivered multiple high quality launches and meaningful additions to our live services that drove great strength and momentum across our business. This all means incredible things to come, as we execute across our long-term strategy.

As players increasingly embrace games and experiences to play, create, watch, and connect, we have an incredible opportunity to build and grow more fully connected platforms that deliver more value and less friction for fans everywhere. We are building for this future, today.

Our incredible teams, utilizing cutting edge technology, continues to push the depth and breadth of what is possible in entertainment. As such, we are well-positioned -- in service of our people, players, communities, and stockholders to seize our biggest opportunities, and to grow as a global leader in entertainment.

And now, Stuart and I are ready to take your questions..

Thank you. We will now begin our question-and-answer session. [Operator Instructions] Your first question comes from the line of Colin Sebastian with Baird..

Great. Thanks and good afternoon. The growth in American football, obviously very impressive, well done with college football. I guess as one sort of follow-up, Andrew to your plans for that.

How do you capture that momentum on a long-term basis? Obviously, there's a lot of content involved in community but any more details on the product road map there that give us a little more visibility into potentially growing that on a year-over-year sustained level? And as a follow-up on the launch plans for the EA SPORTS app, I guess the broader opportunities in connecting video games with sports data, sports information and live sports, how should we think about the cadence of the rollout of those services? And how much maybe partnerships will play a role with that? Thank you very much..

Okay. Thank you. There's a lot in there, but great questions. First, on American football, this has been a very thoughtful, deliberate calculated rollout plan by our EA SPORTS team.

Again, as we talked about in the prepared remarks, A big part of the evolution of our business has moved away from a product launch on an annualized basis or even a seasoned bound service, as it relates to the NFL season and really moving the Madden franchise into more of a football fan platform that serves all American football fans in the context of the NFL for 365 days a year.

And we've seen our teams lean into real-world events, and we've seen them build with the community, community-driven events that's allowed our fans to engage with the sport they love 365 days a year.

But a few years ago, as we started to look at the potential to bring College Football back, we knew the objective wasn't to replace one game with another game, but to actually really lean into the community of football fans more broadly and build a symbiotic relationship between both Madden and College.

And you've seen that play out even this season with the MVP bundle, which was one of the biggest selling single products in the packaged goods realm in the industry this year.

But certainly, as we start to think about team builder across the franchises, as we think about Ultimate Team across the franchises, what the team is doing now is really thinking about the long-term future of this incredibly engaged football fan community across both NFL and College.

We have a full team working on NFL on a go-forward basis with a view to be creative and innovative and grow that business. We have a full team working on College on a go-forward basis with the objective to build and grow that business.

But the bigger opportunity for us is really to become kind of the preeminent football fan platform in this country and do that across both NFL and College and the EA SPORTS teams are working in sync with our partners, both with the NFL, the schools, the conferences and the players in college to do that on a go-forward basis in the future.

We've grown the business this year. We've more than doubled the players in the ecosystem, 25% of those players are new -- are bringing back lapsed players into our football fan community. Engagement is up meaningfully across the two products, 140% growth in engagement. And so as we look at this, this is a business firing on all cylinders.

This is a business where our teams are really supporting the fan community better than most other sports, I think, in the industry and we are really excited by the growth that we'll be able to drive in this both in the context of play on the field, but also in the context of social engagement beyond the field of play.

For the EA SPORTS app, to get to your second part of your question again, we think this is a really exciting opportunity for us. We have hundreds of millions of sports fans that come together every day and play games in the context of FC and Madden and College and Hockey and UFC and F1 and others.

And what they do right after they leave our game is they go to another platform, and they chat about the game they just had or they go to another platform, and they create content around the game they just played or they go to another platform, and they watch video of that content that they just created or that their friends created.

We think we have an incredible opportunity to actually bring all of those things together for our fan community and remove a great deal of friction, as it relates to that broader fan experience beyond the bounds of our games.

The fact that we have more license partners than any other entity in the world in the connect of the real world of sport also allows us to do very interesting things that may be not possible for the traditional purveyors of sport when we think about bringing real-world sports content, real world sports highlights, real-world sports commentary into that ecosystem and allowing our fans, our existing hundred millions of fans to slam together the content they create with content from the real world of sport.

And we expect that, that will actually attract more sports fans that may not even play our game today in the years ahead. We're starting with Spain. We have an incredible partnership with La Liga.

And we've talked about that at Investor Day that allows us to bring a great deal of real-world content together with the virtual content that is born out of our game.

We have -- as I said, we have more sports partnerships than any other entity in the world and our expectations that we'll continue to work with those partners, on a global basis to really enrich the sports fan experience, not just for Global Football, but for American football and every other major sport in the world.

The rollout will be on a kind of a phase-by-phase basis will take each step as an opportunity to serve more fans, but more importantly learn from those fans, what features that are most compelling. What we are doing is cutting edge. It is not been done before where you bring together the totality of the sports fan experience across real and virtual.

That's an exciting opportunity for us, but it also means we'll have to be very thoughtful and deliberate as we roll out over the course of time..

Great. Thanks Andrew..

Your next question comes from the line of Eric Handler from ROTH Capital. Please go ahead..

Good afternoon. Thanks for the question.

I wonder if you'd be willing to sort of break down your live services in terms of as you're thinking about guidance for this year between will live services for sports, should we think about that up being double digits? And what does that mean for your non-sports business?.

Eric, Stuart. Let me just let me frame a couple of things in. I think, the most important on live services as part of raising our guidance obviously, we passed through H1 before outperformance, which obviously incorporate elements of live service, as we started and launched our over EA SPORTS franchise.

We have said that we will continue to see live service growth be mid-single digits through the back half of the year. And you should think that's driven by a couple of key elements. One, we've stated we have two live services across both College and NFL, and we do expect our business to continue to reach over $1 billion in net bookings.

We obviously expect growth in our FC franchise over a record prior year in FY '24, which incorporates our life service business as well. And we have obviously launched a full game that are different to the prior year [pagination that title] (ph) in Q4.

And despite the pragmatism we put inside of Apex, we do expect that the holistic overall business will remain at mid-single digits with obviously a heavier mix on sports, and less so on non-sports or entertainment, but net back into a growth position for the year..

Okay. And then just as a follow-up. So as you take the learnings for season 22, I believe for Apex.

How are you thinking about the next season and what you progress with in terms of the battle passes and any other types of experiences in the season?.

Yes. First of all, let's talk a little about Q2. I think we tried to outline that post giving guidance previously as we talked about Investor Day. We have changed fundamentally as part of the ongoing innovation are part of the service and how we reinvigorate and bring deeper feature set into the product as we move forward.

So we did make meaningful changes. We split the Battle Pass into 2. We actually extended the freemium entry point inside of that first period, that first split as we call out. We launched the premium aspect actually on our Investor Day, and we saw meaningful conversion get back to prior levels on the way through.

We have seen a lower player engagement base of this part of the cycle and we have reflected that all the way through the rest of the year. So Andrew's earlier comments, we have an incredible IP and game inside of Apex.

We continue to invest behind making sure we have meaningful change and systemic change inside the product, as we look to the future and you expect us to see that we can start to grow the business back as we get through the latter parts of early 2016 and beyond..

I might add a little something there as we think about Apex. I think again, along with my prepared remarks, but just a little more context, I think what we've come to understand is we look at these large-scale live service-driven free-to-play businesses, particularly with our experience in Asia and in the West.

And what we have observed over the last 15 years or 20 years, is really two things. One is that once you reach a level of scale by virtue of a quality game with incredible mechanic, innovation, creativity and a large global player base. It is very, very difficult to displace them from the top-tier of games played in the world.

But what is equally true is that the level of innovation and creativity has to continue to scale with the community over time to ensure you can maintain growth and not just maintain size. And so as you think about us in Apex, we are in an incredibly good position given that we have reached that very top tier.

We do have an incredibly strong brand a really strong mechanic and a very committed global community. As we go forward, we'll really be investing on two vectors. The first is in the growth of our season oriented content, and what you've seen from us over the last few seasons, is progressively bigger season drops each time.

Very high quality has driven very high sentiment amongst our player base, and we are adding to the level of innovation and creativity on a season-by-season basis.

But to Stuart's point, as we think about step function growth over the course of time, what we've also observed is a need for kind of meaningful systematic innovation in the game that fundamentally changes the way the game plays more broadly and our teams are working on that as well.

And so we do have a moment right now where we are managing the current trajectory of the business, but we believe by virtue of the strength of the brand, the size of the global community, the position we hold in the top-tier of these free-to-play live service games that will be able to return that to growth in the business side over the course of time..

Appreciate that answer. Thanks..

Your next question comes from the line of Andrew Marok from Raymond James. Please go ahead..

Thanks for taking my question. Maybe building off the back of that last explanation there.

As you're going through the systematic rethink of Apex, how much of this can maybe be done fixing a part while the car is in motion? Or is this something that may require like a whole studs up rebuild and something like an Apex 2.0 might be the way to go about it rather than incremental change?.

It's a really good question and probably beyond the scope of this conversation. But what I would say is that typically, what we have seen -- again in the context of live service driven games at scale is the version 2 thing has almost never been as successful as the version 1 thing.

And so actually, the objective right now is to ensure that we are continuing to support the global player base that we have and deliver the new innovative creative content on a season-by-season basis, as well as build these other things, but build them in a way that players do not have to give up the progress that they've made or the investment that they have put into the existing ecosystem.

Anytime we call a global player community to have to choose between the investments they've made to-date and future innovation creativity, that's never a good place to put our community in.

And so our objective will be to continue to innovate in the core experience, and you are seeing that from season-to-season now as our seasons get progressively bigger, and we're changing kind of key modalities at play within those seasons and then build additional opportunities for engagement in different modalities of play beyond what the current core mechanic delivers.

And we think we can do those two things together, and we don't believe we have to separate the experience in order to do so. But again, the team is working through this now..

Great. Thank you on that. And then maybe one quick one on Veilguard, if I could. I have seen some very strong reviews so far. But as far as you can tell, what drives that kind of breakout of success we've seen in some single-player fantasy games in the last couple of years? And how do you feel that Veilguard might compare along those lines? Thank you..

Inquisition one Game of the Year and was a very strong performer for us in the conduct of our business. This is entertainment. And so while much of our business has moved to live service moment-to-moment, deliver innovation and creativity for a deeply engaged community over the course of time.

This opportunity to bring in incredibly high-quality, creative storytelling set in amazing world with rich characters living out those stories, you are able to capture that moment in entertainment success almost certainly follows.

And we see that in the context of movies, and we're seeing in the context of TV seasons, and we see in the context of video games. When we think about what we have with Veilguard right now, we have a storage studio in BioWare. We have a storied IP and Dragon Age.

We have a team that took extra time to make sure the world was rich and the characters were interesting and the story was compelling I think we're going into a market that has limited competition for this category of game given some of the moves that have happened across the broader industry.

And so while I think it's too early to predict the outcome the critical reviews have been incredibly strong. The team feels really energized by what they have delivered. And my sense is that yes, it has breakout capabilities..

Great. Thank you..

Andrew, just to add for that. Just on the back of Andrew's comments, obviously we feel with positioning probably well for the purpose of how we think about the back half of the year, we maintained our original assumptions for the game at this point..

Your next question comes from the line of Chris Schoell from UBS. Please go ahead..

Great. Thank you very much. Stuart, using the midpoint of your guidance range, I believe, implies a bookings acceleration in fiscal 4Q relative to fiscal 3Q. Can you just help us think through the drivers there? I recognize there is a partner title, but any incremental color would be helpful. And then maybe just one on the football franchise.

I appreciate the stats you gave on a total football basis. But any further details you can give regarding College football's impact on Madden to-date? And how do you expect that dynamic to evolve going forward? Thank you..

So first of all, so as we outlined before in the macro framework, we obviously passed through H1 performance through the full year, which means by implication, we're expecting the balance here to deliver on our expectations with some puts and takes on key properties.

As you think about the quarterly phasing is always important to remember, we have differences between release slates, obviously seasonality and title launches would change some of that mix and some of those comparable year-on-year look back in past quarters where it's World Cup.

18 months ago, we have a new title launch in Q4 this year, we didn't have before. So have to take you through some of the puts and takes around the phasing between Q3 and Q4 as we see that occur. On the overall American football business, we feel incredibly convicted that performance that we saw inside of Q2.

Obviously, to a somewhat Andrew's commentary earlier, we had strong performance from both NPV College and obviously, the overall broader exist of American football.

And we expect both of that to -- both of the properties to still continue as part existed through the back half of the year by virtue of the raised midpoint that we put inside the guidance..

Great. Thank you very much..

Your last question comes from the line of Mr. Doug Creutz from TD Cowen. Please go ahead..

Inquisition earlier, and I think it is fair to say that since then, BioWare has had a somewhat challenging decade with some -- a lot of turnover management. And some titles that didn't work as well as they would have liked.

What have you done? What is [Lora] (ph) done over the past several years to put BioWare into a position to ship a strong title like Veilguard? And what does this say about the future of BioWare from here?.

The Veilguard..

Great. Thank you..

Okay. Well, thank you all for being here, and thank you for your excellent questions. It's been a great opportunity to continue to talk through the progress we are making on the strategic vision we shared at Investor Day.

It's truly an inspiring time for our company, and we're focused more than ever as we continue to lean into our biggest opportunities. We're in an extraordinary position to continue growing, innovating and leading for the future of entertainment. Thank you all, and speak to you next quarter..

That concludes today's meeting. Thank you all for joining. You may now disconnect..